The Impact of Return on Equity and ESG Disclosure on Sustainable Growth Rate: The Mediating Role of Green Innovation

Abstract

This study examines the effects of Return on Equity (ROE) and Environmental, Social, and Governance (ESG) Disclosure on Sustainable Growth rate (SGR), with Green Innovation (GI) serving as a mediating variable. The study addresses the limited empirical evidence on whether financial performance and ESG transparency contribute to sustainable corporate growth through green innovation. This quantitative study employs balanced panel data from 34 companies listed on the Indonesia Stock Exchange over the 2021-2025 period, resulting in 170 firm-year observations. Panel regression is applied, with the Fixed Effects Model used for the GI equation and the Random Effects Model for the SGR equation. The results show that ROE does non significantly affect GI (β= -0.01434; p = 0.814), while ESG Disclosure also has no significant effect on GI (β= -0.02664; p = 0.738). GI does not significantly affect SGR (β= -0.09795; p = 0.357). However, ROE has a positive and significant effect on SGR (β= 1.19948; p < 0.001), whereas ESG Disclosure has no significant direct effect (β= 0.08981; p = 0.441). Bootstraps results further indicate that GI does not mediate the effects of ROE or ESG Disclosure on SGR, as the 95% confidence intervals include zero. This study contributes empirical evidence that sustainable corporate growth in the observed firms is more directly associated with financial performance than with ESG disclosure or green innovation mechanisms. The findings provide implications for managers and policymakers to strengthen then integration of financial performance with substantive green innovation rather than relying primarily on ESG disclosure.