The Effect of Environmental Performance and Corporate Social Responsibility on Financial Performance with Leverage as a Control Variable

Restu Daffa  Fauzan; Dwi Urip  Wardoyo

doi:10.58524/1p8jy164

Authors

Restu Daffa Fauzan Telkom University, Indonesia https://orcid.org/0009-0003-3842-1505
Dwi Urip Wardoyo Universitas Telkom, Indonesia https://orcid.org/0000-0003-2079-9668

DOI:

https://doi.org/10.58524/1p8jy164

Keywords:

Basic Materials Sector, Corporate Social Responsibility, Environmental Performance, Financial Performance, Leverage

Abstract

Although the Basic Materials sector provides raw materials to the country's industries, its operations have a substantial negative influence on the environment, necessitating more corporate social responsibility. The results of earlier research on the relationship between financial success and environmental performance and CSR have been mixed. Using 68 firm-year observations from 17 Basic Materials businesses listed on the Indonesia Stock Exchange between 2021 and 2024, this study investigates these impacts using leverage as a control variable. ROA, the PROPER grade for environmental performance, a GRI-based transparency index for corporate social responsibility, and the Debt to Asset Ratio (DAR) for leverage are used to gauge financial success. The Fixed Effects Model panel data regression was used, as shown by the Chow and Hausman tests. The model exhibits joint significance (F = 5.702, p < 0.001; adjusted R² = 0.571). Financial performance is not significantly impacted by environmental performance (β = −0.0096, p = 0.5305), but leverage (β = −0.7592, p = 0.0004) and CSR (β = −0.0970, p = 0.0283) are. These findings show that there is no positive correlation between contemporaneous profitability and CSR disclosure or environmental performance in this sample. One possible interpretation is that sustainability-related expenditures may weigh on current earnings while any benefits emerge over a longer horizon; however, this study uses contemporaneous associations, does not test lagged effects, and does not directly measure the costs or future benefits of CSR, so this explanation remains speculative and should be examined in future research. Companies may nonetheless consider integrating sustainability strategies into their business models, and future studies could employ lagged specifications and direct cost measures to assess whether sustainability-related investments translate into long-term competitive advantage.

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