Idrianita Anis, Lindawati Gani, Hasan Fauzi, Ancella Anitawati Hermawan and Desi Adhariani
This study aims to propose a solution to accelerate financing support low carbon (circular economy) transition. The authors developed a sustainability governance (SGOV) model and…
Abstract
Purpose
This study aims to propose a solution to accelerate financing support low carbon (circular economy) transition. The authors developed a sustainability governance (SGOV) model and a sustainability governance (SGOV) index as a proxy for the diffusion of sustainability innovation. This study investigates the effect of SGOV practices on profitability with the mediating role of operational efficiency.
Design/methodology/approach
The SGOV index consists of 32 and 122 sub-items, constructed using content analysis of annual and sustainability reports published by banks listed on the Indonesia Stock Exchange (IDX) from 2010 to 2020 (404 bank-year observations).
Findings
Banks are at a moderate level of sustainability innovation. They are prioritizing the balance aspects of financial, social and environmental. SGOV practice negatively affects profitability. However, operational efficiency plays a positive mediating role that is robust.
Research limitations/implications
The measurement of the SGOV index uses criteria that have not been tested in previous studies. There is the potential subjectivity in interpreting qualitative data, although this has been minimized by cross-checking the analysis of five raters.
Practical implications
This study gives feedback for the Indonesia sustainable finance (SF) journey phase I to proceed into SF journey phase II.
Social implications
The SGOV model can be applied in other industry sectors to know the readiness for entering low carbon (circular economy) transition.
Originality/value
The uniqueness of the scoring technique assuming a step-by-step innovation model to sustainable finance.