Sustainability reporting as a strategic tool to strengthen green competitive advantage and firm value in banking sector

Abstract

This study aims to analyze the role of sustainability reporting as a strategic tool for strengthening green competitive advantage and increasing corporate value in the banking sector. Increasing global pressure on the financial sector to contribute to sustainable development by implementing responsible and environmentally friendly business practices drives this research. It is hoped that transparent, integrated sustainability reporting will enable banking companies to build a sustainable green competitive advantage and increase stakeholder trust. This study uses secondary data obtained from the annual and sustainability reports of banks listed on the Indonesia Stock Exchange between 2019 and 2023. The SEM-PLS method was used to analyze the data and test the effect of sustainability reporting on green competitive advantage and company value while controlling for company size and profitability. This study uses secondary data obtained from the annual and sustainability reports of banks listed on the Indonesia Stock Exchange between 2019 and 2023. The SEM-PLS method was employed to analyze the data and examine the impact of sustainability reporting on green competitive advantage and company value while accounting for company size and profitability. The results indicate that green competitive advantage (GCA) significantly and negatively mediates the effect of environmental, social, and governance (ESG) factors on price-to-book value (PBV).  This suggests that the green strategies currently adopted by Indonesian banks are considered a short-term cost burden by the market rather than a means to increase company value. Other research shows that the profitability control variable, ROA, has no significant effect on PBV because short-term profits are not considered a sustainable indicator of company value in highly regulated industries, such as banking. Another control variable, company size (ln TA), significantly affects PBV. This suggests that investors prioritize asset scale over profitability or green performance when assessing company value.