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The role of green investment and corporate

social responsibility investment on sustainable
performance

Maya Indriastuti & Anis Chariri |

To cite this article: Maya Indriastuti & Anis Chariri | (2021) The role of green investment and
corporate social responsibility investment on sustainable performance, Cogent Business &
Management, 8:1, 1960120, DOI: 10.1080/23311975.2021.1960120

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The role of green investment and corporate
social responsibility investment on sustainable
performance
Maya Indriastuti and Anis Chariri

Cogent Business & Management (2021), 8: 1960120

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Indriastuti & Chariri, Cogent Business & Management (2021), 8: 1960120
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ACCOUNTING, CORPORATE GOVERNANCE & BUSINESS ETHICS |

RESEARCH ARTICLE
The role of green investment and corporate
social responsibility investment on sustainable
performance
Received: 08 April 2021
Accepted: 20 July 2021; Maya Indriastuti1* and Anis Chariri2
*Corresponding author: Maya
Indriastuti, Universitas Islam Sultan Abstract: Studies on green investment and corporate social responsibility (CSR)
Agung; Universitas Diponegoro, investment has been conducted by some researchers in the current and future
Semarang, Indonesia
E-mail: [email protected] trends of sustainable development. Many of them have focused on the relationship
Reviewing editor: between CSR and financial performance, but only a few have examined how green
David McMillan, University of Stirling, investment, CSR investment, and sustainability are related to each other.
Stirling, United Kingdom
Sustainable performance is based on three aspects: people-planet-profit, or also
Additional information is available at
the end of the article what is known as the triple bottom line concept. The sample for this study consisted
of 132 manufacturing companies listed in the Indonesia Stock Exchange from 2016
to 2019. This study found that green investment and CSR investment positively
affect financial performance and sustainable performance. Meanwhile, the financial
performance has an insignificant effect on sustainable performance. Besides,
financial performance cannot mediate the effect between green investment and
CSR investment on sustainable performance.

Subjects: Environment & Economics; Asian Economics; Industrial Economics

ABOUT THE AUTHOR PUBLIC INTEREST STATEMENT

Maya Indriastuti is a lecturer at the Faculty of Sustainable performance is a balanced perfor­
Economics, Universitas Islam Sultan Agung. She mance based on three aspects; people, planet,
is a PhD student at Faculty of Economics and and profit, or known as the triple bottom line
Business, Universitas Diponegoro. Her areas of concept. The company managers need to make
interest are in the fields of financial accounting, decisions to invest and integrate it as a business
green accounting, corporate social responsibility, strategy. To achieve sustainable performance,
corporate governance, Islamic finance, banking building a holistic and integrated environmental
and taxation. awareness is urgently needed by companies in all
Anis Chariri is a professor of accounting at the countries, including Indonesia. Manufacturing
Faculty of Economics and Business at Universitas companies in Indonesia have contributed 20% of
Diponegoro. His research interests are in the the environmental damage. Thus, high environ­
fields of qualitative and quantitative research mental awareness based on green investment
concerning financial reporting, institutional and CSR investment should be included as a part
aspect of accounting practice, and cultural per­ of corporate responsibility to its stakeholders (i.e.
spective on accounting and corporate society, investors, shareholders, customers, and
governance. other parties). Such investment can be a strategy
to improve financial performance and sustainable
performance as well as to avoid the legitimacy
gap or social and environmental conflict. This
study can be a reference for manufacturing
companies in developing sustainable business
strategy.

© 2021 The Author(s). This open access article is distributed under a Creative Commons
Attribution (CC-BY) 4.0 license.

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Keywords: green investment; CSR investment; financial performance; sustainable

performance; manufacturing companies

1. Introduction
Legitimacy has an important role in sustaining business. This has been emphasized by the finding
by Dowling and Pfeffer (1975), that an organization continues to seek legitimacy by aligning social
values and norms with company values. The organization also maintains the harmony of these
two values. As long as the company’s values or norms are in line with social values, the company
will gain legitimacy and support from stakeholders (Ashforth & Gibbs, 1990; Dowling & Pfeffer,
1975; O’Donovan, 2002). One of the ways to improve company’s performance is corporate social
responsibility activities. P.M. Clarkson et al. (2011), Ganda et al. (2015), and Kumarasiri and Jubb
(2016) believe that the activities will convince the investors to make sustainable investments. The
investments are perceived as responsible and consistent with environmental ethics (such as
reducing carbon emissions, green energy, and green technology).

Studies on the dynamics of sustainable performance involving green investment and CSR
investment can create an interesting contribution to improving financial performance on sustain­
able performance. This study is also expected to reveal the reasons why manufacturing companies
are committed to producing quality sustainability reports. Studies that consider green investment
have been conducted by Chariri et al. (2019), (2018), and Cheema et al. (2017); Zhu et al., (2016);
Eyraud et al. (2013), Murovec et al. (2012), Saxena and Khandelwal (2012), and El Ghoul et al.
(2011). Meanwhile, studies on CSR aspects have only been conducted by Asogwa et al. (2020),
Eyasu et al. (2020), and Nguyen et al. (2020); Cupertino et al. (2019); Ok and Kim (2019), Viviani
et al. (2019), Jain and Winner (2016), and Wahba and Elsayed (2015), and Khojastehpour and
Johns (2014); Lanis and Richardson (2012); Uadiale and Fagbemi (2012).

Unfortunately, these research findings are contradictory, and most of the existing research
ignores how green investment and CSR investment can improve financial performance on
a sustainable performance of a company. Some researchers have found a positive relationship
between environmental investments (Chariri et al., 2019) and green investment (Chariri et al.,
2018) that could increase the company’s financial performance. Cheema et al. (2017) believe that
green environment provides social, ecological, and economic benefits. Zhu et al., (2016) demon­
strated that customer relational governance partially mediates the effect of green supply chain
management practices on environmental performance. P. R. Martin and Moser (2016) concluded
that potential investors provide positive responses on firms that voluntarily disclose their green
investment initiatives. Iatridis (2013) stated that environmental disclosures contain relevant infor­
mation value. Eyraud et al. (2013) found that green investment is driven by economic growth and
some green policy interventions. Murovec et al. (2012) showed that environmental technologies
have a positive effect on environmental investments. According to Saxena and Khandelwal (2012),
green investment will help industries gain a competitive advantage and sustainable growth. El
Ghoul et al. (2011) believe that corporate social responsibility (CSR) increases the investor base and
reduces perceived risk. But other research has not identified a positive effect of environmental
proactivity on financial performance (Cordeiro & Sarkis, 1997; Link & Naveh, 2006). Furthermore,
P. M. Clarkson et al. (2008), Iatridis (2013), and Qiu et al. (2016) concluded that good environ­
mental performance consider changing to companies to prepare broader environmental disclo­
sures, and this eventually leads to a higher corporate value (Iatridis, 2013; Lorraine et al., 2004).

In terms of CSR investment, Asogwa et al. (2020) found that companies that engage in intensive
social responsibility have positive effect on their companies’ stock value. Eyasu et al. (2020)
showed that separate stakeholders of CSR implementation have a positive effect on competitive
advantage. According to Nguyen et al. (2020), companies with CSR programs are more likely to
receive unqualified opinions on the quality of their financial statements. Cupertino et al., (2019)
believed that a focus on environmental, social and governance standards may enhance

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a company’s long-term growth with a positive effect on its long-term value. Furthermore, Ok and
Kim (2019) implied that enhancing socially responsible management can increase company value.
Viviani et al. (2019) concluded that good socially responsible (SR) level reduces the downside risk
level of stock returns. Jain and Winner (2016) suggested that CSR climate shows the signs of
positive reform. Moreover, Wahba and Elsayed (2015) demonstrated that financial performance
and CSR activities are the basis for making decisions related to investment by an investor.
Khojastehpour and Johns (2014) argue that environmental CSR has a positive effect on com­
pany/brand reputation and profitability. Lanis and Richardson, (2012) stated that corporate social
responsibility disclosure significantly strengthens the possibility of tax aggressiveness. Uadiale and
Fagbemi (2012) added that CSR has a positive and significant relationship with the financial
performance measures. On the other hand, Brammer et al. (2006) argued that the realized returns
of firms with higher CSR performance are low, while Hamilton et al. (1993); Nelling and Webb
(2009) found that CSR performance does not affect financial performance.

Currently, manufacturing companies in Indonesia contribute 20% of the environmental damage

which triggers companies to disclose their sustainable performance (www.kemenperin.go.id). It is
not only to gain maximum benefits but also to pay attention to the social impact of the invest­
ments. An environmentally friendly company will provide sustainable returns to investors. This is
reflected by the Sustainable and Responsible Investment-KEHATI (SRI-KEHATI) stock index at the
closing date of 2017–2020. It has better returns than the Composite Stock Price Index (IHSG) in
recent years. The SRI-KEHATI index is a stock price index as a result of cooperation between the
Indonesia Stock Exchange and the Indonesian Biodiversity Foundation (KEHATI Foundation). The
SRI-KEHATI stock index is an indicator of stock price movements on the Indonesia Stock Exchange.
This index uses the principles of sustainability, finance, good governance, and environmental
concern as the benchmarks. The SRI-KEHATI stock index in 2017 and 2019 reached the levels of
395.56 and 400.56 respectively. However, in 2018 and August 2020, there was a decline to the
level of 378.688 and 333.843 (www.idx.co.id) respectively. Based on this data, it can be concluded
that the SRI-KEHATI stock index for manufacturing companies in Indonesia fluctuated during
2017–2020.

This study aims to find ways to build a holistic and integrative environmental awareness in
improving financial performance and sustainable performance of manufacturing companies in
Indonesia. High environmental concern based on green investment and CSR investment can create
high financial and sustainable performance. Green investment, which consists of low carbon and
climate resistance, is the crucial factor in the company’s sustainability to attract investor con­
fidence in making a sustainable investment (Ganda et al., 2015). In other words, investment is
responsible and consistent with environmental ethics (such as reducing carbon emissions, green
energy, and green technology). Eyraud et al. (2013), Mangla et al. (2014), and Murovec et al.
(2012); and Zhu et al. (2016) have shown that green investment can improve financial perfor­
mance (Chariri et al., 2018, 2019) and create sustainable performance (Saxena & Khandelwal,
2012). This is due to the fact that the cost of green investment disclosure is lower than the cost for
companies that do not disclose their environmental performance (Patrick R. Martin & Moser, 2012).
Nevertheless, it is different from the findings by Munoz et al. (2014) who found that green
investment will decrease financial performance and sustainable performance because companies
have to spend more on green investments (Ducassy, 2013; Lin et al., 2014).

Besides green investment, CSR investment may also increase financial performance and sustain­
able performance. Wahba and Elsayed (2015) stated that CSR investment has the potential to
positively contribute to the development of society and business. Thus, many organizations have
begun to see the benefits of structuring CSR activities. Furthermore, Uadiale and Fagbemi (2012)
explained that CSR investment may improve reputation, profitability, and sustainable performance
(Jain & Winner, 2016), so that further, it will enhance the company’s image. On the other hand,
Menzel et al. (2010); Newell and Lee (2012) argued that CSR does not affect a company’s financial
performance and its sustainable performance (Perez-Batres et al., 2010), because of the high

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additional costs of social responsibility. Lee et al. (2017) found that there is no significant differ­
ence in the financial performance between companies that apply sustainability principles and
companies that do not. CSR program is no longer considered the company’s responsibility to the
public, but now it has become part of its investment to gain its growth and sustainable perfor­
mance. CSR program is now shifted from spending budget orientation into profit orientation for the
company.

Furthermore, financial performance is also becoming a measure of a company’s success in the

operational activities (Lai & Wong, 2012). Many companies use the companies’ financial perfor­
mance to make an investment decision in a sustainable environment. As a consequence, investors
can predict their return through financial reports and sustainability reports that have been pub­
lished by the company. The better the company’s financial performance, the higher the investors
will invest their capital in the company. Therefore, it will increase sustainable performance
(Bénabou & Tirole, 2010; Patrick R. Martin & Moser, 2012). In contrast, Dhaliwal et al. (2011) and
Karnani (2010) found that financial performance has a negative effect on sustainable
performance.

The previous studies only investigated the relationship between CSR and a company’s financial
performance. Meanwhile, this study examined the role of green investment and CSR investment in
improving the company’s financial performance and sustainable performance. Also, this study
investigated how financial performance moderate the effect of green investment and CSR invest­
ment on sustainable performance. The pressure from green stakeholders and government policies
has a profound impact on Indonesian business. This study contributes to assist the company’s
decision-makers to respond positively to the environment. Besides, it helps the company in
adopting green investment and CSR investment to increase profits without damaging the environ­
ment, and it can be a guide for investors in making investment decisions.

2. Literature review
Legitimacy theory highlights the importance of social consent in promoting a company’s sustain­
ability. Therefore, companies must identify activities that are acceptable and in accordance with
the beliefs, values, and norms of society. Burritt et al. (2010) stated that legitimacy represents
positive company externalities of the society regarding company practices in various social struc­
tures. Specifically, Gray et al. (1995) explained that legitimacy depends on the fulfillment and
alignment of social values and norms. It makes the company more acceptable to society. The
company also continues to operate when the society is convinced that their interests have been
addressed. As a result, the company implements environmental performance practices consis­
tently to be accountable and gain the desired reputation. Based on Lindblom (1994), there are four
company legitimacy strategies. First, social reporting to communicate corporate efforts in addres­
sing stakeholder interests. Second, public education and dissemination of information on relevant
issues. Third, symbolic efforts to achieve legitimacy without changing performance and/or fulfilling
the society demands. Finally, the fourth, incorporates popular perspectives according to business
operations. Burritt et al. (2010), Eyraud et al. (2013), Ganda et al. (2015), Khojastehpour and Johns
(2014), Kumarasiri and Jubb (2016), and Mangla et al. (2014), and Murovec et al. (2012), and
Uadiale and Fagbemi (2012), and Wahba and Elsayed (2015); and Zhu et al. (2016) used this theory
to describe how environmental performance affects the company’s financial performance.

Stakeholder theory indicates that companies are responsive to the demands of their internal and
external partners in adopting policies and implementing strategic decisions. According to Freeman
(1984), stakeholder is any group or individual who can influence, or be influenced by, the imple­
mentation of company goals. Thus, stakeholder theory assumes that a company’s ability to
operate lies in the strategic inclusion of stakeholder interests in decision making. Recently,
stakeholder demands have reflected an increase in global concerns about weather conditions,
natural disasters, and greenhouse gas emissions. Companies are morally obliged to adopt effective
environmental performance initiatives to reduce environmental damage. Stakeholders play

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a major role in influencing the environmental performance of companies including (1) green
government, through a strict carbon tax in addition to green laws; (2) green consumers, through
a high preference for environmentally friendly products regardless of price; (3) environmentally
friendly employees who prefer to work in companies with high carbon performance; and (4) green
investors who give preference to green portfolios and independent environmental interest groups.

Financial performance is interpreted as how the company can earn income and growth
(Selvarajah et al., 2018). The financial performance can be measured with several accounting
methods such as return on assets, return on equity, and return on sales, and so on. Many
companies use these whole methods to compare current performance with previous performance
(to see if there is a decrease or increase) (Schniederjans, 2013; Waddock & Graves, 1997).
Schniederjans (2013) added that financial performance within a period could be used to measure
performance achievements by the company, decision making by the investors, and capital aug­
ments for the company’s management.

The bank profitability ratio in Indonesia is still the highest compared to other South East Asia
countries. Standard and Poor reported that the late 2018 Indonesian banks’ return on assets (ROA)
industrially reached 2.55%. This achievement is higher compared to other South East Asia coun­
tries, which were only within a range of 1%-1.5%, such as the Philippines, Thailand, Malaysia,
Singapore, and Vietnam (https://www.spglobal.com). By March 2019, the ROA of Indonesian Banks
was recorded at 2.45%. It is higher compared to Thailand (1.24%), the Philippines (1.1%),
Singapore (1.03%), and Malaysia (1.02%) (https://www.spglobal.com). Standard and Poor added
that the capital adequacy ratio (CAR) of Indonesian banks within the same period was recorded at
a level of 23.4%. It is higher compared to Malaysia (17.1%), Thailand (18.3%), Philippines (15.4%),
and Singapore (16.5%). ROA in manufacturing companies listed in the Indonesian Stock Exchange
within the 2016–2019 period tends to decline compared to ROA value on the highest point at 0.06
(in ratio units) in 2016. The lowest point was at 0.01 in the year 2014–2015. It was be affected by
several troubled companies, such as PT. Polychem Indonesia Tbk. They listed their net profit after
tax decreasing as Rp276.375.308.796 in 2016, -Rp 117.025.795.020 in 2017, and Rp18.891.637.461
in the year 2018. Other than that, PT. Eterindo Wahanatama Tbk has a deficit of -Rp68.488.774.415
in the year 2016 and -Rp127.520.042.125 in the year 2017.

There are three companies listed in Kuala Lumpur Composite Index in Malaysia that get in the
high-performance category, which generate a detailed environment disclosure, while sixteen
companies perform middle and low (Amran et al., 2010). Furthermore, when a financial or
economic crisis occurs, most Malaysian companies are get affected. Whenever the economic
condition not getting better, there is a probability that many of those companies will be forced
to be dealing with liquidity (Yap et al., 2014). Meanwhile, in Singapore, two Companies listed in
Strait Time Index Singapore were recorded to have a high-performance category that generates
a detailed environment disclosure. It is lower than the total number of companies with middle and
low performance (three and one companies) (Amran et al., 2010). In Thailand, the environmental
disclosure practice by Companies listed in SET100 Thailand shows twelve companies have a low
performance, and five companies have a high performance of environmental disclosure.

3. Hypothesis development
Green investment and CSR are forms of corporate responsibility to the stakeholder (public, investors,
shareholders, customers, and other parties). There are also some strategies to improve financial
performance and sustainable performance, as well as to avoid legitimacy gaps or social and environ­
mental conflicts. According to Carnahan et al. (2010); Little and Little (2000), environmental account­
ing activities strengthen the reputation and legitimacy of a company as an intangible asset. This asset
can produce sustainable benefits. Companies with low environmental performance tend to have
a small shareholder base, low risk-sharing opportunities, and cheaper share prices than companies
with high environmental activities (Hong & Kacperczyk, 2009). Moreover, companies with healthy
relationship with stakeholders can mitigate market uncertainty, disruption, loss, or damage and

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unwanted events in the company operations (Ansong, 2017). Environmental and/or social accounting
activities enhance a company’s ability to manage and reduce environmental and other risks including
damage to brands, reputation, boycotts and government fines.

Green investment is a company strategy to gain and maintain legitimacy and support
stakeholders. By doing so, the company manages the negative effect of operational activities
on the environment by minimizing energy use and reducing carbon emissions (Berliner &
Prakash, 2013; Minatti Ferreira et al., 2014; Testa et al., 2015). The company’s concern is stated
in their annual report to illustrate their responsibility for the environment. Furthermore, the
outcomes are decided by society and its stakeholders. Chariri et al. (2018), (2019), Cohen and
Robbins (2011), Mangla et al. (2014), and Manrique and Ballester (2017), and Murovec et al.
(2012), and Turcsanyi and Sisaye (2013); and Zhu et al. (2016) found a positive relationship
between green investment and company’s financial performance. Saxena and Khandelwal
(2012) confirmed that there is a positive relationship between green investment and sustain­
able performance. This is due to the common goals shared by the company management and
investors who want a green environment (Berliner & Prakash, 2013; Minatti Ferreira et al., 2014;
Testa et al., 2015).

Meanwhile, CSR investment is an investment based on intangible resources such as innovation,

human resources, reputation, and culture. It is realized by CSR initiatives in environmental pre­
servation with the approval of shareholders, consumers, communities, and the government
(Surroca et al., 2009). This CSR investment covers the organization’s economic, social and environ­
mental impacts. There are also initiatives to provide stakeholders with better information on
sustainability issues (GRI, 2013). Freeman (1984) state that the company must provide benefits
to its stakeholders, such as the welfare of employees, customers, and local communities. It aims to
establish a good relationship between the company and the surrounding environment. De Klerk
et al. (2015); Khojastehpour and Johns (2014); Mishra and Suar (2013); Jain and Winner (2016)
state that CSR investment can improve reputation and a company’s performance. CSR creates
a sustainable performance that can attract the attention of stakeholders to become part of the
company by buying shares as proof of their ownership.

According to previous research, a positive correlation between CSR and financial perfor­
mance can be interpreted as a means to increase financial benefits. It can be achieved through
company reputation, brand image, customer loyalty, (Lee et al., 2017), cost reduction, opera­
tional flexibility, competitive advantage, and service (Galant & Cadez, 2017; Wahba & Elsayed,
2015). The success of environmental management will ultimately improve financial perfor­
mance (Akisik & Gal, 2017; Chtourou & Triki, 2017; Devie et al., 2019; Feng et al., 2017;
Mahrani & Soewarno, 2018; Nakamura, 2015; Nyeadi et al., 2018; Oware & Thathaiah, 2019;
Salehi et al., 2018; Sun, 2012). Based on the description above, the hypotheses for this study
are formulated as follows:

H1: Green investment has positive effect on financial performance

H2: CSR investment has positive effect on financial performance

H3: Green investment has positive effect on sustainable performance

H4: CSR investment has positive effect on sustainable performance

Based on the sustainability report with GRI standards, the implementation of green invest­
ment and CSR investment supports companies, both public and private, large and small, to
protect the environment and improve social welfare. At the same time, it can also develop the

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economy by enhancing governance and stakeholder relations, improving reputation, and build­
ing trust. A good relationship with stakeholders can increase the investment potential. As
a result, the company’s profit, in the form of productivity and sales, will increase. The increase
in company profit or net income can be interpreted as an increase in the company’s financial
performance. This illustrates the level of success of a company in generating profits which
refers to the standards and policies that have been previously set (Cochran and Wood, 1984).
The higher the profit of the company, the higher the rate of return to investors (Morea & Poggi,
2017).

The survival of the company also depends on the support of stakeholders. Therefore, the more
powerful the stakeholders, the greater the company’s efforts to adapt (Artiach et al., 2010; Roberts,
1992; Ullman, 1985). The level of a company’s financial performance affects investment decisions in
the future. For instance, when financial performance is high, the company faces urgent demands from
financial and non-financial stakeholders. It provides the company with the financial resources to
invest in social, environmental, and economic programs. High profitability allows the company to meet
the expectations of financial stakeholders. It also maintains the company’s ability to fulfill the
demands of social stakeholders through investment in social and environmental performance
(Artiach et al., 2010).

Sustainable performance is a balanced performance based on three aspects: people-planet-

profit, which is also known as the Triple Bottom Line concept. Therefore, company managers need to
make decisions to invest. In other words, managers should not consider green investment and CSR
investment activities as optional activities, but they can be integrated as a business strategy. When the
implementation of green investment and CSR investment are closely integrated into company opera­
tions, it will ease the economic and social targets toward an improved social and financial perfor­
mance of the company. Bénabou and Tirole (2010) and Martin (2012) showed that the company’s
financial performance affects sustainable performance. This means that if the implementation of
green investment and CSR investment are fulfilled, the company’s financial performance, as measured
by return on assets, will increase. Thus, the hypothesis is formulated as:

H5: Financial performance has positive effect on sustainable performance

Based on the hypotheses above, the research model is described in Figure 1 below:

Figure 1. Research model.

H3 (+)

Green
Investment (X1)
H1 (+)

Financial Sustainable
H5 (+)
Performance Performance
CSR (Z) (Y)
Investment H2 (+)
(X2)

H4 (+)

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4. Research method
The sample frame of this study included all companies listed on the Indonesia Stock Exchange in 2016–
2019. The sampling method used by this study was purposive sampling, with the following criteria: (1)
manufacturing companies that published annual reports and sustainability reports from
31 December 2016 to 2019; (2) manufacturing companies that presented complete data related to
research variables; and (3) manufacturing companies that presented annual reports in Indonesian
rupiah (IDR). Based on these criteria, 132 manufacturing companies were selected as sample of this
study.

This study has independent variables (green investment and CSR investment), an intervening
variable (financial performance) and a dependent variable (sustainable performance). Green
Investment is a company strategy to gain and maintain legitimacy. In this case, the company
manages the business effects on the environment by minimizing energy use, reducing carbon
emissions, and other negative effects (Berliner & Prakash, 2013; Minatti Ferreira et al., 2014; Testa
et al., 2015). Green investment is measured by using PROPER (i.e Company Performance
Assessment in Environmental Management). The Ministry of Environment and Forestry categorized
the PROPER rating into five levels: five for Gold (very good), four for Green, three for Blue, two for
Red, and one for Black (very poor) (Chariri et al., 2018; www.menlh.com).

CSR investment is an effort made by a company to be recognized as a socially wise entity to get
support from stakeholders. As a result, it can build the company’s reputation, which in turn
generates more profits (Surroca et al., 2009). The measurement of CSR investment (CSRINV) uses
natural logs by including the cost spent on CSR activities (Oyewumi et al., 2018).

CSRINV ¼ LnCSRCost

which:

CSRINC: CSR Investments

CSR Cost: Cost incurred by the company for CSR activities

Financial performance is used by companies to measure the level of success that the company
has achieved in generating profits over a certain period. It refers to the standards or policies that
have been previously set (Cochran and Wood, 1984). Financial performance is measured by the
profitability ratio with the proxy of Return on Asset (ROA). ROA is the ratio of net income to total
assets (Cochran and Wood, 1984).

Sustainable performance aims to improve investor confidence, employee loyalty, and maintain
the company’s reputation in the eyes of the community (Ernst and Young, 2013). Sustainable
performance is measured by using the Sustainability Report Disclosure Index (SRDI). It covers
general and specific standards. General standards consist of disclosure strategy and analysis, and
also organizational profile. It identifies the material aspects and boundaries, stakeholder relations,
report profiles, governance, ethics, and integrity. Meanwhile, specific standards contain disclosures
of the management approach, economic category indicators, environmental category indicators,
and social category indicators (GRI, 2013). The SRDI calculation is determined by assigning a score
of 1 if the item is disclosed, and a score of 0 if the item is not disclosed. The scores are then added
up to obtain the score for each company. Sustainable performance is calculated by comparing the
achieved disclosure score and the maximum score (Habek and Wolniak, 2015).

SEM-PLS (Structural Equation Modeling based on Partial Least Squares) with the SmartPLS 3.0
application was used to analyse the data in this study. SmartPLS 3.0 is designed to analyse latent

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variables using the manifest variable, multiple regression models, and path analysis using the
observed variable (Ghozali and Latan, 2015). The research model of this study can be found below:

η1 ¼ γ1�1 þ γ2�2 þ ς1

η2 ¼ β1η1 þ γ3�1 þ γ4�2 þ ς2

Information:

η1: Financial Performance

η2: Sustainable Performance

γ1-γ4: Coefficient

ξ1: Green Investment

ξ2: CSR Investment

ς1- ς2: Residual Value

5. Results

5.1. Descriptive statistic test

This study used several variables: CSR investment and green investment (as exogenous variables)
and financial performance and sustainable performance (as endogenous variables). The results of
descriptive statistics are presented in Table 1 below:

As shown in Table 1, the green investment variable has a high mean value. In other words, the
cross-section data between companies does not have a fairly large range of differences. It can be
shown by PT. Astra Otoparts Tbk (AUTO) that disclosed the green investment activities well and
consistently from 2016 to 2019. Based on the data, the PROPER rating of PT Astra Otoparts Tbk
(AUTO) was at level 5 (Gold). Meanwhile, the CSR investment variable has a high mean value, which
means that the cross-section data between companies does not have a fairly large range of
differences. The next company that has implemented CSR investment well includes PT Semen
Indonesia (Persero) Tbk (SMGR). In this company, the financial performance variable shows a low
mean value. This means that the cross-section data between companies has a fairly large range of
differences. For example, in terms of return on assets, when there is a deficit in a company, there is
also profit in other companies this is as reflected in PT. Kertas Basuki Rachmat Indonesia Tbk
(KBRI). The sustainable performance variable shows a high mean value. In other words, the cross-

Table 1. Descriptive statistic

Variable Min Max Mean Median Deviation
Standard
Green 2.000 5.000 3.182 3.000 0.479
Investment
CSR Investment 7.601 11.432 9.300 9.230 0.902
Financial −0.118 0.199 0.054 0.041 0.061
Performance
Sustainable 0.220 0.475 0.305 0.298 0.056
Performance

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Table 2. Convergent validity

Green CSR Investment Financial Sustainable
Investment Performance Performance
PROPER 1.000
CSRI 1.000
ROA 1.000
SRDI 1.000

Table 3. Average variance extracted (AVE)

Average Variance Extracted (AVE)
Green Investment 1,000
CSR Investment 1,000
Financial Performance 1,000
Sustainable Performance 1,000

Table 4. Discriminant validity

Green CSR Investment Financial Sustainable
Investment Performance performance
PROPER 1.000 0.270 0.263 0.503
CSRI 0.270 1.000 0.254 0.457
ROA 0.263 0.254 1.000 0.227
SRDI 0.503 0.457 0.227 1.000

Table 5. Composite reliability

Composite Reliability Cronbach’s Alpha
Green Investment 1,000 1,000
CSR Investment 1,000 1,000
Financial Performance 1,000 1,000
Sustainable Performance 1,000 1,000

Table 6. R-Square (R)

R Square Adjusted
Financial Performance 0.087
Sustainable Performance 0.346

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Table 7. Path coefficients

Original Sample Standard T Statistics P Values Decision
Sample (O) Mean (M) Deviation (|O/
(STDEV) STDEV|)
Green Performance 0.197 0.201 0.085 2.331 0.000
Investment
→ Financial
H1
Accepted
CSR Performance 0.210 0.206 0.094 2.223 0.027
Investment
→ Financial
H2
Accepted
Green Performance 0.339 0.333 0.104 3.266 0.001
Investment
→
Sustainable
H3
Accepted
CSR Performance 0.403 0.407 0.063 6.412 0.020
Investment
→
Sustainable
H4
Accepted
Financial Performance→
Sustainable
Performance
0.035 0.039 0.090 0.382 0.701 H5 Rejected

section data between companies does not have a fairly large range of differences. Furthermore,
a company that has a good sustainable performance is PT Japfa Comfeed Indonesia Tbk (JPFA).

5.2. Measurement model results (outer Model)

5.2.1. Convergent validity and average variance extracted (AVE)

Convergent validity aims to determine the correlation between the indicator and its construct. It is
categorized as valid and reliable if the correlation value is > 0.70 and the average variance extracted
value is ≥ 0.50. The results of the outer model output are presented in Tables 2 and Tables 3.

Based on the results of the convergent validity output above, the outer loading value is above
0.70. This proves that each variable has a good convergent validity value. Thus, the requirements
for convergent validity have been fulfilled.

Table 3 shows that the average variance extracted (AVE) output for each construct is >0.50. In
conclusion, all variables have good AVE and fulfill the requirements.

5.3. Discriminant validity and composite reliability

Discriminant validity aims to measure the construct with its indicators by other constructs which can
be seen from cross-loading. Meanwhile, the composite reliability test is used to assess the reliability of
the indicators of a latent construct with Cronbach’s alpha value above 0.70. The results of the cross-
loading output, composite reliability, and Cronbach’s alpha are presented below:

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 Table 8. Specific indirect effect
Original Sample (O) Sample Mean (M) Standard Deviation T Statistics (|O/STDEV|) P Values
https://doi.org/10.1080/23311975.2021.1960120

(STDEV)
Green Investment→Financial 0.007 0.009 0.021 0.325
Performance→Sustainable
Performance
0.745

CSR Investment→Financial 0.007 0.009 0.022 0.328

Indriastuti & Chariri, Cogent Business & Management (2021), 8: 1960120

Performance→Sustainable
Performance
0.743

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The value of cross-loadings in Table 4 above shows that each construct and its indicator has
a higher cross-loadings value than other constructs. Therefore, the constructs in this study can
predict their indicators better than other indicators.

Table 5 above shows that the value of each construct is > 0.70. This means all constructs are
good, and fulfill the reliability requirements.

5.4. Structural model test results (inner model)

5.4.1. Coefficient of determination (R2)

The R2 test was used to explain whether or not certain exogenous latent variables have a substantive
effect on endogenous latent variables. If the value of endogenous variables is close to one, the R2 test is
considered good. The following are the R-Square (R2) output results:

Table 6 shows that the CSR investment and green investment variables explain only 8.7 percent
of the financial performance variable, while the remaining 91.3 percent is explained by other
variables. Similarly, the sustainable performance variable accounts for 34.6 percent of the expla­
nation, while the remaining 65.4 percent is explained by other variables.

5.5. Hypothesis result (t-Test)

The result of the hypothesis test can be determined by the P values obtained from the boot­
strapping method in the Path Coefficient table. The hypothesis can be accepted if it has p-value of
<0.05 and t-statistic of > 1.96. The t-test results are presented in Table 7 below:

Table 7 shows that the green investment variable has a parameter coefficient of 0.197,
p value = 0.000 and a t-statistic 2,331 for financial performance. Meanwhile, for sustainable
performance, the value of the parameter coefficient is 0.339, the p value = 0.001 and the
t-statistic = 3.266. This means that the first hypothesis (H1), which states that green investment
has a significant positive effect on financial performance, is accepted. Besides, the third hypoth­
esis (H3), which states that green investment has a significant positive effect on sustainable
performance, is accepted. CSR investment has a parameter coefficient of 0.210, p values of
0.027, and a t-statistic of 2,223 for financial performance. On the sustainable performance, the
value of parameter coefficient is 0.403, p-value is 0.020 with t-statistic of 6,412. This means that
the second hypothesis (H2), which states that CSR investment has a significant positive effect on
financial performance, is accepted. Furthermore, the fourth hypothesis (H4), which states that
CSR investment has a significant positive effect on sustainable performance, is accepted. The
value of parameter coefficients, p values, and t-statistics for financial performance on sustain­
able performance are 0.035, 0.701 and 0.382 respectively. This means that the fifth hypothesis
(H5), which states that financial performance has a significant positive effect on sustainable
performance, is rejected.

Table 8 indicates that financial performance has a t-statistic of 0.325 and 0.328, whereas the
p-values are 0.745 and 0.743. In other words, financial performance cannot mediate the effect of
green investment and CSR investment on sustainable performance.

6. Discussion
Green investment and CSR investment have a positive effect on financial performance and sustain­
able performance. This indicates that an increase or decrease in the number of green investment
and CSR investment made by companies affects financial performance and sustainable perfor­
mance. Furthermore, green investment and CSR investment in Indonesian manufacturing compa­
nies can persuade the public, management, and investors through the company’s environmental
activities such as adopting new energy and company annual reports to reduce carbon emissions
during the company’s manufacturing process. Thus, green investment and CSR investment have
been proven to increase the company’s financial performance and sustainable performance.

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The criteria for manufacturing companies used as samples in this study are companies that are
responsible for their environment, and also companies that can convince internal and external
stakeholders that the company is committed to environmental activities. The green investment
activity is depicted in the PROPER rating. PT. Astra Otoparts Tbk. (AUTO) is at a rate of 5 (Gold/
3.03%), PT. Ekadharma International Tbk (EKAD), PT. Industri Jamu dan Farmasi Sido Tbk (SIDO),
PT. Semen Indonesia (Persero) Tbk (SMGR), PT. Indocement Tunggal Prakarsa Tbk (INTP), PT. JAPFA
Comfeed Indonesia Tbk (JPFA), and PT. Kalbe Farma Tbk (KLBF) are at a rate of 4 (Green/21.21%) .
Meanwhile, PT. Akasha Wira International Tbk (ADES), PT. Asahimas Flat Glass Tbk (AMFG), PT.
Primarindo Asia Infrastructure Tbk (BIMA), PT. Berlina Tbk (BRNA), PT. Betonjaya Manunggal Tbk
(BTON), and so forth are at a rate of 3 (Blue/75.76%).

The implementation of CSR in Indonesian manufacturing companies is shown by the reduction

of the operating costs. This is because, after implementing CSR, the company will reduce the costs
incurred for product marketing and replace them with CSR costs. Although the CSR costs incurred
initially are the company’s responsibility costs to their environment, the CSR activities will affect
company promotion activities and increase company sales. Therefore, the company will reduce its
product promotion costs to reduce the company’s operating costs. The higher the CSR investment
(the cost incurred for CSR activities), the more CSR activities conducted by the company. This
indicates that manufacturing companies have changed their paradigm to view green investment
and CSR investment as efforts to improve the welfare of society and companies.

The decision to invest in the environment can provide great benefits for the company. This is due
to the fact that the main focus of social investment is not only attention on the environment, but
also to obtain returns in the form of high profits. Accordingly, it can improve financial performance
which in turn attracts investors to invest their shares. Moreover, the implementation of green
investment and CSR investment in Indonesian manufacturing companies indicates a healthy and
good relationship with stakeholders. It can reduce the risk of market uncertainty, disruption, loss,
or damage to company operations and unwanted events (Ansong, 2017), because the green and
CSR investment activities demonstrate the ability of a manufacturing company to manage and
reduce environmental and other risks, such as brand damage, reputation, boycotts, and govern­
ment fines.

The manufacturing companies in Indonesia have been active in maintaining their legiti­
macy by aligning policies and strategies according with environmental ethics. This is realized
by managing the business effect on the environment (minimizing energy use, reducing carbon
emissions, and other negative effects). The implementation of green investment and CSR
investment can improve a company’s reputation and competitive advantage. Consequently, it
also improves a company’s financial performance and sustainable performance. Thus, stake­
holders will invest in the long term because they feel that manufacturing companies in
Indonesia can survive for a long time. Furthermore, the green investment and CSR investment
activities of the companies aim to respond to social needs in the sustainability reports used
by companies. The sustainability reports are used by companies to communicate to the public
and stakeholders. This helps in communicating the company’s contribution to environmental
and/or social performance. As the result, it increases trust and maintains a good relationship
between stakeholders in verifying the company’s social activities.

The results of this study are in line with the results of research by Chariri et al. (2019), Cohen and
Robbins (2011), Mangla et al. (2014), Manrique and Ballester (2017), and Murovec et al. (2012), and
Turcsanyi and Sisaye (2013), that green investment has a positive effect on financial performance.
Saxena and Khandelwal (2012) have proven that green investment has a positive effect on
sustainable performance. Besides, Akisik and Gal (2017), Chtourou and Triki (2017), Devie et al.
(2019), Feng et al. (2017), Mahrani and Soewarno (2018), Nakamura (2015), and Nyeadi et al.
(2018), and Oware and Thathaiah (2019), and Salehi et al. (2018), and Sun (2012) also suggested
that CSR investment has a positive and significant effect on financial performance. Furthermore,

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De Klerk et al. (2015), Khojastehpour and Johns (2014), Mishra and Suar (2013), and Jain and
Winner (2016) believe that CSR investment can improve a company’s sustainable performance.

On the other hand, Munoz et al. (2014) stated that green investment has a negative effect on
financial performance. Oyewumi et al. (2018) argued that CSR investment has a significant nega­
tive effect on financial performance because companies consider CSR investment as a cost.
However, Ducassy (2013) and Lin et al. (2014) found that green investment has negative effect
on sustainable performance. Menzel et al. (2010); Newell and Lee (2012) added that CSR invest­
ment does not affect improvement in financial performance. Furthermore, Perez-Batres et al.
(2010) stated that CSR investment does not affect sustainable performance.

Financial performance has no effect on sustainable performance. The results of this study
show that financial performance does not play an important role in improving sustainable
performance. The financial performance proxied by return on assets (ROA) shows that some
of the ROA owned by manufacturing companies in Indonesia have decreased. This can be
a sign that the company’s profits have decreased and the total asset of the company is big.
Therefore, the comparison between profit and the total asset is small. The big total asset
indicates that the components of the total assets are also big, such as receivables, loans, and
financing. This is due to the fact that these components are the main percentage of the
components that make up the total assets.

The sustainability aspect of manufacturing companies in Indonesia is still at the second or third
level. Sustainable performance is still a “nice to have” thing. It has not reached the “great to have”
thing, or a higher level, “mandatory to have”. The awareness and understanding of sustainable
performance in Indonesia are still low. Consequently, the company’s financial performance is low
as well. This indicates that high profitability does not necessarily fulfill the expectations and
demands of the financial stakeholders. The level of financial performance produced by manufac­
turing companies in Indonesia cannot guarantee future investment decisions. When financial
performance is high, companies face urgent demands from both financial and non-financial
stakeholders and as such companies must have the financial capacity to invest in programs for
social and environmental progress, as well as the economy.

Dhaliwal et al. (2011) and Karnani (2010) also found similar result and that is, financial
performance has a negative effect on sustainable performance. Otherwise, Bénabou and
Tirole (2010) and Patrick R. Martin and Moser (2012) believe that financial performance can
improve the company’s sustainable performance. In other words, if green investment and CSR
investment are applied, the company’s financial performance, as measured by Return on
Assets, will increase.

7. Conclusion
Green investment and CSR investment activities of the 132 manufacturing companies in
Indonesia were at the high category. This means that the majority of manufacturing com­
panies have shown that their operational activities are consistent with the values and norms
of community. Additionally, several stocks from manufacturing companies are listed in the
SRI-KEHATI stock index, including PT. Japfa Comfeed Indonesia Tbk (JPFA), PT Kalbe Farma
Tbk (KLBF), PT Industri Jamu dan Farmasi Sido Tbk (SIDO), and PT Semen Indonesia Persero
Tbk (SMGR). This indicates that the manufacturing companies sampled in this study have
good stock price performance as they are listed in 25 companies that have good performance
in encouraging sustainable businesses. They also have the awareness of the environment,
social, and good corporate governance.

Green investment and CSR investment have a positive and significant effect on financial
performance and sustainable performance. This implies that the increase or decrease in the
green investment and CSR investment affects financial performance and sustainable

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performance. Green investment and CSR investment are voluntary activities carried out by
companies to achieve social goals and ethical motives. Previous research has revealed
various CSR motivations, such as risk management and avoiding government penalties,
although companies have to spend more to make green investment and CSR investment
(Ducassy, 2013; Lin et al., 2014). Meanwhile, financial performance has a positive but insig­
nificant effect on sustainable performance. Financial performance cannot mediate the effect
of green investment and CSR investment on sustainable performance. Therefore, it can be
concluded that financial performance is no longer an important factor in sustainable perfor­
mance improvement.

This study has some implications for the role of green investment and corporate social responsibility
investment on sustainable performance. First, this study can be a reference for manufacturing compa­
nies in Indonesia to adopt green investment and CSR investment. It can be a strategy to increase profits
without damaging the environment. Second, for the government, this study can be a reference for
formulating regulations related to business and the environment. Third, for investors, it can be used as
a direction to create investment-related decisions. However, this study also has some limitations such
as: first, the ability of green investment and CSR investment variables to explain the financial perfor­
mance variable which is only 8.7% and the ability in explaining the sustainable performance variable is
only 34.6%; second, these research results are limited to manufacturing companies in Indonesia; hence
the results cannot be generalized to manufacturing companies in other countries. Therefore, future
research needs to add other independent variables such as carbon price, company characteristics, good
corporate governance, and adding samples for non-manufacturing companies.

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The authors received no direct funding for this research. https://doi.org/10.1111/j.1467-629X.2009.00315.x
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