Sustainability Performance Disclosure and Cost of Capital: Evidence from Indonesia

Etti Ernita Sembiring, Arif Afriady, Arry Irawan, Sulistia Suwondo, Esau Jadee Hartanto, Muhammad Daffa Nadiwinata

Abstract


This study aims to examine the effect of sustainability performance disclosure on the cost of capital. A quantitative approach was employed using panel data regression on 56 manufacturing companies listed on the Indonesia Stock Exchange during the 2021–2024 period. Sustainability performance was measured using environmental, social, and governance (ESG) disclosures, while the cost of capital was calculated using the weighted average cost of capital (WACC). Data were analysed using multiple regression to test the relationship. The results show that sustainability performance disclosure has no significant effect on the cost of capital. This indicates that although ESG disclosure is expected to reduce information asymmetry and perceived risk, it has not yet influenced investor and creditor behaviour in the Indonesian market. Each ESG component: environmental, social, and governance, also failed to show a consistent, significant impact. Theoretically, the findings imply that signalling and legitimacy mechanisms through ESG disclosure are not yet fully effective in this context. In practice, firms should not rely solely on ESG reporting to reduce funding costs; they must also strengthen financial performance and risk management. The novelty of this research lies in its empirical focus on an emerging market during the early implementation of IFRS S1, providing fresh insight into the limited financial impact of sustainability disclosures.


Keywords


Sustainability disclosure; Cost of capital; Environmental performance; Social performance; Governance.

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References


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DOI: https://doi.org/10.17509/jpak.v14i1.88905

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