OPERATIONAL EFFICIENCY AS A BRIDGE: ESG, GOVERNANCE, AND FINANCIAL PERFORMANCE IN STATE-OWNED ENTERPRISES

• Nur Ravita Hanun

  University of Muhammadiyah Sidoarjo, Indonesia

• Rita Ambarwati

  University of Muhammadiyah Sidoarjo, Indonesia

• Faulorozi Sumartono

  University of Muhammadiyah Sidoarjo, Indonesia

Objective: This study looks at how operational efficiency acts as a mediator between ESG, environmental costs, governance, and SOE financial performance in Indonesia. Method: The study used quantitative panel data from 65 SOEs’ annual, sustainability, and financial reports from 2020 to 2023. Variables cover ESG (GRI-based), CSR as environmental costs, independent commissioner proportion for GCG, and ROA for financial performance. Panel data regression analysis is performed with EViews 12 software. Results: This study shows that only ESG can improve financial performance and reduce the OEOI ratio through operational efficiency, while environmental costs and the implementation of GCG do not have a significant impact, either directly or indirectly, on financial performance. These results show the need to include embedding efficiency into ESG plans to guarantee both sustainability and profitability in state-owned companies. Novelty: This strategy emphasizes OEOI's mediation function among ESG, environmental expenses, GCG, and SOE financial performance. The OEOI ratio is presented in this study as a new mediating construct in the examination of ESG and financial performance. It closes a gap in the literature on how operational effectiveness might serve as a link between financial performance and sustainability initiatives, especially in the little-studied setting of state-owned enterprises (SOEs) in developing nations. Financial performance and operational efficiency are improved in SOEs through effective ESG integration. To avoid environmental expenses and Good Corporate Governance (GCG) becoming merely formalities without real value, so these expenditures must be strategically integrated.

Kementerian Sekretariat Negara Republik Indonesia, “Undang-Undang Nomor 16 Tahun 2016 tentang Pengesahan Paris Agreement to the United Nations Framework Convention on Climate Change,” Law No. 16 of 2016, 2016.

J. Delbeke, A. Runge-Metzger, Y. Slingenberg, and J. Werksman, “The Paris Agreement,” in Towards a Climate-Neutral Europe, London, U.K.: Routledge, 2019, pp. 24-45.

Pemerintah Republik Indonesia, “Peraturan Menteri Badan Usaha Milik Negara Republik Indonesia Nomor PER-05/MBU/04/2021 tentang Program Tanggung Jawab Sosial dan Lingkungan Badan Usaha Milik Negara,” JDIH BPK RI, 2021.

B. Tutcu, M. Kayakuş, M. Terzioğlu, G. F. Ü. Uyar, H. Talaş, and F. Yetiz, “Predicting financial performance in the IT industry with machine learning: ROA and ROE analysis,” Applied Sciences, vol. 14, no. 17, Art. no. 7459, 2024, doi: 10.3390/app14177459.

M. Nizamuddin, N. Mushir, and M. Thakur, “Impact of environmental, social, and governance risk on the financial performance of selected Indian banks,” Educational Administration: Theory and Practice, vol. 30, no. 5, pp. 6354-6364, 2024, doi: 10.53555/kuey.v30i5.3944.

N. B. Nguyen, “Impacts of ESG performance on the profitability of ASEAN-6 commercial banks in the context of digital transformation,” Global Business and Finance Review, vol. 29, no. 5, pp. 60-71, 2024, doi: 10.17549/gbfr.2024.29.5.60.

G. Morri, F. Colantoni, and A. M. De Paolis, “ESG performance variability: Profitability and market implications for real estate entities in a worldwide context,” Journal of European Real Estate Research, vol. 17, no. 3, pp. 373-394, 2024, doi: 10.1108/JERER-11-2023-0046.

G. Wu, M. Sun, and Y. Feng, “How does the new environmental protection law affect the environmental social responsibility of enterprises in Chinese heavily polluting industries?” Humanities and Social Sciences Communications, vol. 11, no. 1, Art. no. 168, 2024, doi: 10.1057/s41599-024-02674-6.

R. Rena, F. F. Peters, and O. Adeagbo, “Analysis of corporate environmental cost disclosure on profitability of listed manufacturing firms in Nigeria,” International Journal-FRBD, vol. 3, no. 7, 2024.

S. Mondal and S. K. Ghosh, “Impact of corporate environmental cost and benefits on the profitability of firms: An empirical study,” Business Insight: Journal of the Department of Commerce, B.U., vol. 8, pp. 37-53, 2021.

D. M. Otoxsusilo, C. S. Ratnaningsih, I. Windhyastiti, and U. Khouroh, “The effect of good corporate governance, corporate social responsibility, and capital structure on firm value with profitability as an intervening variable in banking companies,” Jurnal Akuntansi dan Perpajakan, vol. 9, no. 2, pp. 196-216, 2023, doi: 10.26905/ap.v9i2.10801.

C. Khusnia and G. K. Wardana, “The impact of good corporate governance and corporate social responsibility on corporate value: The moderating role of financial performance,” Journal of Logistics, Informatics and Service Science, vol. 11, no. 2, 2024, doi: 10.33168/JLISS.2024.0213.

S. Chasanah, S. Susilawati, and M. Suryaningsih, “CSR, GCG, profitability and firm value: Evidence from Indonesia’s energy sector,” Journal of Business and Management Review, vol. 5, no. 12, pp. 1152-1171, 2024, doi: 10.47153/jbmr.v5i12.1202.

A. S. Gulo, N. Sari, T. Hapsari, and A. Tihar, “Effect of profitability, good corporate governance, and board gender diversity on carbon emission disclosure,” IOP Conference Series: Earth and Environmental Science, vol. 1488, no. 1, Art. no. 012058, 2025, doi: 10.1088/1755-1315/1488/1/012058.

C. C. Mega, B. T. Fitria, R. E. Kumalasari, and I. Damayanti, “The influence of loan to deposit ratio and operating costs on operating income on return on assets: Study on one of the banks in Bandung,” vol. 17, no. 2, pp. 204-215, 2024.

E. Duque-Grisales and J. Aguilera-Caracuel, “Environmental, social and governance scores and financial performance of multilatinas: Moderating effects of geographic international diversification and financial slack,” Journal of Business Ethics, vol. 168, no. 2, pp. 315-334, 2021, doi: 10.1007/s10551-019-04177-w.

I. Shaikh, “Environmental, social, and governance practice and firm performance: International evidence,” Journal of Business Economics and Management, vol. 23, no. 1, pp. 218-237, 2022, doi: 10.3846/jbem.2022.16202.

N. Darnall, H. Ji, K. Iwata, and T. H. Arimura, “Do ESG reporting guidelines and verifications enhance firms’ information disclosure?” Corporate Social Responsibility and Environmental Management, vol. 29, no. 5, pp. 1214-1230, 2022, doi: 10.1002/csr.2265.

G. Ge, X. Xiao, Z. Li, and Q. Dai, “Does ESG performance promote high-quality development of enterprises in China? The mediating role of innovation input,” Sustainability, vol. 14, no. 7, Art. no. 3843, 2022, doi: 10.3390/su14073843.

K. Lopatta, F. Canitz, and S. A. Tideman, “Abnormal CSR and financial performance,” European Accounting Review, vol. 33, no. 1, pp. 49-75, 2024, doi: 10.1080/09638180.2022.2084134.

P. Candio, “The effect of ESG and CSR attitude on financial performance in Europe: A quantitative re-examination,” Journal of Environmental Management, vol. 354, Art. no. 120390, 2024, doi: 10.1016/j.jenvman.2024.120390.

C. P. Padilla-Lozano and P. Collazzo, “Corporate social responsibility, green innovation and competitiveness: Causality in manufacturing,” Competitiveness Review: An International Business Journal, vol. 32, no. 7, pp. 21-39, 2022, doi: 10.1108/CR-12-2020-0160.

S. Han, Z. Liu, Z. Deng, S. Gupta, and P. Mikalef, “Exploring the effect of digital CSR communication on firm performance: A deep learning approach,” Decision Support Systems, vol. 176, Art. no. 114047, 2024, doi: 10.1016/j.dss.2023.114047.

M. Bascompta, M. Yousefian, C. Vintró, L. Sanmiquel, R. Rodríguez, and M. T. Yubero, “Sustainability assessment in mining: A CSR-based analysis model for social and environmental impact,” Fudan Journal of the Humanities and Social Sciences, vol. 18, no. 2, pp. 329-345, 2025, doi: 10.1007/s40647-024-00419-y.

A. Nurwulandari, H. Hasanudin, B. Subiyanto, and Y. C. Pratiwi, “Risk based bank rating and financial performance of Indonesian commercial banks with GCG as intervening variable,” Cogent Economics & Finance, vol. 10, no. 1, 2022, doi: 10.1080/23322039.2022.2127486.

H. A. Riyadh, M. A. Al-Shmam, and J. I. Firdaus, “Corporate social responsibility and GCG disclosure on firm value with profitability,” International Journal of Professional Business Review, vol. 7, no. 3, Art. no. e0655, 2022, doi: 10.26668/businessreview/2022.v7i3.e655.

R. Jefri, N. M. Surianto, W. K. E. Putra, and M. Novitasari, “Impact of financial technology on the financial performance of conventional banks in Indonesia,” Jurnal Ilmiah Akuntansi, vol. 9, no. 1, pp. 273-291, 2024, doi: 10.23887/jia.v9i1.71096.

S. Yang, J. Zang, Y. Wu, and D. Kong, “Enhancing operational efficiency in resource-intensive enterprises through financial sharing model,” International Journal of E-Collaboration, vol. 21, no. 1, pp. 1-18, 2025, doi: 10.4018/IJeC.367277.

K. L. Y. Ming et al., “ESG integration and financial performance: Evidence from Malaysia’s leading companies,” International Journal of Energy Economics and Policy, vol. 14, no. 5, pp. 487-494, 2024, doi: 10.32479/ijeep.16706.

J. Aulia and D. A. M. Savitri, “The effect of CSR mediation between green financing and environmental costs on sustainable business performance,” Jurnal Akademi Akuntansi, vol. 8, no. 2, pp. 285-301, 2025, doi: 10.22219/jaa.v8i2.40006.

N. R. Hanun, A. Hanif, and S. Ningrum, “Optimalisasi nilai perusahaan melalui moderasi peran good corporate governance,” Jurnal Reviu Akuntansi dan Keuangan, vol. 13, no. 3, pp. 655-673, 2023, doi: 10.22219/jrak.v13i3.28029.

A. Windriya, “The effect of FDR, NPF, OEOI, and size toward ROA: Comparative study on Indonesian Islamic banks and Malaysian Islamic banks, 2010-2015,” International Journal of Islamic Business and Economics, vol. 3, no. 1, pp. 12-26, 2019, doi: 10.28918/ijibec.v3i1.1426.

W. Yudhanto and A. J. Simamora, “Environmental, social, and governance risk on firm performance: The mediating role of firm risk,” Binus Business Review, vol. 14, no. 2, pp. 223-234, 2023, doi: 10.21512/bbr.v14i2.8935.

A. S. Yunica and R. Rokhim, “Unveiling the hidden power: How ESG enhanced Indonesian companies’ financial flexibility,” Jurnal Siasat Bisnis, vol. 27, no. 2, pp. 171-187, 2023, doi: 10.20885/jsb.vol27.iss2.art4.

S. Lee, J.-W. Park, and D. Choi, “The effects of ESG management on business performance: The case of Incheon International Airport,” Sustainability, vol. 15, no. 24, Art. no. 16831, 2023, doi: 10.3390/su152416831.

A. Al-Tarawneh, M. Tayeh, M. Iskandrani, and M. Obeidat, “The impact of ESG scores on corporate financial performance: A study of non-financial firms listed in the UK,” Asian Economic and Financial Review, vol. 14, no. 11, pp. 852-867, 2024, doi: 10.55493/5002.v14i11.5229.

T. T. B. Loan, T. T. L. Anh, and T. Hoang, “ESG disclosure and financial performance: Empirical study of Vietnamese commercial banks,” Banks and Bank Systems, vol. 19, no. 1, pp. 208-220, 2024, doi: 10.21511/bbs.19(1).2024.18.

I. Anis, L. Gani, H. Fauzi, A. A. Hermawan, and D. Adhariani, “The sustainability awareness of banking institutions in Indonesia and its implication on profitability through the mediating role of operational efficiency,” Asian Journal of Accounting Research, vol. 8, no. 4, pp. 356-372, 2023, doi: 10.1108/AJAR-06-2022-0179.

T. T. Lin, H.-T. Yen, and S.-Y. Hsu, “A synergy value analysis of sustainable management projects: Illustrated by the example of the aesthetic medicine industry,” Journal of Risk and Financial Management, vol. 15, no. 8, Art. no. 348, 2022, doi: 10.3390/jrfm15080348.

L. Gamal, H. Wahba, and M. do R. Correia, “Corporate sustainability performance throughout the firm life cycle: The case of Egypt,” Corporate Governance and Organizational Behavior Review, vol. 6, no. 1, pp. 79-97, 2022, doi: 10.22495/cgobrv6i1p6.

C. Del Gesso and R. N. Lodhi, “Theories underlying environmental, social and governance disclosure: A systematic review of accounting studies,” Journal of Accounting Literature, vol. 47, no. 2, pp. 433-461, 2025, doi: 10.1108/JAL-08-2023-0143.

G. Nicolò, G. Zampone, G. Sannino, and S. De Iorio, “Sustainable corporate governance and non-financial disclosure in Europe: Does gender diversity matter?” Journal of Applied Accounting Research, vol. 23, no. 1, pp. 227-249, 2022, doi: 10.1108/JAAR-04-2021-0100.

• VIEW ARTICLE

This work is licensed under a Creative Commons Attribution 4.0 International License.