•  
  •  
 

Abstract

This research aims to develop an Environmental, Social, and Governance (ESG) practices model and index based on sustainable finance regulation from a Management Control System Four Levers of Control (MCS-LoC) perspective. The ESG index was developed by utilizing content analysis of information disclosure in annual and sustainability reports of ten non-financial industry sectors listed in the Indonesia Stock Exchange from 2015 to 2022 (640 observations). Subsequently, the effect of the ESG Index on Investment Efficiency (IE) was tested with the moderating role of Interactive Control (INTR). The results indicate that companies are in the second stage of the sustainable business transition, characterized by initiatives to formulate strategies and risk governance. ESG practices do not affect IE, but there is a moderating role (strengthening) of INTR in the general scenario. Additionally, INTR moderates the effect of Belief Systems but does not moderate the influence of Boundary Systems on IE. Conversely, Diagnostics Control negatively moderates (weakening) in the underinvestment scenario. In the overinvestment scenario, INTR negatively moderates the relationship between ESG practices and IE. This research successfully demonstrates the transformative potential of MCS-LoC in ESG practices and can enhance IE. The findings have practical implications for the non-financial industry and provide input for regulators.

Bahasa Abstract

Penelitian ini bertujuan untuk mengembangkan model praktik dan indeks Lingkungan, Sosial dan Governansi (ESG) berdasarkan perspektif Sistem Pengendalian Manajemen Empat Tuas (MCS-LoC). Model praktik dan Index ESG dikembangkan berdasarkan literatur dan regulasi keuangan berkelanjutan menggunakan analisis konten pengungkapan informasi dalam laporan tahunan dan laporan keberlanjutan perusahaan sepuluh sektor industri non-keuangan dari tahun 2015 hingga 2022 (640 observasi). Selanjutnya, Index ESG diuji pengaruhnya terhadap Efisiensi Investasi (IE) dengan peran moderasi Sistem Pengendalian Interaktif (INTR). Hasil penelitian menunjukan perusahaan berada pada tahap kedua transisi bisnis berkelanjutan (BST2.0), ditandai dengan inisiatif memformulasikan strategi dan


governansi risiko. Praktik ESG tidak berpengaruh terhadap IE pada skenario umum, namun terdapat peran moderasi positif INTR. Selain itu, INTR juga memoderasi positif dalam pengaruh Sistem Keyakinan, namun tidak memoderasi dari pengaruh Sistem Batasan terhadap IE. Sebaliknya dengan Diagnostik Kontrol terdapat peran moderasi negatif (memperlemah) pada skenario underinvestment. Begitu juga pada skenario overinvestment, INTR memoderasi negatif dalam hubungan praktik ESG terhadap IE. Penelitian ini berhasil membuktikan potensi transformatif Sistem Pengendalian Manajemen Empat Tuas dalam praktik ESG, dan dapat meningkatkan Efisiensi Investasi (IE). Hasil penelitian memberi implikasi praktik bagi sektor industri nonkeuangan untuk percepatan transisi ke sistem ekonomi rendah karbon serta masukan bagi regulator.

References

Adeneye, Y., I. Kammoun, and S. Wahab. 2022. Capital Structure and Speed of Adjustment: The Impact of Environmental, Social and Governance (ESG) Performance. Sustainability Accounting Management and Policy Journal, 14 (5), 945-977. https://doi.org/10.1108/sampj-01-2022-0060

Al-Hiyari, A., A. I. Ismail, M.C. Kolsi, and O. H., Kehinde. 2022. Environmental, Social and Governance (ESG) and Firm Investment Efficiency in Emerging Markets: The Interaction Effect of Board Cultural Diversity. Corporate Governance, 23 (3), 650–673.

Allee, D. K., Chuong Do, and F. G. Raymundo. 2022. Principle Component Analysis and Factor Analysis in Accounting Research. Journal of Financial Reporting, 7 (2), 1–39.

Anis, I. and E. R. Shauki. 2023. The Contingent-Fit of Contextual Factors, Sustainability Innovation, and Unit Business Performance: A Research Model and Empirical Evidence. International Journal of Contemporary Accounting, 5 (1). https://e journal.trisakti.ac.id/index.php/ijca/art icle/view/16773

Anis, I., and V. Avrillia, 2024. Analyzing Impact of ESG Principles on Performance: A Perspective from Sustainability Balanced Scorecard, Jurnal Akuntansi Keuangan Indonesia, 21 (1).

Anis, I. et al. 2023. The Sustainability Awareness of Banking Institutions in Indonesia and Its Implication on Profitability by the Mediating Role of Operational Efficiency. Asian Journal of Accounting Research, 8 (4), 356–372. https://doi.org/10.1108/AJAR-06-2022-0179/FULL/HTML

Anis, I. et al. 2024. Does Digital Transformation Affect Bank's Resilience? A Perspective Analysis Strategic IT Governance Competence 2.0 in Indonesian Commercial Banks. Global Digital Era, Social, Peace & Business Perspectives in Society. NCM Publishing House. ISBN: 978-625-98685-2-3.

Ansoff, I. H. 1965. Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion. McGraw-Hill: New York.

Aouadi, A., and S. Marsat. 2018. Do ESG Controversies Matter for Firm Value? Evidence from International Data. Journal of Business Ethics, 151 (4), 1027-1047.

Aras, G., N. Tezcan, and O. K. Furtuna. 2018. The Value Relevance of Banking Sector Multidimensional Corporate Sustainability Performance. Corporate Social Responsibility and Environmental Management, 25 (6), 1062–1073. https://doi.org/10.1002/csr.1520.

Arjalies., Diane-Laure., and J. Mundy. 2013. The Use of Management Control System to Manage CSR Strategy: A Levers of Control Perspective. Management Accounting Research.

Armitage, D., F. Berkes and N. Doubleday 2007. Adaptive Co-management: Collaboration, Learning, and Multilevel Governance. Vancouver: UBC Press.

Bank Indonesia. 2017. Peraturan Nomor 19/10/PBI/2017 Tahun 2017 Tentang Penerapan Anti Pencucian Uang Dan Pencegahan Pendanaan Terorisme Bagi Penyelenggara Jasa Sistem Pembayaran Selain Bank Dan Penyelenggara Kegiatan Usaha Penukaran Valuta Asing Bukan Bank. Departemen Komunikasi Bank Indonesia.

Battaglia, M., E. Passetti, L. Bianchi, M. Frey. 2016. Managing for Integration: A longitudinal Analysis of Management Control for Sustainability. Journal of Cleaner Production. http://dx.doi.org/10.1016/j.jclepro.2016.01.108.

Baum, J. R., and S. Wally. 2003. Strategic Decision Speed and Firm Performance. Strategic Management Journal, 24 (11), 1107–1129. https://doi.org/10.1002/SMJ.343

Berry, A. J. et al. 2009. Emerging Themes in Management Control: A Review of Recent Literature. British Accounting Review, 41 (1), 2–20.

Bloomberg. 2022. ESG may Surpass $41 Trillion Assets in 2022, but Not Without Challenges, Finds Bloomberg Intelligence. Accessed on https://www.bloomberg.com/company/press/esg-may-surpass

Bonacchi, M., and L. Rinaldi. 2007. DartBoards and Clovers as New Tools in Sustainability Planning and Control. Business Strategy and the Environment, 16 (7), 461-473.

Brown, J. and M. Fraser. 2006. Approaches and Perspectives in Social and Environmental Accounting: An Overview of the Conceptual Landscape. Business Strategy and the Environment, 15 (2), 103–117.

Brown, T. A., and M. T. Moore. 2012. Confirmatory Factor Analysis. In Handbook of Structural Equation Modeling, 361–379. The Guilford Press: New York.

Buritt, R., and Schaltegger, S. 2001. On the Interrelationship between Eco-efficiency and Operational Budgeting. Environmental Management and Health, 12 (2), 158-174.

Chen, R., S. El Ghoul, O. Guedhami, and H. Wang. 2014. Do State and Foreign Ownership Affect Investment Efficiency? Evidence from Privatizations, Journal of Corporate Finance.

Chenhall, R. 2003. Management Control Systems Design Within Its Organizational Context: Findings from Contingency-based Research and Directions for the Future. Accounting, Organizations and Society, 28 (2–3), 127–168.

Chenhall, R. H., and K. Langfield-Smith. 1988. The Relationship between Strategic Priorities, Management Technique, and Management Accounting: An Empirical Investigation Using A Systems Approach. Accounting, Organization, and Society, 23, (3) 243–264.

Chowdhury, J., R. Kumar, and D. Shome. 2016. Investment–Cash Flow Sensitivity under Changing Information Asymmetry. Journal of Banking & Finance, 62, 28–40.

Cook, K. A., A. M. Romi, D. Sanchez, and J. M. Sanchez. 2019. The Influence of Corporate Social Responsibility on Investment Efficiency and Innovation. Journal of Business Finance & Accounting, 46 (3), 494–537.

Dias-Sardinha, I., L. Reijnders, and P. Antunes. 2002. From Environmental Performance Evaluation to Eco-efficiency and Sustainability Balanced Scorecards. Environmental Quality Management, 12 (2), 51–64.

Drazin, R., and H. V. Andrew. 1985. Alternative Forms of Fit in Contingency Theory. Administrative Science Quarterly, 30 (4) ,514-539.

Dutta, S. K., and R. A. Lawson. 2009. Aligning Performance Evaluation and Reward System with Corporate Sustainability Goals. Cost Management, (November/December), 15–23.

Dyllick, T., and K. Muff. 2015. Clarifying the Meaning of Sustainable Business: Introducing a Typology from Business-as-Usual to True Business Sustainability. Organization and Environment, 1–19. https://doi.org/10.1177/1086026615575176

Eisenhardt, K. M. 1989. Making Fast Strategic Decisions in High-Velocity Environments. Academy of Management Journal, 27, 299–343.

El Ghoul, S., O. Guedhami, H. Kim, and K. Park. 2014. Corporate Environmental Responsibility and the Cost of Capital: International Evidence. Journal of Business Ethics, 1–27.

Ellili, N. 2022. Impact of ESG Disclosure and Financial Reporting Quality on Investment Efficiency. Corporate Governance, 22 (5), 1094–1111. https://doi.org/10.1108/cg-06-2021-0209

Figge, F., and T. Hahn. 2004. Sustainable Value Added. Measuring Corporate Contributions to Sustainability Beyond Eco-efficiency. Ecological Economics, 48 (2), 173–187.

Fiske S. T. 1992. Thinking is for Doing: Portraits of Social Cognition from Daguerreotype to Laserphoto. Journal of Personality and Social Psychology, 63, 877–889.

Folke, C. 2007. Social Ecological Systems and Adaptive Governance of the Commons. Ecological Research, 22 (1), 14–15.

Folke, C., T. Hahn, P. Olsson and J. Norberg. 2005. Adaptive Governance of Social Ecological Systems. Annual Review of Environmental Resources, 30, 441–473.

Fredrickson J.W. 1984. The Comprehensiveness of Strategic Decision Processes: Extension, Observations, Future Directions. Academy of Management Journal. 27, 445–466.

FSB 2013. Thematic Review on Risk Governance: Peer Review Report. Financial Stability Board. Accessed on July 2024, www.fsb.org

Fu, C., Z. Guo, and L. Yang. 2023. An Empirical Study of ESG Performance and Corporate Investment Efficiency – Moderating Effect of External Pressure. Doi: 10.4108/eai.6-1-2023.2330311

Gao, R, and X. Yu. 2020. How to Measure Capital Investment Efficiency: A Literature Synthesis," Accounting & Finance, 60 (1), 299-334.

Gomariz, F. C., and J. P. S. Ballesta. 2014. Financial Reporting Quality, Debt Maturity, and Investment Efficiency. Journal of Banking & Finance. 40, 494–506.

Gond, J. P., S. Grubnic, C. Herzig, J. Moon. 2012. Configuring Management Control Systems: Theorizing the Integration of Strategy and Sustainability. Management Accounting Research, 23, 205–223.

Gond, J. P., and O. Herrbach. 2006. Corporate Social Reporting as a Learning Tool? A Theoretical Framework. Journal of Business Ethics, 65 (4), 359–371.

Gunawan, J., P. Permatasari, and H. Fauzi. 2021. The Evolution of Sustainability Reporting Practices in Indonesia. Journal of Cleaner Production.

Hahn, T., L. Preuss, J. Pinkse, and F. Figge. 2014. Cognitive Frames in Corporate Sustainability: Managerial Sensemaking with Paradoxical and Business Case Frames. Academic Management Review, 39, 463-487.

Hair, J. F. 2009. Multivariate Data Analysis. 7th ed. Upper Saddle River, NJ: Prentice Hall.

Hambrick D. C, and S. Finkelstein. 1987. Managerial Discretion: A Bridge Between Polar Views of Organizational Outcomes. In Research in Organizational Behavior, Cummings LL, Staw BM (eds). JAI Press: Greenwich, CT, 369–406.

Hammami, A. and M. Zadeh. 2019. Audit Quality, Media Coverage, Environmental, Social, Governance Disclosure, and Firm Investment Efficiency. International Journal of Accounting and Information Management, 28 (1), 45-72. https://doi.org/10.1108/ijaim-03-2019-0041

Herzig, C., T. Viere, S. Schaltegger, and R. Burritt. 2012. Environmental Management Accounting. Case Studies of South East-Asian Companies. Routledge, London

Hopwood, B., M. Mellor, and G. O’Brien. 2005. Sustainable Development: Mapping Different Approaches. Sustainable development, 13 (1), 38–52.

Hoque, Z. 2013. 20 Years of Studies on the Balanced Scorecard: Trends, Accomplishments, Gaps and Opportunities for Future Research. The British Accounting Review, 1–27.

Horish, J., and S. E. Windolph. 2014. Overview of the Agregat Results of the International Corporate Sustainability Barometer. Corporate Sustainability in International Comparizon. State of Practice, Opportunities and Challenges. Springer.

Hristov, I., A. Chirico, and A. Appolon. 2019. Sustainability Value Creation and Growth of the Company: A Critical Perspective in Sustainability Balanced Scorecard. Sustainability, MDPI.

Hsiao, C. 2003. Analysis of Panel Data, 2nd Edition. Cambridge University Press, Cambridge.

Hu, W., J. Sun, Y. Lin, and J. Hu. 2023. ESG and Investment Efficiency: The Role of Marketing Capability. Sustainability, 15, 16676. https://doi.org/10.3390/su152416676

Hubbard, R. G. 1998. Capital-market Imperfections and Investment. Journal of Economic Literature, 36 (1), 193–225.

INDC 2022. Enhanced Nationally Determined Contribution Republic of Indonesia.

IPCC 2014. In Core Writing Team, Pachauri, R.K. and Meyer, L.A. (Eds), Climate Change 2014: Synthesis Report, IPCC, Geneva.

Issa, A. et al. 2021. Does the Board Diversity Impact Bank Performance in the MENA Countries? A Multilevel Study. Corporate Governance: The International Journal of Business in Society, 21 (5), 865–891.

Jones G. K, A. Lanctot, and H. J. Teegen. 2000. Determinants and Performance Impacts of External Technology Acquisition. Journal of Business Venturing, 16, 255–283.

Judge W. Q., and A. Miller. 1991. Antecedents and Outcomes of Decision Speed in Different Environmental Contexts. Academy of Management Journal, 34, 449–463.

Kahneman, D. D., P. Slovic, and A. Tversky. 1982. Judgment Under Uncertainty: Heuristics and Biases. Cambridge University Press: New York.

Kalia, D. and D. Aggarwal. 2022. Examining the Impact of ESG Score on the Financial Performance of Healthcare Companies. Journal of Global Responsibility, 14 (1), 155–176.

Kaplan, R. S, and N. P. Norton. 2008. The Execution Premium. Linking Strategy to Operation to Competitive Advantage. Boston, MA: Harvard Business School Press.

Karyani, E., S. A. Dewo, W. Santoso, and B. Frensidy. 2020. Risk Governance and Bank Profitability in ASEAN-5: A Comparative and Empirical Study. International Journal of Emerging Markets, 15 (5), 949–969. https://doi.org/10.1108/IJOEM-03-2018-0132

Komite National Kebijakan Governansi (KNKG). 2021. Panduan Umum Governansi Korporasi Indonesia (PUGKI).

Krippendorff, K. 1980. Content Analysis: An Introduction to its Methodology. Sage, Newbury Park: CA.

Langfield-Smith, K. 1997. Management Control Systems and Strategy: A Critical Review. Accounting, Organizations and Society, 22 (2), 207–232.

Mintzberg, H. T., and J. A. Waters. 1984. Of Strategies, Deliberate and Emergent. Strategic Management Journal, 6, 257–272.

Mitchell T. R., and L. R. Beach. 1990. Do I love thee? Let me count ... Toward an Understanding of Intuitive and Automatic Decision Making. Organizational Behavior and Human Decision Processes, 47, 1–20.

Muff, K., A. Kapalka, and T. Dyllick. 2017. The Gap Frame: Translating the SDGs into a Relevant National Grand Challenge for Strategic Business Opportunities. International Journal of Management Education. 1-21 http://www.elsevier.com/locate/ijme

Narayanan, V., and G. Boyce. 2019. Exploring the Transformative Potential of the Management Control System in Organizational Change towards Sustainability. Accounting, Auditing & Accountability Journal, 32 (5), 1210-1239.

Nareswari, N., M. Tarczynska-Luniewska, and R. U. Al Hash. 2023. Analysis of Environmental, Social, and Governance Performance in Indonesia: Role of ESG on Corporate Performance. Procedia Computer Science, 225, 1748–1756.

Nixon, W. A. J., and J. Burns. 2005. Management Control In the 21st Century. Management Accounting Research, 16 (3), 260–268.

Otley, D. 2016. The Contingency Theory of Management Accounting and Control: 1980-2014. Management Accounting Research, 31, 45–62. https://doi.org/10.1016/j.mar.2016.02.001

Otoritas Jasa Keuangan. 2015. Roadmap Keuangan Berkelanjutan 2015-2019 di Indonesia.

Otoritas Jasa Keuangan. 2016. Peraturan Nomor 1/POJK.05/2016 Tentang Investasi Surat Berharga Negara Bagi Lembaga Jasa Keuangan Non-bank.

Otoritas Jasa Keuangan. 2017. Peraturan Nomor 51/POJK.03/2017 Tentang Penerapan Keuangan Berkelanjutan bagi Lembaga Jasa Keuangan, Emiten, dan Perusahaan Publik.

Otoritas Jasa Keuangan. 2022. Taksonomi Hijau Indonesia.

Passetti, E., L. Cinquini, A. Marelli, and A. Tenucci. 2014. Sustainability Accounting in Action: Lights and Shadows in the Italian Context. The British Accounting Review, 46 (3), 295–308.

Porter, M. E., and M. R. Kramer. 2018. Creating Shared Value. How to Reinvent Capitalism – And Unleash a Wave of Innovation and Growth. Managing Sustainable Business, 323-346. Springer.

Priem R. L., A. M. A. Rasheed, and A. G. Kotulic. 1995. Rationality in Strategic Decision Processes, Environmental Dynamism and Firm Performance. Journal of Management, 21, 913–929.

Raimo, N. et al. 2021. Extending the Benefits of ESG Disclosure: The Effect on the Cost of Debt Financing. Corporate Social Responsibility and Environmental Management, 28 (4), 1412-1421.

Rajagopalan N., A. M. A. Rasheed, and D. K. Datta. 1993. Strategic Decision Processes: Critical Review and Future Directions. Journal of Management, 19, 349–384

Roth, H. P. 2008. Using Cost Management for Sustainability Effort. Journal of Corporate Accounting & Finance, 19 (3), 11–18.

Salgues, B. 2018. Society 5.0. Industry of the Future, Technologies, Methods and Tools. Science, Society and New Technologies Series. Technological Prospects and Social Aplications Set. Wiley. 1.

Salvioni, D. M., F. Gennari, and L. Bosetti. 2016. Sustainability and Convergence: The Future of Corporate Governance Systems? Sustainability, 8 (11). https://doi.org/10.3390/su8111203

Samet, M., and A. Jarboui. 2017. How Does Corporate Social Responsibility Contribute to Investment Efficiency? Journal of Multinational Financial Management, 40, 33–36.

Schaltegger, S. 2012. Sustainability Reporting in the Light of Business Environment: Linking Business Environment, Strategy, and Communication. Centre for Sustainability Management.

Schaltegger, S., and M. Wagner. 2006. Integrative Management of Sustainability Performance, Measurement and Reporting. International Journal of Accounting, Auditing and Performance Evaluation, 3 (1), 1–19.

Schmidt, I. et al. 2004. SEEBalance-Managing Sustainability of Product and Processes with the Socio-Eco-Efficiency Analysis by BASF. Greener Management International, 45, 79-94.

Simons, R. 1995. Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal. Harvard Business School Press, Boston.

Stein, J. C. 2003. Agency, Information, and Corporate Investment. Handbook of the Economics of Finance, 1, 111–165.

Stevenson H, and Gumpert D. 1985. The Heart of Entrepreneurship. Harvard Business Review, 63 (2), 85–94.

Sutarti. S., A. Syakhroza, V. Diyanty and S. A. Dewo. 2021. Top Management Team (TMT) Age Diversity and Firm Performance: The Moderating Role of the Effectiveness of TMT Meetings. Team Performance Management. An Integrated Journal. Doi: 10.1108/TPM-01-2021-0006

Swanson, D. L. 1999. Toward an Integrative Theory of Business and Society: A Research Strategy for Corporate Social Performance. Academy of Management Review, 24 (3), 506–521.

Ullah, I., M. A. Majeed, and H. X. Fang. 2021. Female CEOs and Corporate Investment Efficiency: Evidence from China. Borsa Istanbul Review, 21 (2), 161–174.

Wang, W. et al. 2023. The Impact of Environment Uncertainty on ESG Performance: Emotional VS Rational. Journal of Cleaner Production, 397 (2023), 136528. https://www.elsevier.com/locate/jclepro

Wang, W., Y. Yu, and Xuan, Li. 2022. ESG Performance, Auditing Quality, and Investment Efficiency: Empirical Evidence from China. Frontier in Psycology. DOI 10.3389/fpsyg.2022.948674

Widener, S.K., 2007. An Empirical Analysis of the Levers of Control Framework. Accounting, Organizations, and Society, 32, 757–788.

Zamir, F., G. Shailer, and A. Saeed. 2020. Do Corporate Social Responsibility Disclosures Influence Investment Efficiency in the Emerging Markets of Asia? International Journal of Managerial Finance, 18 (1), 28–48.

Download

Share

COinS