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Article

Determinants of Corporate Water Disclosure in Indonesia

by
Indah Fajarini Sri Wahyuningrum
1,*,
Amin Chegenizadeh
2,
Ain Hajawiyah
1,
Sriningsih Sriningsih
1,
Sri Utami
3,
Mochamad Arief Budihardjo
4,5 and
Hamid Nikraz
2
1
Department of Accounting, Faculty of Economics, Universitas Negeri Semarang, Semarang 50229, Indonesia
2
School of Civil and Mechanical Engineering, Faculty of Science and Engineering, Curtin University, Perth, WA 6102, Australia
3
Department of Economics, Faculty of Economics, Universitas Negeri Semarang, Semarang 50229, Indonesia
4
Department of Environmental Engineering, Faculty of Engineering, Universitas Diponegoro, Semarang 50275, Indonesia
5
Environmental Sustainability Research Group, Universitas Diponegoro, Semarang 50275, Indonesia
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(14), 11107; https://doi.org/10.3390/su151411107
Submission received: 25 March 2023 / Revised: 23 May 2023 / Accepted: 29 May 2023 / Published: 17 July 2023
Browse Figures
Versions Notes

Abstract

:
Water information disclosure by companies in Indonesia has become an important commitment to safeguarding water resources and taking responsibility for the environment and stakeholders. This study has two objectives. First, it investigates the extent of water information disclosed by manufacturing companies listed on the Indonesian Stock Exchange. Second, this study investigates the determinants that affect the disclosure of water information. Water information disclosure is analyzed using content analysis based on the Global Reporting Initiative (GRI)-G4, the CDP’s 2020 Water Safety Questionnaires, and indicators used in previous research. This study uses data from the annual reports and sustainability reports of manufacturing companies listed on the Indonesia Stock Exchange from 2017 to 2020. The determinants tested in this study include the existence of a CSR committee, board independence, government ownership, profitability, company size, and industry type. These findings indicate that companies with CSR committees disclose less water information. Meanwhile, share ownership by the government has a significantly positive effect on water information disclosure. The variables—board independence, profitability, company size, and industry type—do not affect water information disclosure. This study contributes to the literature by providing a comprehensive perspective on water information disclosure in Indonesia.

1. Introduction

Indonesia faces clean water problems related to water scarcity and people’s access to clean water [1]. Clean water problems can occur as a consequence of increasing water demand for household, agricultural, mining, and other industrial activities. This condition is worsening due to the impact of climate change that affects the hydrological cycle and the increasing amount of wastewater that decreases water quality [2]. From a global perspective, Indonesia’s water problems are similar to other countries where the problems are related to water scarcity, quality, and management. Poor management of water affects human health, ecosystems, and disrupts business activities [3]. Problems in Indonesia’s governance at various levels have a greater impact on the complexity of environmental and water development challenges. For example, population growth exacerbates water problems by increasing the demand for water (as of 2020, Indonesia has the fourth biggest population in the world). The lack of public education also makes it difficult to raise public awareness of the need to improve water conservation.
Companies’ activities have a significant impact on water resources owing to their business activities taking a lot of water. Those companies are particularly in mining, agriculture, and other manufacturing sectors. However, water risks related to the environment and society are highly expected to damage the companies’ future activities in the next ten years [4]. Because of that, businesses are taking more initiative to address water issues because of worries about the rising unpredictability of the water supply and the competing water demand. In addition to the water demand side, corporations act on the supply side by viewing the water issue as a significant commercial opportunity. Residents are forced to rely mostly on bottled drinking water supplied by different companies due to a lack of access to clean water, which contributes to the commercialization of water. Indonesia’s vast population makes the drinking water industry profitable because demand grows by 11–12% annually [1]. The Central Statistics Agency noted that the number of clean water supply companies in Indonesia has increased since 2017 (see Figure 1). There were 534 clean water companies in Indonesia in 2017, which increased to 536 in 2018 and then increased significantly in 2019 to 541 companies.
The development of clean water companies in Indonesia has resulted in a drastic increase in water consumption. On the other hand, because of water commercialism, society views water as a public good that is important for the survival of living things. As a result, water utilities (such as water companies) must provide suitable conditions for fair public access and produce a good sustainable performance to be accepted by the general public [6]. Meanwhile, the water pollution problem continues to threaten Indonesian waters because of these firms’ commercial activities. In 2021, companies in Indonesia contributed 60 million tons of hazardous waste [7]. The largest contribution came from the manufacturing sector, which included 2897 companies (see Figure 2).
The corporate sector’s involvement in the water crisis begs the question of what role they can play in finding a solution. Companies should act for water management and water preservation, then inform stakeholders of that. From the standpoint of sustainable accounting, the disclosure of water information through transparent and responsible reporting generates business accountability. Prior research carried out in the Indonesian setting shows that water issues have been thoroughly investigated as part of corporate social responsibility (CSR) or sustainability subjects [8]. However, from an accountability standpoint, none of the earlier research that was printed in credible publications has specifically addressed water disclosure in Indonesia.
The body of literature on environmental accounting is quickly expanding because of the increased research on environmental information disclosure. Regrettably, there has not been a lot of useful research on the environmental component of water information sharing [9]. Existing research on water information also does not specifically look at water information disclosure, and the studies are located outside of southeast Asia. Research on the degree of disclosure of water information and the factors influencing that disclosure, particularly in manufacturing businesses listed on the Indonesia Stock Exchange, will address this vacuum in the literature. Several factors influence water information disclosure, including the presence of a CSR committee, board independence, government ownership, profitability, company size, and industry type.
The contribution of the corporate sector to water problems raises the question of how they can contribute to the solutions. From the perspective of sustainability accounting, this problem gives rise to corporate accountability in the form of water information disclosure as transparent and accountable reporting. Corporate water information disclosure is a normative publication that highlights water accounting as an important element in the improvement of water management in companies and as a communication medium regarding information about water use by companies to stakeholders in general (Morrison, Schulte, & l’environnement, 2010; Project, 2013; WBCSD, 2009) [10,11,12]. When viewed in terms of its components, corporate water information disclosure is a publication based on water accounting with elements related to information on water management, water use, water risk, water opportunities, and water data submitted to formal and informal stakeholders. The number of studies related to corporate water information disclosure is starting to grow rapidly, but previous research has mostly focused on water information disclosure practices in developed countries, especially east Asia (Ben-Amar and Chelli, 2018; Burritt, Christ, and Omori, 2016; Liu, Su, and Zhang, 2021; Zhang et al., 2021; Q. Zhou, Wang, Zeng, Jin, and Zeng, 2021) [3,13,14,15,16]. Ben-Amar and Chelli (2018) [13] analyzed 1166 non-financial companies included in the 2015 CDP Global Water Report; these were dominated by companies in the USA, UK, Japan, and Australia, and only a few companies were in emerging economies. Some studies (Liu et al., 2021; Zhang et al., 2021; Q. Zhou et al., 2021) [14,15,16] have focused on investigating water information disclosure in mainland China. In addition, Burritt et al. (2016) [3] identified the level of disclosure in Japan.
Several previous studies on the Indonesian context have shown that water issues have been widely analyzed as part of corporate social responsibility or sustainability themes (Gunawan, 2016) [8]. None of the previous studies that were published in reputable journals have addressed water disclosure in Indonesia in any particular sense from an accountability perspective. Research on the disclosure of environmental information is growing rapidly and adding to the repertoire of environmental accounting literature. However, research available on disclosing water information as a component of the environment is not significant (Z. Zhou et al., 2018) [9]. These circumstances constitute the background of this study which analyzes the level of water disclosure in Indonesia, because water problems are also experienced by developing countries such as this one (Figure 2). Research related to water information also does not specifically disclose water information and its location outside of the southeast Asia region. This gap in the literature will be closed by this research which will be conducted to examine the level of disclosure of water information and the factors that influence such disclosure, especially in manufacturing companies listed on the Indonesia Stock Exchange. Manufacturing companies contribute significantly to water problems in Indonesia (Figure 2).
Previous empirical studies have tested the relationship between water information disclosure and company characteristics such as company size, profitability, type of industry, and company age (Bambang, Djoko, Djuminah, and Setianingtyas, 2020; Burritt et al., 2016; Yu, Kuo, and Ma, 2020; Z. Zhou, Zhang, Chen, Zeng, and Chen, 2020) [3,17,18,19]. However, research on each component of the company’s characteristics has not been carried out widely. Meanwhile, previous research has also focused a lot on the relationship between good corporate governance as reflected in the board’s gender diversity, national culture, the concentration of share ownership, and water information disclosure (Bambang et al., 2020; Liu et al., 2021; Peng, Lan, Li, and Fan, 2023; Salsabila and Adhariani; Z. Zhou et al., 2020) [17,20,21,22]. Other factors examined by previous researchers also include the relationship between stakeholder pressure (government, media exposure and public visibility, and international stakeholders) and water information disclosure (Bambang et al., 2020; Wicaksono and Setiawan, 2022) [17,23]. Of the many factors thought to increase water information disclosure practices by companies, profitability has varied results. The analysis by Burritt et al. (2016) [3] finds that profitability has no effect on water information disclosure in line with Yu et al. (2020) [18], whereas others have assessed that there is a link between profitability and water accounting (Christ and Burritt, 2017; Hazelton, 2013) [24,25]. Likewise, the type of industry associated with being water-sensitive by Q. Zhou et al. (2021) [16] is known to have an effect on water information disclosure, whereas Bambang et al., 2020; Liu et al., 2021; and Yu et al., 2020 [13,17,18] find that the industry with the highest market power (Z. Zhou et al., 2020) [22] is the type of industry that has a significant relationship to water information disclosure. Meanwhile, the relationship between the government (i.e., where there is government ownership) and water information disclosure has been found to be influential (Wicaksono and Setiawan, 2022, 2023; Q. Zhou et al., 2021) [16,23,26]; however, others (He, Sun, Wang, Shen, and Xu, 2023) [27] have shown that the influence of the government tends to vary depending on the region. This study also takes into account other factors such as the CSR committee, board independence, and leverage which have never been analyzed in relation to water information disclosure. In this sense, the main motivation of this study is to fill the gap in previous research by examining the relationship between corporate governance (the existence of a CSR committee, board independence, government ownership) and company characteristics (profitability, company size, and industry type) with water information disclosure. Thus, the following discussion in this study includes Section 2 which presents the literature review and hypothesis development; Section 3 describes the research method; Section 4 demonstrates the research results; Section 5 presents the discussion; and finally, Section 6 presents the conclusion of this study.

2. Literature Review and Hypothesis Development

This study uses institutional theory to explain a company’s situation due to institutional pressure to disclose water information [28,29]. The pressure here is related to the reasons companies disclose water information and how this information relates to company actions [30]. Deegan (2017) [31] distinguished two branches of institutional theory: decoupling and isomorphism. Decoupling involves comparing water information reports with the reality in the company and finding out the validity of reports made by other organizations. Meanwhile, isomorphism is institutional pressure from stakeholders on firms to share water information [32]. Isomorphism was classified into three categories by DiMaggio and Powell (1983) [28]: coercive, mimetic, and normative. Institutional theory looks at how the existence of values, norms, and behavior (old institutional theory) encourages organizations or companies to think and act tactically and consider classification factors, actions, strategies, and schemes (new institutional theory) (DiMaggio and Powell, 1983) [28]. These values, norms, and behaviors originate from formal and informal institutions, and then influence—and are responded to by—business institutions such as companies. Ben-Amar and Chelli (2018) [13], in their research on 1166 non-financial companies included in the 2015 CDP Global Water Report, explain that the existence of formal and informal institutions, such as the government and also stakeholders, encourages companies to respond to requests for expanding what is exposed by disclosure related to water management challenges and strategies. Meanwhile, companies have a tendency to become more homogeneous, including in their water management efforts, within the scope of business. When a group of companies engaging in a business starts to implement water management and disclosure practices, these changes will also be adopted by other companies.
The primary goals of the corporate social responsibility (CSR) committee are to manage sustainability-related risks and opportunities, achieve business objectives, and satisfy stakeholder duties [33]. The company’s CSR committee has the authority to examine policies, manage, and oversee the company’s commitment to sustainability concerns, including the sharing of social and environmental information [34]. Sustainability issues, which include the disclosure of water management information in sustainability reports, can be a priority for the CSR committee. When compiling water-themed information related to the company’s activities, the CSR committee can compel the company’s management to collaborate. Fuente et al. (2017), Gallego-Álvarez and Pucheta-Martínez (2020), Helfaya and Moussa (2017), and Michelon and Parbonetti (2012) [34,35,36,37] note that the amount of transparency in CSR reports is influenced by the existence of a CSR committee. A CSR committee may lead to more companies disclosing information about water, which is also of good quality.
The existence of a corporate social responsibility (CSR) committee or similar at the board level is a manifestation of commitment—and strong evidence regarding the scope of corporate governance, that there are priorities or orientations—toward water management such as saving water, managing water risks and opportunities, and administering water data (Zhang, Tang, and Huang, 2021) [15]. A company’s CSR committee can interpret water management practices as a form of allocation of productive resources that are beneficial to that company (Hussain, Rigoni, and Orij, 2018) [38]. Therefore, the CSR committee is able to encourage management to incorporate water-related practices into the company’s strategic planning.
H1. 
The existence of a CSR committee has a positive effect on water information disclosure.
Boards of directors or commissioners direct or supervise a company’s activities to benefit shareholders and stakeholders. The board’s independence provides independent supervision without the intervention of certain interests, both individuals and groups. Hence, it is expected that more independent board members will lead to better managerial oversight and control [39,40,41]. The role of directors or commissioners, especially independent ones, can suggest the extent to which reporting is carried out as a right for shareholders [42]. Companies may be compelled to include water information as specific information about the environment in CSR reports by independent board pressure. Thus, the higher the number of independent members, the greater the pressure large companies feel to respond (i.e., by revealing water information). Independent board members who do not directly hold executive positions in a company or do not act as a majority shareholder will be free of conflicts of interest, so it is hoped that their presence will promote environmental practices such as water management.
H2. 
Independent boards have a positive effect on water information disclosure.
The Indonesian government has regulations on CSR disclosures by companies and water resources. These two types of government regulations (legal and formal), which are coercive, can synergize to pressure or force companies to disclose water information in CSR reports by imposing sanctions if the rules are ignored. State-owned companies can obey and submit because the people on their boards of directors are chosen by the government, instead of having the characteristics of companies that are open to the public and whose activities are freely monitored by anyone. In general, in addition to the prosperity of shareholders, the company is seen as having to fulfill the government’s needs for the company’s legitimacy to be strong or stable. Government involvement through share ownership can encourage companies to disclose environmental information and put pressure on companies to be responsible in line with government aspirations [43,44,45,46]. As a result, it is predicted that businesses with a high percentage of government ownership will reveal more environmental data, such as water, to the public. This means that, through the application of regulations that companies must comply with, the government is a very influential stakeholder with regard to both water management and disclosure practices. The presence of the government as a shareholder also strengthens the influence of regulations on those companies, because the government can be directly involved in management and thus influence decisions, including those related to water disclosure practices.
H3. 
Government ownership has a positive effect on water information disclosure.
Profitability is important in determining a company’s sustainability [47]. Companies with large profits have relatively stable finances, so they can publish relatively good non-financial information [48]. This non-financial information is concerned with water-related information. This is done to show stakeholders that the business is trustworthy and capable of making significant profits while at the same time maintaining legitimacy. In addition, companies with high profitability have the opportunity to manage water (water sources, recycling, wastewater, etc.). Logsdon (1985) and Nagendrakumar, Nagalingam, et al. (2022) [49,50] find that environmental policies are sensitive to profitability. Profitability gives businesses the tools and resources they need to respond to stakeholder concerns [51,52]. The expectations of stakeholders are another pressure point for businesses [53,54]. As a result, it is anticipated that a corporation will provide more detailed water management information the more profitable it is.
H4. 
Profitability has a positive effect on water information disclosure.
Larger companies attract public attention more easily, and a wider range of stakeholders’ interests are often represented in their operations [55]. Larger companies are also more likely to be the focus of intense government or specialized stakeholder scrutiny (e.g., hostile consumers or radical employees) [56]. Hence, in order to avoid unfavorable publicity, larger companies are typically more ready to provide information about water [57], maintain legitimacy [58], and prevent consumer boycotts of their products. The amount of information released varies by company size. Large, well-known companies may disclose more water information than other companies because they frequently use water resources in their operations. Generally, large-scale companies are associated with financial qualifications to finance the implementation of certain programs (such as water management) and disclose information about them in sustainability reports. Thus, the larger the scale of the company, the more likely there will be a broader disclosure of water information. The classification of industries can be based on the type of industry, business scope, and sensitivity to certain issues. The research conducted by Yu (2022) [59] on companies in the Shanghai and Shenzhen Stock Exchanges categorizes companies based on environmental sensitivity, especially water risks and opportunities.
H5. 
Company size has a positive effect on water information disclosure.
The term “industry type” relates to a company’s standards or classification in relation to its industry, business risks, workforce, and work environment [60]. Industries are classified into two types based on their proximity to the environment: high-profile industries (environmentally sensitive) and low-profile industries (not environmentally sensitive) [61,62]. Companies with high-profile status generally receive more public attention because their operations have a high potential for intersecting with broad interests, particularly the environment. Thus, the type of industry is an indicator that needs to be considered to see how widely a company discloses social and environmental information [63]. The type of industry is also a determinant of certain types of CSR activities, such as water management [64,65,66,67]. As a result, more information about water will be reported by high-profile companies or companies in environmentally conscious industries than by low-profile companies (that are not environmentally sensitive).
H6. 
Type of industry has a positive effect on water information disclosure.

3. Data and Method

The annual and sustainability reports of manufacturing businesses that list on the Indonesia Stock Exchange were the primary source of secondary data for this study. The manufacturing businesses listed on the IDX from 2017 to 2020 made up the research population. A total of 60 units of analysis were chosen for the research sample using a purposeful sampling technique. Table 1 shows the sample selection criteria.
Indicators from C. Liu et al. (2021) [14], which are based on the Global Reporting Initiative (GRI-G4), CDP’s 2020 Water Safety Questionnaires, and the indicators for water information disclosure used in research by Z. Zhou et al. (2018) and Cantele et al. (2018) [6,16], were used to measure the dependent variable in this study. Their studies employed a set of indicators for water information disclosure, represented by 8 disclosure themes and 37 indicators. Table 2 shows the indicator items used to assess water information disclosure.
The independent variables tested were the existence of a CSR committee, board independence, government ownership, profitability, firm size, and industry type. Table 3 presents the definitions and proxies for each research variable. Data collection used documentation techniques applied to the annual report and sustainability reports obtained from the Indonesian Stock Exchange and related companies’ websites. The data were examined using descriptive statistical analysis, the classical assumption test, multiple linear regression analysis, and hypothesis testing using IBM SPSS software version 25. The multiple linear regression model is described in Equation (1).
WATER = α + β1KOM_CSR + β2IND_DEWAN + β3GOV + β4PROFIT + β5SIZE + β6TYPE + e

4. Results

There was variability in the water quality disclosed by manufacturing companies on the Indonesia Stock Exchange from 2017 to 2020 (see Figure 3). The years 2017–2019 exhibited an increase in the overall score, with an average of 27% in 2017, 29.3% in 2018, and 32% in 2019, but decreased to an average of 28.2% in 2020. As shown in Figure 3, the measurement component of water information disclosure consists of eight components: water withdrawal/demand, water recycling discharge, water use, water conservation, water management, water policy, water risks/opportunity, and water data reliability. All disclosure items increased from 2017 to 2019 but decreased in 2020. This may have occurred because 2020 was the beginning of the COVID-19 pandemic in Indonesia, which resulted in all industries experiencing pressure and unstable financial conditions. Companies prioritize cost-effectiveness in these situations, which includes providing the best water information disclosure possible given their financial and commercial circumstances.
Figure 3 also shows that water use has a high percentage, between 68% and 75%. However, these percentages represent only two disclosure items (Table 2). Meanwhile, the water recycling component can have a fairly high percentage (27% to 37%) with large indicators (seven items) compared to other components. Water withdrawal/demand also shows a fairly optimal percentage (22–37%) with six disclosure items. Both components have wider disclosures than other components. This suggests that companies might mention these things in sustainability reports. Companies can also make the most of other disclosure components to provide high-quality water information. The outcomes of the descriptive statistical analyses of the following research variables are shown in Table 4.
Moreover, the data were found to be regularly distributed using the Kolmogorov–Smirnov test, which produced a significance value of 0.081 (>0.05). The sample used in this study had no signs of multicollinearity, and each variable had a VIF value of 10 and a tolerance value larger than 0.10. The autocorrelation test was employed to test for correlation of all variables in this study, and the results reveal a significance value of 0.076 greater than 0.5 (5%), suggesting that the regression model does not exhibit autocorrelation and that the regression can proceed. The Park test was used to assess heteroscedasticity, and the results showed a significance value greater than 0.05, indicating that this regression model did not contain any heteroscedasticity (Table 5).

5. Discussions

5.1. The Effect of the Existence of a CSR Committee on Water Information Disclosure

A corporate social responsibility (CSR) committee in the organization reduces the amount of water information disclosure that is produced. Branco and Rodrigues (2008) [76] revealed that environmental issues are meaningless at the board level. Such issues are risks, and companies must protect themselves from them. This implies that environmental governance, including water information disclosure, a signal of concern for the environment, does not lead to significant environmental improvement. The presence of a CSR committee on the company’s board of commissioners was deemed to lessen the quality of water disclosure. This may occur when the cost of providing a CSR committee minimizes the number of disclosures in the sustainability report. This statement is appropriate, given that only two companies (PT Austindo Nusantara Jaya Tbk and PT Semen Indonesia Tbk) in the research period have a CSR committee. On the other hand, companies that do not have a CSR committee still disclose high-quality water information. The results of this study are in direct opposition to those of several earlier studies, including Fuente et al. (2017), Helfaya and Moussa (2017), Michelon and Parbonetti (2012), and Gallego-Álvarez and Pucheta-Martínez (2020) [34,35,36,37], which claimed that the existence of a CSR committee had an impact on the degree of transparency of CSR reports.

5.2. The Effect of the Independence of the Board of Commissioners on Water Information Disclosure

The Board of Commissioners’ independence has no appreciable impact on the quality of water information disclosure. Mahrani and Soewarno (2018) [77] disclosed that the possibility that the competency of the independent commissioners is subpar prevents the board of commissioners’ independence from having an impact on the disclosure of social and environmental duties, particularly water disclosure. Nugraheni and Khasanah (2019) [78] also stated that a competent independent board of commissioners is required for decision making, particularly to raise the standard of decision making. The absence of pressure on management to reveal non-financial information, such as water information disclosure, is a significant problem when many members of the boards of commissioners lack the ability to act independently in their supervisory roles for the company [71,78].
The independence of the board of commissioners was not felt when the proportion of independent members was less significant. The Financial Services Authority (POJK) Number 33/POJK.04/2014 regulations in Article 20 (3) stipulate that at least 30% of the members of the boards of commissioners must be independent. The percentage of independent commissioners in several units of analysis, however, shows that the figures fall short of the requirements outlined in the legislation. This explains why the independent commissioner is less effective and does not affect water information disclosure [79,80].

5.3. The Effect of Government Ownership on Water Information Disclosure

Government ownership had a positive effect on water information disclosure. The Indonesian government has regulations governing CSR disclosure by companies and water resources, namely Government Regulation of the Republic of Indonesia No. 22 of 2021 on Environmental Protection and Management Implementation. This regulation also applies to the company’s water quality protection and management. This coercive government regulation (legal or formal) can synergize to pressure or force companies to disclose water information in CSR reports by imposing sanctions if the rules are ignored. State-owned companies have the opportunity to be obedient and submissive because the government chooses the people on their boards of directors. State-owned businesses (State-Owned Enterprises/BUMN) also tend to adhere to rules better, which includes disclosing water information in their sustainability reports. Thus, state-owned companies have better and wider water information disclosure quality than companies not owned by the state. This study’s results align with research conducted by [16,23,81].

5.4. The Effect of Profitability on Water Information Disclosure

Profitability fluctuations have no effect on the quality of a company’s water information disclosure. When a company earns a profit or a high level of profitability, it considers reporting on non-financial activities, such as water disclosure, unnecessary. Companies feel they are exempt from disclosure requirements for information that could harm their ability to succeed financially, such as environmental disclosures [82]. As stated in the annual report, the corporation considers that stakeholders, particularly investors, are already interested in the company’s profitability. Thus, companies often disclose only water information as necessary or comply only with regulations. This indicates that budget allocation for the procurement of water management programs has not become the company’s priority or work agenda, even though the company’s profitability is classified as high [3,18]. In the meantime, the company tightens its belt or reduces some expenses, including those linked to water management [83].
This assumption is supported by the lack of awareness among stakeholders, especially investors, regarding environmental issues, such as water management. Investors pay more attention to financial information when making decisions. In addition, investors also believe that excessive water information disclosure increases costs and results in reduced investment returns. Research by Brammer and Pavelin (2008) and Kuo and Yu (2017) [57,84], which found that profitability is unrelated to environmental disclosure, supports the findings of this study.

5.5. The Effect of Company Size on Water Information Disclosure

Information disclosure about the quality of the water was unaffected by company size. The size of a company’s assets does not change the extent of the disclosure of water management by the company. The underlying reason for this is that each company provided water information disclosure to approximately the same extent. On average, water information is disclosed as necessary in a sustainability report, regardless of the company’s size. Thus, although the company has large assets, it does not make its water disclosure wider than the standard. However, companies with small assets still provide water disclosure information to stakeholders. Whether they have a high or low profile, companies are under pressure from their stakeholders to disclose non-financial information, including water information [85]. The results of this study are in opposition to other studies that discovered that the quality of water information disclosure was positively impacted by the company’s size [3,86,87].

5.6. The Effect of Industry Type on Water Information Disclosure

The type of industry of the company really has no bearing on the quality of water information disclosure. Companies from both high-profile and low-profile industries still attempt to disclose water management information in sustainability reports. This is because water is an essential need that is still used by the company even though it is not in an environmentally sensitive industry. Both high- and low-profile companies consider water disclosure as a way for them to take responsibility for their water use operational activities. Thus, each company provided information on the impact of water consumption. Manufacturing companies in Indonesia disclose at least 6% of all water indicators in their sustainability reports. The minimum amount is small; however, this indicates that manufacturing companies in Indonesia are aware of water information disclosure. Companies make water disclosure an inseparable part of environmental responsibility to gain public and stakeholder trust [60]. These results are supported by [17,88,89].

6. Conclusions

The issue of corporate water information has attracted a lot of attention from researchers, governments, companies, and the general public. This study aims to explore the level of water information disclosure in Indonesia as an emerging economy. After measurements using content analysis were carried out, it was found that the quality of water information disclosure by manufacturing companies on the Indonesia Stock Exchange fluctuated between 2017 and 2020. The components of disclosure related to water withdrawal/demand and water recycling that are published by the companies are more extensive than other components. This indicates the potential for companies to disclose these items in the sustainability report. Then, after empirical tests with regression analysis were conducted, it was found that companies that have CSR committees have a lower quality of water information disclosure than companies that do not have CSR committees, meaning the hypothesis related to CSR committees is rejected. The results also show that the government having a share of ownership has a positive effect on water information disclosure. Meanwhile, other variables, such as board independence, profitability, company size, and industry type, proved to have no effect on water information disclosure.
This study contributes to several components of existing literature. First, this research has a role in identifying the extent of—and determining the factors affecting—water information disclosure in emerging economy countries. Although this is not the first study to examine the factors that influence water information disclosure in Indonesia, the authors examine the analytical methods that are important for the development of research on this topic. The period from 2017 to 2020 is also an interesting period due to the issuance of POJK No 51/POJK 03/2017 regarding the implementation of sustainable finance for financial service institutions, issuers, and public companies as well as this POJK regulation coming into effect for medium and large issuers. Furthermore, research related to corporate governance relationships, such as CSR committees and specific board independence on water information disclosure, has never been carried out. Therefore, this study contributes to the previous literature by providing evidence of the relationship between the CSR committee and water information disclosure.
The results of this study have practical implications for the government and companies. It has been demonstrated that the government has an important influence by encouraging the practice of water information disclosure as part of a company’s responsibility toward the environment. The level of water information disclosure is still low and this indicates that the government’s role has not been optimally realized. Therefore, the government must provide a set of regulations in addition to continuing to monitor companies with government ownership (BUMN). For companies, because the level of water information disclosure, especially in all its components, is still low and tends to focus on certain elements, this indicates that there is room for positive developments in the quality of disclosure of information about water.
This study has limitations that can be improved upon. First, it only assesses the disclosure of water information in manufacturing companies, so it is limited in terms of how far it can explain the overall disclosure of water information in Indonesia. Therefore, further research could expand the research population to show a clear picture of the level of water information disclosure in Indonesia. This study is also only able to prove two of its hypotheses regarding the level of water information disclosure. Researchers in the future could use other proxies for variables that have no effect in order to retest these results. This would enrich the research literature as well as conduct comprehensive testing on variables that are still worth testing. In addition to this, if we want to look broadly at the level of water information disclosure in emerging economy countries, researchers in the future could use this to test it by comparing it with other countries.

Author Contributions

Conceptualization, I.F.S.W.; methodology, M.A.B. and I.F.S.W.; software, S.U., A.C. and H.N.; validation, A.H.; formal analysis, S.U.; investigation, A.H. and H.N.; resources, S.U.; data curation, S.U. and S.S.; writing—original draft preparation, I.F.S.W.; writing—review and editing, A.H. and S.; visualization, S.U. and A.C.; supervision, I.F.S.W. and M.A.B.; project administration, I.F.S.W.; funding acquisition, A.H. All authors have read and agreed to the published version of the manuscript.

Funding

This work was supported by the DIPA Universitas Negeri Semarang Indonesia, Universitas Diponegoro, Indonesia and Curtin University, Australia.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Not applicable.

Conflicts of Interest

The authors declare no conflict of interest.

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Sustainability 15 11107 g001 550
Figure 1. Number of clean water companies in Indonesia 2014–2019. Source: Central Bureau of Statistics, 2020 [5].
Figure 1. Number of clean water companies in Indonesia 2014–2019. Source: Central Bureau of Statistics, 2020 [5].
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Sustainability 15 11107 g002 550
Figure 2. Contribution of the industrial sector to hazardous waste in Indonesia. Source: Ministry of Environment and Forestry (KLHK), 2021 [7].
Figure 2. Contribution of the industrial sector to hazardous waste in Indonesia. Source: Ministry of Environment and Forestry (KLHK), 2021 [7].
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Sustainability 15 11107 g003 550
Figure 3. Overall score for the quality of water information disclosure.
Figure 3. Overall score for the quality of water information disclosure.
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Table
Table 1. Criteria for sample selection.
Table 1. Criteria for sample selection.
No.CriteriaTotal
1Manufacturing companies that are consistently listed on the IDX in 2017–2020193
2Manufacturing companies that do not release standalone or independent sustainability reports(174)
3Manufacturing companies that did not release annual reports between 2017 and 2020(0)
4Manufacturing companies who, between 2017 and 2020, failed to produce sustainability reports for 4 (four) years in a row(4)
5Companies that lack comprehensive data on the variables used in the study(0)
Total Companies in the Sample15
Research period 2017–20204
Total Units of Analysis60
Source: Processed Data, 2022.
Table
Table 2. Water information disclosure indicators.
Table 2. Water information disclosure indicators.
Disclosure ItemsIndicator
Water Withdrawal/DemandWater source (surface water, underground water, rainwater)
Environmental damage from water extraction
Condition of water resources (in the area where the company operates)
Demand for water
Water price, water resource cost
Water source quality and standards
Water Recycling/Reuse
and Discharge		Types of wastewaters discharged
Rainwater collection and reuse
Wastewater quality and standards
Environmental damage from wastewater recycling
Water recycling, water recycling efficiency
Wastewater discharge (relative/absolute)
Waste fees and waste limits
Water UseWater use
Water consumption (relative/absolute)
Saving WaterCleanliness, efficient products, and services
Water use efficiency
Water saving/reduction (relative/absolute)
Effective utilization of water investment
Spend money on water conservation and wastewater treatment.
Water ManagementPlans, goals, or tactics for managing water
Special environmental department/responsibility system
Describing the current situation and contemporary issues with the management of water resources
Providing fully functional and safe water, environmental, and sanitation (WASH) services to all employees
Water management requires strategic collaboration with other parties
Water chain supply traced
Communication with stakeholders regarding water issues
Water PolicyUsing the GRI Sustainability Reporting Guidelines
Actively responding to government environmental protection requirements
Compliance statement for international environmental rules and regulations
Access to financial incentives, including environmental subsidies
Water Risks/OpportunitiesWater risk (physical risk, reputation, oversight, and litigation)
Water-related penalties, solutions
During the reporting period, there were no major water pollution accidents
Related to water opportunities
Water Data ReliabilityThird-party validation of water resource data
Quantitative indicator measurement method
Source: Cantele et al. (2018), C. Liu et al. (2021), Q. Zhou et al. (2021) [6,14,16].
Table
Table 3. Definitions of operational variables.
Table 3. Definitions of operational variables.
Variable/
Symbol		Operational DefinitionMeasurements
Water Information Disclosure/
WATER		Data collection on the current state of a company’s water management is followed by an analysis of the information’s potential business impacts, the development of tactical solutions, and finally the disclosure of the information to stakeholders [68].Content analysis of 37 indicators. The scores given include:
0 = does not reveal anything related to water. 1 = minimum coverage; general terms and brief explanations.
2 = a detailed explanation; the effects of the company or its policies.
3 = quantitative explanation; environmental effects are described in monetary or quantitative terms.
4 = excellent and refers to best practice.
CSR Committee/
KOM_CSR		A corporate social responsibility (CSR) committee manages sustainability-related risks and opportunities, advances business objectives, and upholds stakeholder commitments [33].A score of 1 for companies with CSR committees and a score of 0 for companies without committees [69].
Independent Board/IND_DEWANThe corporate oversight body is an independent board that has no connections to the organization outside its oversight role [70].Proportion/number of independent commissioners a company has [71].
Government Ownership/
GOV		The government, as a regulator, has great authority to suppress and influence the company’s operational activities [72].For companies that are state-owned companies (BUMN), a score of 1, and a score of 0 for companies that are not BUMN [72].
Profitability/PROFITThe capacity of a business to make profits over a predetermined time [73]. Return   on   Asset     Net   Profit Total   Assets [69].
Company Size/SIZEFirm size is a measure of a company’s size (large or small) [60].Natural logarithm of total assets [60].
Industry Type/TYPEIndustry type is the classification of a company related to its line of business, business risk, with employees, and a corporate environment [66,67].A score of 1 for the following industries:
  • Agriculture
  • Chemical industry
  • Mining
  • Property, housing, and construction
  • Machinery, automotive, and components
  • Energy industry
  • Cable
  • Non-building construction
  • Expressway, airport, ports, transportation
  • Electronic
Other industries receive a score of 0 [74,75].
Table
Table 4. Results of descriptive statistical analysis.
Table 4. Results of descriptive statistical analysis.
NMinimumMaximumMeanStd. Deviation
WATER600.067570.581080.29234230.11102399
KOM_CSR600.000001.000000.08333330.27871781
IND_DEWAN601.000005.000002.51666670.87317202
GOV600.000001.000000.13333330.34280333
PROFIT60−0.450860.526700.07981250.14534886
SIZE6028.5513333.4945330.82721081.03967087
TYPE600.000001.000000.86666670.34280333
Valid N (listwise)60
Table
Table 5. Results of hypothesis testing.
Table 5. Results of hypothesis testing.
ModelUnstandardized CoefficientsStandardized CoefficientstSig.
BStd. ErrorBeta
1(Constant)−0.0790.615 −0.1290.898
KOM_CSR−0.1450.045−0.364−3.2450.002
IND_DEWAN−0.0140.022−0.108−0.6350.528
GOV0.1180.0380.3643.1290.003
PROFIT−0.0520.106−0.068−0.4910.625
SIZE0.0120.0180.1150.7010.486
TYPE0.0310.0640.0960.4880.627
Dependent Variable: WATER.
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Wahyuningrum, I.F.S.; Chegenizadeh, A.; Hajawiyah, A.; Sriningsih, S.; Utami, S.; Budihardjo, M.A.; Nikraz, H. Determinants of Corporate Water Disclosure in Indonesia. Sustainability 2023, 15, 11107. https://doi.org/10.3390/su151411107

AMA Style

Wahyuningrum IFS, Chegenizadeh A, Hajawiyah A, Sriningsih S, Utami S, Budihardjo MA, Nikraz H. Determinants of Corporate Water Disclosure in Indonesia. Sustainability. 2023; 15(14):11107. https://doi.org/10.3390/su151411107

Chicago/Turabian Style

Wahyuningrum, Indah Fajarini Sri, Amin Chegenizadeh, Ain Hajawiyah, Sriningsih Sriningsih, Sri Utami, Mochamad Arief Budihardjo, and Hamid Nikraz. 2023. "Determinants of Corporate Water Disclosure in Indonesia" Sustainability 15, no. 14: 11107. https://doi.org/10.3390/su151411107

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