An ESG-Oriented Sustainable Business Model for Paint Industry Supply Chain in Indonesia

Abstract

The environmental, social, and governance (ESG) framework is critical for promoting sustainability in industries with substantial environmental impacts, such as the paint industry. Despite its significant contribution to Indonesia’s gross domestic product (GDP), the paint industry faces challenges in adopting ESG principles, including dependency on hazardous materials, reliance on imported raw materials, and limited participation in sustainability initiatives. This study develops an ESG-oriented business model by examining the influence of governance, environmental, and social dimensions on economic performance within Indonesia’s paint industry supply chain. Using structural equation modeling—partial least squares (SEM-PLS) and data from 170 stakeholders, the findings confirm that all three ESG dimensions positively and significantly impact economic outcomes. This model underscores the necessity of integrating ESG principles to enhance resilience, adaptability, and social responsibility while mitigating environmental risks. The study provides actionable insights for policymakers and industry stakeholders to implement ESG-driven strategies that align sustainability goals with economic growth. However, limitations such as geographical scope, short-term analysis, and broad coverage of supply chain activities highlight the need for further research to ensure generalizability and long-term applicability.

1. Introduction

Integrating environmental, social, and governance (ESG) principles in supply chain management has gained increasing scholarly attention, particularly in emerging markets where sustainability practices face institutional and resource-related constraints. Previous studies have primarily focused on ESG adoption in large-scale industries such as manufacturing, energy, and finance [1]. However, limited research has examined how small and medium enterprises (SMEs) in niche sectors, such as the paint manufacturing industry, integrate ESG principles within their supply chain strategies. To bridge this gap, our study builds upon stakeholder theory [2] and agency theory [3] to examine how ESG-driven decision-making influences supplier relationship management (SRM) and resource allocation in the Indonesian paint industry. Unlike previous research that predominantly assesses corporate social responsibility (CSR) and financial performance [4], we propose a more holistic framework incorporating governance mechanisms, sustainability metrics, and data-driven supply chain strategies. This study aims to address the following research questions: How do ESG-driven strategies impact supply chain management in the Indonesian paint industry? What are the key challenges and opportunities in implementing ESG-aligned business models in emerging markets? How does governance influence the sustainability performance in the paint manufacturing sector?

The Indonesian government has introduced several initiatives, such as the Program for Pollution Control, Evaluation, and Rating (PROPER), to monitor and incentivize industries toward better environmental compliance [5]. PROPER ratings provide a valuable benchmark for assessing environmental performance, but the emphasis on these ratings in literature often overshadows broader systemic challenges in achieving sustainability across supply chains. However, PROPER participation within the paint industry remains limited, with only 19 companies engaged, and only one achieving the highest green rating [5]. This underscores the need for broader adoption of sustainability practices throughout the industry’s supply chain [5]. While these details are vital, a focused discussion on their role is presented later in this paper to avoid diluting the central research objectives.

The primary aim of this study is to develop an ESG-oriented sustainable business model tailored to the paints industry in Indonesia, with an emphasis on addressing key gaps in supply chain management and sustainability practices. Specifically, this study seeks to identify practical strategies for improving resource allocation and supplier relationships while ensuring compliance with ESG principles. The research not only highlights the challenges faced by paint manufacturers but also provides actionable insights for fostering sustainable growth.

Paint is an essential building material that boosts Indonesia’s economic growth. Supply chains of the paint industries in Indonesia have a crucial role in the Indonesia economy, contributing 5% to the country’s gross national product (GNP), amounting to USD 62 billion in 2022 [6]. According to [7], there were 150 paint producers registered in Indonesia, with 146 producers (97.33%) located on Java Island and the remaining 4 on Sumatra Island. Figure 1 explains the coverage of maps of paint producers’ locations in Indonesia.

Globally, the importance of Environmental, Social, and Governance (ESG) principles has increased, particularly during the coronavirus disease 2019 (COVID-19) pandemic, as businesses emphasized environmental protection, social responsibility, and strong governance to build resilience. Within the paint industry, integrating ESG practices offers an opportunity to enhance sustainability, meet evolving customer demands, and address challenges such as resource efficiency, decarbonization, and circular economy practices [8].

Despite existing research on sustainability in manufacturing, studies specifically addressing the ESG-oriented supply chain of the paints industry are limited. Previous research has examined sustainability through frameworks like the triple-bottom-line (TBL) and corporate social responsibility (CSR) dimensions but has not sufficiently explored the interplay between ESG dimensions in the supply chain context [9,10]. This study aims to fill this gap by developing an ESG-oriented sustainable business model that evaluates how governance, environmental, and social dimensions influence economic performance in Indonesia’s paint supply chain.

Other challenges faced by the paint industry supply chain in Indonesia that are related to environmental–sustainability issues include the use of dangerous raw materials such as lead-chrome-based pigments [11], challenges of natural resources, how paints and coatings support the circular economy, and how paints and coatings support a lower-carbon economy; while the industry prioritizes meeting evolving customer needs, it taking responsibility at every stage of the value chain is essential to supporting decarbonization and promoting a more circular future. This requires commitments from the paint industry supply chain to taking meaningful action to sustain future business operations [8].

The raw materials used in the paint industries are sourced from imported and locally made products. Data collected by [7] indicate that about 77% of raw materials are imported, whereas local players make up 23%. The dependence on imported raw materials results in price fluctuation and lead time, resulting in environmental sustainability issues, especially in fuel usage for transportation. It can minimized by using local content that needs to be solved by related stakeholders such as suppliers, paint producers, and regulators [7], paint is one of the products that has demonstrated strong profitability. Due to the pandemic, ESG has become more critical in recent years. Indonesian industries have adapted by switching to remote work, stopping travel, and using digital tools. Companies prioritized the well-being of staff and communities through on-site protocols and wellness programs, ensuring compliance with health regulations. Globally, the pandemic accelerated the focus on ESG among investors, regulators, and consumers. Reducing emissions led to more substantial environmental commitments, while social responsibility grew as businesses supported public health and economic stability. Companies that maintained strong governance built trust, and investors increasingly recognized the connection between sustainability, environmental protection, social impact, and long-term growth [12].

Other data have also been collected by [7], as shown in the

Table 1. Installed capacities of paint producers in Indonesia.

Type of Paints	Capacity	Demand	Utilization
	(MT/Year)	(MT/Year)	%
Decorative paints	1,129,500	972,040	86.0
MOPC	126,000	116,323	92.3
Automotive	97,500	116,324	119.3
Wood	15,000	14,708	98.0
Others	132,000	118,998	90.1

Source: Industrial Ministry, 2024 [7]. Note: Capacity and demand in metric tons (MT).

, that present the installed capacities of paint producers in Indonesia. These government data also showed the importance of paints industry in Indonesia that contributed more than 30,000 employees actively working in paints industry in Indonesia.

This paper is organized as follows: Section 2 presents a comprehensive review of the literature, emphasizing the concepts of ESG-oriented business models and their relevance to the supply chain in the paints industry. Section 3 describes the research framework and hypothesis developments. Section 4 describes the research methodology, including data collection and analysis techniques. Section 5 discusses the findings and their implications for sustainability and ESG practices in the paint supply chain. Section 6 describes the comprehensive discussion. Section 7 provides the conclusion of the paper, summarizes the key insights, and offers recommendations for industry stakeholders and future research.

The novelty of this research lies in its holistic integration of ESG dimensions within a supply chain framework, offering a context-specific analysis tailored to an emerging market with distinct regulatory and economic conditions. By leveraging a mixed-method approach, the study provides empirical insights into how ESG-oriented decision-making enhances supply chain resilience and long-term financial sustainability. Furthermore, this research contributes to the literature by establishing ESG-driven performance indicators specific to the paint industry, a sector that has received limited scholarly attention despite its significant environmental impact. These findings not only bridge the theoretical gap in ESG supply chain studies but also offer practical guidance for manufacturers, policymakers, and stakeholders aiming to implement sustainability-driven business strategies in emerging economies.

2. Literature Review

2.1. ESG Principles and the Theoretical Foundations

The environmental, social, and governance (ESG) framework stems from theories of corporate sustainability and stakeholder engagement. According to [2], businesses must consider the interests of all stakeholders, including investors, customers, and regulators. ESG principles provide a structured approach to addressing these interests while achieving environmental and social goals. Integrating ESG factors enhances long-term corporate performance, offering a theoretical basis for their adoption in industrial practices [13]. Using agent theory, a study carried out by [10] found that social and governance practices significantly influence economic performance. The paint industry faces challenges from competitors and stakeholders, emphasizing the need for sustainable practices. Another theory, the triple-bottom-line theory, originally conceptualized by Elkington has been further explored in recent studies focusing on its application in sustainable supply chain management [14]. Another study using the triple-bottom-line theory was that by [9], which indicated that environmentally friendly inputs negatively affect the economic dimension and have no significant social impact, while operations and outputs positively influence the social dimension. The findings highlight that eco-friendly products enhance social trust among employees, customers, and communities but pose economic challenges, emphasizing the need to balance environmental goals with economic sustainability. The stakeholder theory [2] emphasizes the importance of maintaining good relationships with various stakeholders to achieve business success. It considers stakeholders as individuals or groups who can affect or are affected by a company’s performance. A study using this theory [10] highlights how environmental, social, and governance (ESG) practices enhance relationships with stakeholders, thereby driving economic performance. The research also finds that adopting environmental, social, and governance (ESG) practices positively impacts economic performance, with governance emerging as the strongest driver. Effective governance practices, such as transparency and ethical leadership, enhance stakeholder trust and financial outcomes. Environmental initiatives like energy efficiency and compliance improve operational efficiency, while social efforts, including community engagement and employee welfare, boost corporate reputation. However, firms face challenges balancing short-term financial goals with long-term ESG investments.

2.2. Supply Chain Management in Paints Industry

Supply chain management involves managing the flow of products, information, and funds between different stages in the supply chain, with the primary objective of maximizing the overall value generated [15]. It encompasses all activities and processes required to fulfill a customer’s request, including suppliers, manufacturers, distributors, retailers, and customers themselves. Effective supply chain management ensures the integration and coordination of these elements to increase the supply chain surplus, which is the difference between the value of the final product to the customer and the total supply chain cost [15].

The supply chain in Indonesia’s paint industry involves multiple stakeholders, including raw material suppliers, manufacturers, distributors, retailers, and end-users. Raw materials like pigments, resins, solvents, and additives are often imported, creating dependencies on international supply chains. Manufacturers process these materials into various paint products, such as decorative, industrial, and automotive paints, with operations focused near urban hubs to streamline distribution [7].

Distributors act as intermediaries, supplying retailers and contractors, while retailers, including hardware stores and home improvement centers, offer paints to end-users. Many retailers provide color-mixing services to customize shades for consumers. The customer base comprises residential users, contractors, and industries requiring specialized coatings, with demand influenced by construction activity, infrastructure projects, and economic trends [16]. This research used a scope of work of ESG-oriented business models in the paints industry supply chain in Indonesia. Each ESG dimension in the hypothesis, such as environment, social, and governance, was studied in the context of supply chains of the paints industry in Indonesia.

2.3. The Role of ESG in Supply Chain Management

Supply chain sustainability is influenced by the integration of ESG factors, as posited by [17,18]. The resource base value (RBV) theory [17] highlights that firms with unique, sustainable resources—such as eco-friendly processes or strong governance frameworks—can achieve competitive advantages. Porter and Kramer’s shared value theory further supports this, suggesting that sustainability initiatives, like reducing carbon emissions or fostering supplier collaboration, benefit both businesses and society [19]. However, empirical research, such as [20], indicates that ESG practices in emerging markets often face implementation challenges due to regulatory and resource constraints. Recent research on the environmental, social, and governance (ESG) framework in supply chain management, addressing the growing stakeholder-driven focus on sustainable practices [21]. The findings highlight the importance of transparency, the role of policymakers in promoting ESG, and the framework’s impact on supply chain performance.

2.4. Linking ESG Dimensions to Supply Chain Outcomes

Environmental impact: Sustainable practices in the supply chain, such as green logistics and eco-friendly sourcing, align with the triple-bottom-line (TBL) theory, which advocates for balancing environmental, social, and economic performance [9]. A study conducted by [21] found a simplified model for measuring SC performance from an ESG perspective.

Social responsibility: Social sustainability, including fair labor practices and supplier equity, draws on institutional theory, which underscores the importance of aligning practices with societal norms and expectations. Another study by [1] found that the incentive to enhance ESG information levels significantly increases as the shareholding ratio rises.

Governance mechanisms: Governance frameworks, such as regulatory compliance and transparency, enhance accountability within supply chains. Transaction cost theory suggests that governance reduces uncertainties and transaction costs, leading to more efficient supply chain operations. A study by [22] found many insights in a transaction cost economics framework into how supply chains are organized under different governance structures. Other studies like [23] discovers a positive link between ESG reporting and firm performance, indicating that companies with robust ESG reporting tend to fare better financially.

A study has been carried out by [18], explores the relationship between environmental, social, and governance (ESG) factors and supply chain (SC) performance indicators within organizations. It focuses on identifying challenges organizations face in achieving competitive advantages by measuring SC efficiency and effectiveness. The conclusions offer potential applications and future improvements through additional performance indicators.

In response to the growing importance of sustainability, several companies in the paint industry’s supply chain have committed to implementing ESG principles, including global players and local brands, such as Mowilex, Avia Avian, and Pacific Paints. Global paint companies operating in Indonesia, such as AkzoNobel, Kansai Paints, and Asian Paints, have also emphasized their dedication to integrating ESG into their business strategies [12]. Additionally, not only paint manufacturers but also synthetic resin producers and other paint material suppliers in Indonesia—such as BASF Indonesia [24], Dow Indonesia, Allnex [25], IMCD, Connel-Caldic [26], Sudharsan [27], and others—have made sustainability a key focus of their strategies.

2.5. Sustainability Business Model

Research on sustainable business models (SBMs) highlights the importance of integrating environmental, social, and economic sustainability. It emphasizes stakeholder engagement and long-term planning to move beyond traditional models. The study provides practical advice for aligning business operations with sustainability goals while maintaining economic stability. This approach helps companies meet the growing sustainability demands and address global challenges in stakeholder relations and governance [28]. With rising concerns about global warming, the study examines how ESG performance affects sustainability, focusing on the role of innovation has been conducted by [29]. It finds that strong ESG practices improve innovation, leading to better sustainability outcomes. Innovation fully connects ESG efforts to these results, highlighting the importance of ESG and innovation in driving sustainability in manufacturing. This offers valuable insights for policymakers and industry leaders [29].

Studies on the paint industries across various countries have been conducted in the paints industry areas that highlight challenges and opportunities with a wide range of focus, such as brand loyalty [30], resource allocation, and supplier relationships [31], and strategy selection with strength, weakness, opportunity, and threat (SWOT) and analytical hierarchy process (AHP) [16]; meanwhile, some studies that focused on sustainability were also conducted, such as focusing on the effect of CSR on customer satisfaction, reputation, and environmental practices [32], evaluation of sustainable wall paints on environment, safety, health, quality, and cost [33] and also by focusing on the correlation of the ESG dimension to the economic outcome for the non-financial firm [10]. A similar study was also conducted by exploring the sustainable manufacturing paints industry using a triple-bottom-line framework [9].

2.6. Research Gaps and Theoretical Contributions

Despite extensive research on ESG and supply chain performance, specific gaps remain. Most studies focus on developed economies, leaving a lack of understanding of how ESG principles operate in emerging markets like Indonesia. Additionally, the interplay between ESG dimensions and specific supply chain challenges—such as supplier collaboration and resource allocation—requires further exploration. This study contributes by addressing these gaps and linking ESG practices to improved supply chain performance through a robust theoretical framework.

Even though some researchers have conducted many studies related to sustainability and ESG [34,35], even in paint manufacturing [9,10,36], no one covered the supply chain of the paint industries and limited the study to the mediation variable among the ESG dimension. Therefore, it will be the novelties provided by this research. This study aims to develop an ESG-oriented sustainable business model that analyses how governance, environmental, and social dimensions influence economic performance in the Indonesian paint industry’s supply chain. The study’s findings offer actionable strategies to bridge the gap between sustainability and economic feasibility.

3. Research Framework and Hypothesis Development

3.1. Research Framework

This ESG-oriented sustainable business model in this study was designed using the research framework, where economic, social, and environmental performance are the dependent variables, and governance performance is the independent variable. This model illustrates the relationship between governance performance and the three dependent variables: environmental, social, and economic performance. Figure 2 explains the research framework and the proposed model for this study.

The model is grounded in theoretical frameworks, i.e., stakeholder theory [2], emphasizing that businesses should manage relationships with all stakeholders rather than focusing solely on shareholders. It addresses three key challenges: value creation, the ethics of capitalism, and the managerial mindset. Other related studies have been conducted by examining the influence of stakeholder theory on areas such as business ethics, corporate governance, finance, and marketing, underscoring its role in integrating ethical considerations into business strategies [2]. Stakeholder engagement helps align corporate strategies with broader social and environmental goals, promoting sustainable business practices. This underscores the growing importance of this approach, especially in response to evolving standards and frameworks for corporate responsibility [37].

Jensen and Meckling (1976) introduced an agency theory [3], which arises from conflicts between owners and managers when interests diverge. The theory explains how ownership structure influences a firm’s value, with managers sometimes failing to maximize firm value due to personal interests. It covers managing agency costs through monitoring and bonding and issues like separating ownership and control, corporate governance, and optimal capital structure. The theory emphasizes aligning managerial incentives with shareholder interests to reduce agency costs and improve firm efficiency [3].

3.2. Hypothesis Development

This study evaluates governance performance based on regulatory compliance, adherence to standards, product use transparency, and clear goals for reducing environmental impacts. Environmental practices are measured by a company’s efforts to reduce emissions; use natural resources efficiently; and support research on eco-friendly products, energy efficiency, water conservation, and waste reduction. These practices show how competent a company manages to reduce the risks of the environment and take advantage of opportunities to boost economic performance [10].

The social performance measurement is based on health and safety compliance, sustainability promotion, consumer education, and supply sustainability. Then, the economic performance was measured using the company profit margin, green product demand, and technology investment. The concept of “stakeholders” is explored as integral to a company’s sustainability and value creation, going beyond the traditional focus on shareholders. The theory argues that businesses operate within an ecosystem of various stakeholders—customers, employees, suppliers, communities, and more—whose interests must be aligned for long-term success. The document also highlights the shift from shareholder primacy to a more inclusive model where companies are responsible for generating value for all stakeholders. This broader approach enhances corporate governance, promotes sustainable development, and fosters long-term growth and stability [2]. Therefore, to support this point of view, these hypotheses were developed.

H1: 

Corporate governance performance positively impacts economic performance.

Several previous researchers have studied corporate governance and economic performance. Previous studies carried out by [38] found that corporate governance had a statistically significant influence on economic growth, and [39] studied the impact of governance practices on the economic outcome of small and medium entrepreneur (SME) firms in Ghana and found that the corporate practices of SMEs significantly influence their economic outcome. However, [40] conducted a study on governance practices and financial outcomes in developing countries, showing that good corporate governance is crucial for improving firms. Another study was carried out by [41] and found a positive relationship between governance disclosure and economic outcome. Another study by [42] explored the correlation between governance, company performance, and economic growth. It highlighted how strong governance practices positively impact firm performance and contribute to economic growth by attracting investment and improving business efficiency. The paper studied contrasts between shareholder and stakeholder-oriented governance models, emphasizing the importance of balancing stakeholder interests. It also addressed challenges in measuring governance’s impact on economic growth. Further research is needed to understand this relationship better and develop more accurate assessment methods, particularly in emerging markets.

H2: 

Governance practices positively impact on environmental outcome.

Some researchers have studied the impact of governance practices on environmental outcomes. A study by [43] explored the role of countries’ governance in improving environmental outcomes. The results have shown that governance practices significantly influence environmental outcomes. Another study conducted by [44] explored the link between governance practices and environmental outcomes, showing that the effectiveness of governance practices has a crucial role in enhancing environmental outcomes. Still, this effectiveness depends on the structure of the governance and interactions. A similar research topic was conducted by [45] and explored the impact of governance practices on environmental outcomes, resulting in corporate governance practices being considered an important variable in achieving environmental outcomes. Other research completed by [46], which explored the impact of governance practices on environmental performance reporting evidence from Asia, showed that the relationship between governance practices and environmental outcome shows that strong governance practices have positive implications for environmental performance reporting.

Another study was conducted by [45] in Zimbabwe using data from 27 listed manufacturing companies between 2011 and 2020. The study showed that the size of the board, gender diversity, and managerial ownership enormously improve the performance of the environmental variable. In contrast, board independence and institutional ownership have more minor impacts. It stresses the importance of good corporate governance for sustainability. It suggests increasing the size of the board, encouraging gender diversity, and promoting managerial ownership to improve environmental outcomes in Zimbabwe’s manufacturing sector.

Governance practices are vital in guiding and overseeing sustainability strategies. Research shows that good corporate (GCG) practices affect corporate sustainability performance (CSP) in economic, social, and environmental areas. Another study explored advanced research in the theory of agency, the theory of the upper echelon, and sustainability in emerging markets [47]. It underscores the importance of incorporating stakeholders’ interests into strategic planning and highlights the need for effective monitoring and reporting to achieve improved corporate sustainability.

H3: 

Corporate governance performance positively affects social performance.

Some studies related to the relationship between corporate governance and social performance have been conducted, including by [48], who explored the relationship between governance practices and CSR and found that effective governance practices are critical for implementing successful CSR initiatives, and [49], who studied CSR and corporate governance, showing that solid corporate governance enhances CSR practices. A study by [50] explored the impact of governance performance on CSR in Palestine, showing that effective governance practices affect CSR reporting significantly. Then, [51] explored the influence of governance performance on CSR from listed banks, finance, and insurance companies in Sri Lanka and found that governance performances positively influence CSR activities. Another study on the relation between corporate practices and corporate social responsibility (CSR) identifies vital factors influencing CSR involvement, with three main determinants: equity ownership structure, board composition, and the regulatory framework. The study demonstrates how shifts in corporate practices during the past twenty years have fueled the expansion of CSR initiatives. These findings offer a comparative analysis of CSR practices across various governance systems in Organization for Economic Co-operation and Development (OECD) countries, enhancing the understanding of how corporate governance frameworks shape CSR strategies [52].

Another previous study by [53] also investigated the influence of governance practices on the disclosure of corporate social responsibility among companies in Indonesia, Malaysia, and Thailand. Using data from 142 companies and the Governance Scorecard of the companies in the Association of Southeast Asian Nations (ASEAN) countries, the study finds that shareholder rights, equitable treatment, and stakeholder roles positively influence CSR disclosure. At the same time, board responsibilities and transparency have a negative or insignificant impact. The study highlights the role of good governance in boosting corporate competitiveness, investor confidence, and sustainability and recommends further research using more comprehensive models to explore interactions with additional variables, such as company performance and culture [53].

H4: 

Social performance positively influences environmental outcomes.

Several researchers have explored the relationship between the social responsibility of corporate CSR and environmental performance. A study explored by [54] using a research theme on the relationship between CSR and environmental outcomes shows that CSR significantly influences environmental outcomes. Another study was also conducted by [55] by analyzing the role of CSR for sustainable environmental outcomes, intervening in the roles of the environmental strategy and outcome, and showing that CSR has a significant and direct influence on ecological outcomes. A similar study conducted by [56] revealed a significant positive correlation between four CSR dimensions—human resource, environment, suppliers, and community—and environmental outcomes. However, no significant relationship was identified between investor-related CSR and ecological outcomes. These findings underscore the importance of CSR in promoting environmental sustainability, with important implications for businesses.

Another study conducted by [57] examined the impact of social responsibility of corporate CSR on financial outcomes, with the performance of the environment serving as a mediating factor and using the listed corporate manufacturing data on the Stock Exchange in Indonesia between 2010 and 2012. The study finds that CSR positively affects both economic and environmental performance, and environmental performance further enhances economic outcomes. CSR also indirectly improves economic performance through its effect on environmental performance. The research underscores the importance of CSR in meeting stakeholder expectations and boosting company value while promoting environmental sustainability and long-term financial success [57].

H5: 

Corporate social performance positively influences economic performance.

Some researchers have studied the relationship between CSR and economic performance. The exploration conducted by [58] explored the inverted U-shaped effect of CSR on a firm’s performance, and the results showed an optimal level of social responsibility that maximizes corporate financial performance, after which excessive CSR activities can become costly and reduce profitability. Other research performed by [59] explored the relationship between CSR and a firm’s economic performance and concluded that previous CSR positively influences the return on assets (ROA); however, for the subsequent period, previous corporate financial performance has not been related to the latter CSR.

Another study was conducted by [60] on the heterogeneous impact of the CSR dimension on the economic outcome, and results showed that in some cases, investments in community and environmental sustainability lead to financial benefits in the long run, while in other sectors, spending too much on CSR can have a negative impact. A similar study was conducted by [4] and explored the impact of CSR on economic outcomes; it was found that CSR positively impacts economic outcomes on accounting measurements. The other similar study shows how corporate governance (CG) affects firm performance, focusing on Chinese companies (2010–2018). Ownership concentration and market competition boost performance, while chief executive officer (CEO) duality and debt financing hurt it. Overconfident managers weaken the benefits of board independence and ownership but worsen the harm from CEO duality and debt [61]. Another study on 162 Indonesian and Taiwanese companies during COVID-19 found that board size and CSR improve performance, while managerial and institutional ownership, independent boards, and audit committees have little impact. Both studies highlight the importance of governance and CSR in driving long-term success [62].

H6: 

Environmental performance positively influences economic performance.

Some researchers have explored the relationship between environmental performance and economic outcomes and showed that the environmental outcome has a positive impact on financial performance, including [51,52,53,54,55]. Another study by [63] examines the link between environmental performance and income levels in 2016 shows that GDP per capita positively correlates with environmental performance index.

A study focused on the environment by [64] examined how environmental efforts affect finances in Japanese manufacturing (2004–2008). The study shows that good environmental management can improve finances, especially in regulated sectors, and lessen the need for government action. Another study on ESG disclosure in Asian companies shows it improves environmental, social, and economic performance. Transparent reporting builds trust, boosting efficiency, reputation, and confidence. It highlights the link between sustainability and economic performance and stresses the need to integrate ESG into corporate governance for sustainable growth and value [65].

4. Materials and Methods

To achieve the objectives of this study, the research process followed a systematic approach comprising several steps. First, a review of ESG-oriented business models in the paints industry supply chain was conducted to identify gaps and opportunities. Next, key variables and factors were defined based on prior literature and industry practices, forming the framework for the study. Data collection involved gathering primary and secondary information through surveys, interviews, and industry reports. The collected data were then analyzed using quantitative and qualitative methods to derive meaningful insights. Finally, the findings were validated through stakeholder consultations and synthesized into actionable recommendations.

4.1. Research Design

This study was conducted in Jakarta, Bogor, Depok, Tangerang, Bekasi, Surabaya, and other areas in Indonesia from July to September 2024, utilizing qualitative and quantitative descriptive approaches. The study relied on secondary and primary data. Secondary data were sourced from publications by the Ministry of Industry, Ministry of Environment and Forestry, and other government bodies, while primary data were gathered from respondents. This research employed qualitative and quantitative methods. Data-gathering methods included questionnaire surveys and in-depth interviews. The qualitative data were collected through in-depth interviews with experts who are stakeholders in the paint industry supply chain and serve as respondents for the study. The respondents in this study include raw paint material suppliers, paint producers, distributors, and consumers. The number of respondents used the 10-times rule by using 17 indicators, and according to [66], the number of samples was 5–10 times the number of indicators, which means the total sample was 170.

4.2. Research Location and Time

This study was conducted from July to September of 2024 in Jakarta, Bogor, Depok, Tangerang, Bekasi, Surabaya, and other cities in Indonesia. The motivation of this area selection can be explained as follows. This study was conducted in Jakarta, Bogor, Depok, Tangerang, Bekasi (collectively known as Jabodetabek), Surabaya, and other regions in Indonesia due to their significant roles in the nation’s economy and industrial activities. Jabodetabek and Surabaya are among the largest economic hubs in Indonesia, contributing substantially to the national GDP through diverse industries, including manufacturing and supply chain operations. These regions were selected because they host numerous paint manufacturing firms and supply chain networks, making them ideal for examining ESG-oriented sustainable business models in the paint industry [7]. Additionally, the rapid urbanization and industrialization in these areas have heightened environmental concerns, such as pollution and resource depletion, underscoring the need for sustainable practices. Furthermore, these regions offer a diverse mix of large, medium, and small enterprises, providing varied perspectives on ESG implementation. Their accessibility and the availability of data and participants also make them well-suited for conducting empirical research. By focusing on these regions, the study aims to generate insights that are both locally relevant and scalable to other urban and industrial areas in Indonesia.

4.3. Sampling and Data Collection Technique

This study gathers data and information from an unknown population by studying a small sample. It involves direct observation of ongoing processes. A purposive sample was used in this study as the population size was unknown [66]. The surveys require a questionnaire to guide interviews, ensuring they are well-organized and focused. The discussions are also used to collect research data. The interviews involve two-way communication to gather information from respondents. The interviewer asks pre-designed questions about the study subject in face-to-face conversations. In this case, the questions focus on performance indicators within the paint industry’s supply chain, mainly the function of each respondent and the influence of ESG dimensions on economic outcomes.

The data collection process integrates both structured and semi-structured interviews, enabling triangulation of insights from multiple perspectives. Surveys require a standardized questionnaire to guide interviews, ensuring that discussions remain well-organized and focused on core research themes. The interviews are conducted through face-to-face engagements, virtual meetings, and site visits, depending on the availability of respondents and the nature of their involvement in the supply chain.

In addition to surveys, in-depth interviews are conducted to validate preliminary findings and refine research hypotheses. These discussions bring together key industry players [16], including manufacturers, suppliers, distributors, and regulatory bodies, allowing for a more collaborative and interactive assessment of ESG practices in the sector. The interviews involve two-way communication, where respondents provide detailed insights based on pre-designed questions about their roles in the supply chain and the influence of ESG dimensions on economic outcomes.

4.4. Data Analysis

4.4.1. Qualitative Method

The interview guide was structured to gather comprehensive, contextual insights into the implementation of ESG principles within the supply chain of the paints industry. It featured open-ended questions categorized into three primary themes. The first theme, environmental practices, explored areas such as waste management, emissions control, and sustainable resource utilization. The second theme, social responsibility, focused on topics like supplier equity, labor practices, and community engagement. Lastly, the third theme, governance, addressed issues related to regulatory compliance, transparency, and accountability mechanisms. Follow-up questions were designed to prompt participants to elaborate on specific challenges and success stories, ensuring a well-rounded understanding of their experiences and practices.

A purposive sampling approach was employed to select the participants, targeting individuals in various roles within the supply chain, including managers from paint manufacturing firms, suppliers, and regulatory bodies. A total of 5–7 interviews were conducted, providing diverse perspectives on the subject.

The qualitative data were analyzed using thematic analysis based on the six-step framework outlined by Braun and Clarke (2006) [67]. The process began with familiarization, where interview recordings were transcribed and reviewed to identify initial patterns. Next, initial codes were generated through a line-by-line analysis of the transcripts to capture recurring concepts and ideas. These codes were then grouped into broader themes, focusing on the study’s emphasis on ESG dimensions. The themes were subsequently reviewed to ensure their coherence and relevance to the research objectives. Clear definitions were assigned to each theme to aid interpretation, followed by the synthesis of findings into key insights, which served to complement the study’s quantitative analysis.

4.4.2. SEM Analysis

Structural equation modeling—partial least squares (SEM-PLS) is particularly well suited for research with a predictive focus or exploratory nature, aligning with the study’s aim to develop an ESG-oriented sustainable business model for the paints industry, a relatively under-researched area. It offers flexibility in handling small to moderate sample sizes, a crucial factor given the limited number of participants in the study [66]. Additionally, SEM-PLS effectively accommodates non-normal data distributions, ensuring robust results without strict data assumptions [68].

The method is also adept at estimating complex models involving multiple constructs, such as ESG dimensions and their interrelationships, including both formative and reflective measurement constructs [68]. Its variance-based approach maximizes the explained variance of dependent variables, making it ideal for uncovering influential factors in ESG implementation. Furthermore, SEM-PLS enables the integration of latent variables to measure abstract constructs like environmental practices, social responsibility, and governance, which are essential for capturing the multidimensional nature of ESG principles. Its robustness in exploratory contexts makes it particularly valuable for investigating ESG implementation in the paints industry in Indonesia, where constructs and measurement scales are relatively new.

Comparison with alternative methods can be explained as follows: covariance-based structural equation modeling (CB-SEM), while suitable for theory testing and model fit assessments, requires large sample sizes and normally distributed data, which are less compatible with the current study’s context. Multiple regression, on the other hand, cannot account for measurement error or model the complex interrelationships between constructs, limiting its applicability to studies involving latent variables and intricate frameworks.

Therefore, SEM-PLS was selected as the most appropriate analytical method for this research [68]. This research used a quantitative method to assess variables using a Likert scale of 1 to 5. The indicators and variables reflected the study site’s conditions and aligned with earlier studies. The section provides a detailed breakdown of variable measurements based on this interval scale.

This research utilizes respondents’ data analyzed using the SEM-PLS method with the software Smart PLS 3.0. SEM-PLS was selected for data processing to demonstrate the relations between latent variables, assessing the presence and strength of their interactions [68]. The outer model is assessed using three main criteria, composite reliability, convergent validity, and discriminant validity, to ensure the measurement model is reliable. This research has avoided common errors by performing analyses such as collinearity checks, bootstrapping, convergent and discriminant validity assessments, and ensuring an appropriate sample size [66].

4.4.3. Outer Model Analysis

The outer model analysis focuses on assessing the reliability and validity of the constructs used in the research model [68]. This involves evaluating both the reflective and formative measurement models through the following steps: (1) Indicator reliability: Each indicator’s reliability is assessed by examining its loading values. Loadings above 0.7 indicate that the indicator reliably measures the underlying construct. However, for exploratory research, values between 0.6 and 0.7 may still be acceptable under certain conditions. (2) Internal consistency reliability: The composite reliability (CR) of each construct is calculated to ensure internal consistency. A CR value above 0.7 is considered acceptable, reflecting the construct’s ability to consistently measure the intended concept. (3) Convergent validity: Average variance extracted (AVE) is used to evaluate convergent validity. An AVE greater than 0.5 indicates that a construct captures more variance from its indicators than error variance, signifying good convergent validity. (4) Discriminant validity: Discriminant validity ensures that each construct is distinct from others in the model. This is tested using the Fornell–Larcker criterion and cross-loadings, where the square root of the AVE for a construct should exceed its correlations with other constructs. These evaluations ensure the robustness of the outer model, confirming that the measurement instruments are both reliable and valid for the constructs under investigation.

4.4.4. Inner Model Evaluation

The inner model analysis focuses on the relationships between the constructs, evaluating the structural model’s predictive accuracy and relevance. The following criteria are considered [68]: (1) Path coefficients: The path coefficients are analyzed to understand the strength and direction of the relationships between constructs. These coefficients are obtained through bootstrapping procedures, where a t-value greater than 1.96 (for a 5% significance level) indicates a significant relationship. (2) R-square (R²) value: The R² value measures the proportion of variance explained by the independent variables in the dependent construct. Values of 0.75, 0.50, and 0.25 are considered substantial, moderate, and weak, respectively, providing insight into the model’s explanatory power. (3) Predictive relevance (Q²): The Q² value is calculated using the blindfolding procedure to evaluate the model’s predictive relevance for endogenous constructs. A Q² value greater than zero suggests that the model has predictive relevance. (4) Effect size (f²): Effect size quantifies the impact of one construct on another. It is assessed using Cohen’s guidelines, where 0.02, 0.15, and 0.35 represent small, medium, and large effects, respectively. (5) Goodness of fit (GoF): The overall model fit is checked to ensure that the structural model adequately represents the data. This includes examining the standardized root mean square residual (SRMR), with values less than 0.08 indicating a good fit. The inner model evaluation ensures that the structural relationships within the model are statistically significant and practically meaningful, providing insights into the underlying dynamics of the constructs.

When the model was evaluated using SEM-PLS, the first step was to examine the R-square (R²) values for the respective dependent variables, which can be interpreted similarly to regression analysis. The R-square value changes can determine the impact of independent variables on the dependent variable and if these effects are significant. The structural equation modeling (SEM) method distinguishes between two types of variables: measurable variables and latent variables. This study model has four latent variables and 17 measured variables [66].

5. Results

5.1. Descriptive Analysis

The descriptive analysis provides an overview of the respondents and key trends within the paint industry’s supply chain in Indonesia. The data highlights diverse representation among stakeholders, including manufacturers, suppliers, and other key industry players. Geographically, most respondents were concentrated in Indonesia’s major industrial regions, reflecting the localized nature of the industry’s activities. The respondent pool also demonstrated varied gender representation, though further analysis may be required to explore its implications for ESG initiatives.

Key industry trends reveal the dominance of established companies—such as PT BASF Indonesia, PT Kansai Prakarsa Coatings, PT Mowilex, and PT Pintu Mas Mulia Kimia—in the sector. Many respondents indicated active involvement in collaborative supply chain activities, although the extent of ESG adoption varied significantly. Challenges frequently cited by participants include dependency on imported raw materials, regulatory compliance, and the integration of sustainability practices into their operations [24].

Regarding ESG practices, larger firms exhibited greater awareness and adoption of sustainability initiatives compared to smaller stakeholders. Environmental concerns were prominent, particularly issues related to hazardous material usage, such as lead-based pigments and emissions from transportation [12]. These insights underscore the need for greener practices and more consistent implementation of ESG principles across the industry.

5.2. Qualitative Analysis

The qualitative analysis reveals that the implementation of ESG (Environment, Social, Governance) principles within the paint industry supply chain in Indonesia has been pursued through various initiatives. In the environmental aspect, companies have adopted waste management practices, including waste segregation and recycling technologies, as well as the use of eco-friendly materials such as water-based and organic raw materials to reduce emissions and hazardous waste. However, the main challenges include high costs associated with green technologies and the lack of supplier awareness regarding sustainability. From the social perspective, companies have demonstrated a commitment to employee welfare by providing safety training, health insurance, and adherence to labor regulations. Local community involvement has been fostered through programs such as reforestation, scholarships, and recycling activities. Nevertheless, monitoring ethical practices among small, remote suppliers remains a significant hurdle. In governance, transparency is reinforced through sustainability reporting and regular audits, supported by certifications such as International Organization for Standardization 14001 (ISO 14001) [39] and PROPER [5]. Challenges in governance include limited access to affordable digital tools and inconsistencies in regulations between national and regional authorities. Successful ESG initiatives include the adoption of eco-friendly raw materials and the digitalization of production processes to enhance efficiency. Recommendations for advancing sustainability include educating and incentivizing supply chain actors, fostering collaboration among stakeholders, and implementing regulations that encourage investment in green technologies. Overall, while progress has been made, collective efforts are still required to overcome existing challenges and accelerate the adoption of ESG principles in this industry

5.3. Evaluation of SEM PLS Model

The research model assessing the effect of ESG performance on the economic outcome of Indonesia’s paint supply chain was analyzed using SEM modeling through the Smart-PLS (SEM-PLS) Version 4 software.

Table 2. The list of indicators, variables, and measurement.

Variables	Indicators	Source	Measurement
Corporate Governance (X1)	Comply with regulation (CGP1) Comply to standard (CGP2) Transparency of product use (CGP3) Clear target to reduce impact (CGP4)	[10,39,41,62]	1: Strongly Disagree 2: Disagree 3: Neutral 4: Agree 5: Strongly Agree
Social performance (Y1)	Health and safety compliance (SOC1) Sustainability promotion (SOC2) Education to consumers (SOC3) Supply sustainability (SOC4)	[9,10,57]	1: Strongly Disagree 2: Disagree 3: Neutral 4: Agree 5: Strongly Agree
Environmental performance (Y2)	Emission (ENV1) Volatile Organic Compounds (ENV2) Water-based products (ENV3) Waste minimization (ENV4) Energy efficiency (ENV5) Water efficiency (ENV6)	[9,10,54,69,70]	1: Strongly Disagree 2: Disagree 3: Neutral 4: Agree 5: Strongly Agree
Economic performance (Y3)	Profit margin (ECP1) Green product demand (ECP2) Technology investment (ECP3)	[9,10]	1: Strongly Disagree 2: Disagree 3: Neutral 4: Agree 5: Strongly Agree

presents the list of indicators, variables, and measurement.

This validity is tested by using outer loading values, where an indicator is considered valid if its outer loading exceeds 0.7. This threshold reflects the construct’s ability to define the indicator variation effectively [66].

Further assessment of this research’s validity and data reliability was evaluated through discriminant validity to ensure the consistency of the questionnaire. Reliability testing is vital for verifying that the questionnaire items are consistent across different measurements. The validity tests, including convergent and discriminant validity, determine whether the research results meet established standards. A high level of validity and reliability is achieved when the composite reliability value or Cronbach’s Alpha for the respective variable exceeds 0.7, indicating strong consistency in the data [66].

Cross-loadings were analyzed to assess discriminant validity by examining the relationships between indicators and their associated constructs. Each indicator’s loading on its assigned construct was compared to its loadings on other constructs. Discriminant validity was established when each indicator exhibited a higher loading on its corresponding construct than on any other construct. Additionally, statistical testing confirmed that the differences between loadings were significant, ensuring that indicators uniquely measured their intended constructs. Indicators with cross-loadings close to or exceeding their loading on the associated construct were flagged for review and were either revised or removed to enhance overall validity [68].

The Fornell–Larcker criterion was employed as a complementary measure of discriminant validity. This method involves comparing the square root of the average variance extracted (AVE) for each construct with the correlations between constructs. Discriminant validity was confirmed when the square root of the AVE for a construct was greater than its correlations with any other construct in the model [66].

The Fornell–Larcker analysis involved three key steps. First, the AVE was calculated for each construct, with values above 0.50 indicating sufficient convergent validity. Next, the square roots of the AVE (diagonal elements) were compared with the correlations between constructs (off-diagonal elements) in the correlation matrix. Finally, if all diagonal elements were larger than their corresponding off-diagonal values, discriminant validity was deemed confirmed [66].

Discriminant validity was assessed using the cross-loading analysis and the Fornell–Larcker criterion. In the cross-loading analysis, each indicator’s loading on its respective construct was higher than its loadings on any other constructs, demonstrating clear differentiation among the constructs. For instance, in the cross-loading table, CGP1 loaded strongly on “Corporate Governance” (0.807) compared to its loadings on other constructs like “Economic Performance”, “Environmental Performance”, and “Social Performance”. This pattern was consistent across all indicators, ensuring that each indicator was primarily associated with its intended construct. Furthermore, the Fornell–Larcker criterion was applied by comparing the square root of the average variance extracted (AVE) for each construct (diagonal values) with the correlations between constructs (off-diagonal values). Both methods confirmed the presence of discriminant validity, indicating that the constructs were distinct and measured unique dimensions [68]. This robust two-fold approach strengthens the reliability of the findings presents the AVE values for the four latent variables (X1 to Y3), which are named as follows: corporate governance, social performance, environmental outcome, and economic outcome. All AVE values exceed 0.5, indicating that the model meets the required validity standards. Additionally, composite reliability values and Cronbach’s Alpha, shown in

Table 3. Variables, composite reliability, Cronbach’s Alpha, and AVE values.

Variables	Cronbach’s Alpha	Composite Reliability	Average Variance Extracted (AVE)
X1 Governance	0.829	0.886	0.660
Y1 Social	0.834	0.889	0.668
Y2 Environment	0.876	0.907	0.619
Y3 Economic	0.735	0.850	0.653

Source: Processed research data, 2024.

, fall within the range of 0.7 to 1, confirming that the model has successfully passed both the reliability and validity tests, which are crucial for the initial phase of data processing in SEM. The values of outer loading for respective indicators on the study variables are also provided.

After analyzing the data using variables derived from a thorough review of several publications from databases referenced in the questionnaire’s preparation, it was determined that there are 4 latent variables and 17 measured variables.

Table 4. Outer-loading value.

Latent Variable	Measurable Variable	Outer Loading Value
X1 Governance Performance	CGP1 Comply with regulation CGP2 Comply with standard CGP3 Transparency of products CGP4 Clear target to reduce impact	0.807 0.825 0.798 0.820
Y1 Social Performance	SOC1 Health & Safety Compliance SOC2 Sustainability promotion SOC3 Education to consumers SOC4 Supply sustainability	0.831 0.825 0.828 0.783
Y2 Environment Performance	ENV1 Emission ENV2 Volatile organic compound ENV3 Water-based product ENV4 Waste minimization ENV5 Energy efficiency ENV6 Water efficiency	0.793 0.735 0.787 0.718 0.856 0.823
Y3 Economic Performance	ECP1 Profit margin ECP2 Green product demand ECP3 Technology Investment	0.804 0.829 0.792

shows that the outer loading values for all factors are above 0.7, with a total of 17 manifest variables; as shown in Table 4, all the manifest variables (related to governance, social, environmental, and economic factors) have values above 0.7, indicating that they are valid and contribute to their respective latent variables, those being CGP1 comply to regulation (0.807); CGP2 comply to standard (0.825); CGP3 transparency of product (0.798); CGP4 clear target to reduce impact (0.820); SOC1 health and safety compliance (0.831); SOC2 sustainability promotion (0.825); SOC3 education to consumers (0.828); SOC4 supply sustainability (0.783); ENV1 emission (0.791); ENV2 volatile organic compound (0.735); ENV3 water-based product (0.787); ENV4 waste minimization (0.718); ENV5 energy efficiency (0.856); ENV6 water efficiency (0.823); ECP1 profit margin (0.804); ECP2 green product demand (0.829), and ECP3 technology investment (0.792).

The test results of outer loading in Table 4 reveal that studied variables, across the 17 measurable variables, have values that exceed 0.7. This indicates that the evaluated indicators are valid for statistic testing in SEM model analysis and further evaluation. These validated and reliable variables will be measurement tools to assess the relationship between the dependent and independent variables.

This study emphasizes manifest variables with values above 0.7 to ensure optimal results. Since all variables exceed this threshold, there is no need to eliminate any uninfluential variables. The analysis proceeds using the influential variables from the initial data run, with the results in Figure 3.

Figure 3 shows the ESG dimensions and economic outcome of Indonesia’s paint industry supply chain. One or more variables support each variable. The variables involved in ESG are corporate governance, social performance, and environmental performance. The business performance involves financial/economic performance. The dependence variables involved in the paint industry’s supply chain are corporate governance, social performance, and environmental performance against economic performance, as shown in

Table 5. R-square.

Variables	R-Square
Y1 (Social Performance)	0.826
Y2 (Environmental Performance)	0.684
Y3 (Economic Performance)	0.639

Source: Processed primary data, 2024.

.

The proposed ESG-oriented business model offers flexibility and scalability, allowing companies to adapt their strategies based on market demands and regulatory changes. The regulator, management, stakeholders, and shareholders could use these findings as guidelines to implement ESG practices [10]. The model’s scalable nature ensures that it can be adopted by both small and large players in the industry, promoting widespread ESG integration throughout the supply chain [69]. The business model aims to generate value for shareholders and stakeholders, such as suppliers, employees, and local communities. The sustainability business models focus on creating long-term value rather than pursuing short-term profits, understanding that sustainable practices are crucial to building resilience and achieving lasting success in an ever-evolving world [69]. The ESG-oriented sustainable business model can help corporations balance financial performance with environmental and social goals by focusing on long-term value creation and driving total business achievement [71,72].

The competitive advantage of the companies can be obtained by adopting the ESG-oriented business model so that they can differentiate themselves in the marketplace, gaining a competitive advantage by meeting growing consumer demand for sustainable products. Integrating ESG principles into the core business model is a unique selling point, enhancing brand reputation, and ultimately, allowing companies to gain advantages. Companies might increase their value by introducing differentiation in the market when offering environmentally friendly products or services. All these enable efficient profit increases [36].

5.4. Evaluation of Structural Model

The structural model was evaluated by analyzing the R-square values results for the dependent variables (Y1, Y2, Y3). The R-square value indicates the determination coefficient for endogenous variables, where a higher R-squared value explains a more robust and more effective structural study model [66].

Table 5 presents the endogenous variables R-square values of social performance, environmental performance, and economic outcome, with values of 0.826, 0.684, and 0.639. The R-square value of social performance (Y1) was 0.826, indicating that the exogenous variables explain 82.6% of the variance in Y1, while 17.4% is due to other factors not tested in this model. The environmental performance variable (Y2) has an R-square of 0.684, meaning the model explains 68.4% of its variance, leaving 31.6% to other external factors. Similarly, the R-square value of the economic performance variable (Y3) was 0.639, showing that 63.9% of its variance is accounted for, with 36.1% attributable to other untested factors. These results suggest that while the model explains that the portion of the variance was significant, there are still other factors that are necessary to be examined.

The key strength of this business model lies in its focus on building a collaborative ecosystem, where partnerships with suppliers, regulators, and non-governmental organizations (NGOs) drive continuous improvement in ESG performance. The model encourages supply chain collaboration, fostering a shared responsibility for sustainable practices and innovation. The paint industry is critical in building a more sustainable future for customers, suppliers, and communities [8]. One of the primary benefits of this business model is its ability to mitigate risks related to environmental regulations and social compliance, ensuring long-term business resilience. By embedding ESG into the business strategy, companies can reduce their exposure to supply chain disruptions, regulatory fines, and reputational damage, thus strengthening overall operational resilience. This can also be connected to the stakeholder’s theory [2]. By embracing responsibility and rejecting the separation fallacy, we can recognize that stakeholders and businesspeople are connected by their shared humanity. This understanding allows us to develop more effective and inclusive methods of value creation.

5.5. Hypothesis Testing Results

In the SEM-PLS model, hypothesis testing was conducted using the original sample value, p-value, and T statistic derived from the relationship between the independent (exogenous) and dependent (endogenous) variables. These values were used to assess whether the hypothesis significantly affected the study model constructed.

Using the SEM analysis results, the relation of ESG performance to economic performance in the supply chain of the paint industries in Indonesia can be described as all ESG performances influencing economic performance. The study outcomes suggest that social and governance performance influences economic performance. Meanwhile, corporate governance performance positively influences economic performance by mediating environmental and social performance. The findings were in line with the previous study from the theory proposed by [10], which suggests that the social and governance dimensions of ESG influence economic outcomes. Social performance also has a positive relationship with environmental performance, following the opinion of [73] that corporate social responsibility (CSR) is positively related to environmental management practices.

Table 6. Path coefficient value.

Variables	Original Sample	Sample Mean	Standard Deviation	T Statistic	p Values
Corporate governance → economic performance	0.271	0.269	0.076	3.579	0.000
Corporate governance → environmental performance	0.369	0.367	0.078	4.712	0.000
Corporate governance → social performance	0.8799	0.801	0.031	25.898	0.000
Environment performance → economic performance	0.291	0.291	0.070	4.177	0.000
Social performance → economic performance	0.416	0.418	0.081	5.142	0.000
Social performance → environmental performance	0.502	0.504	0.080	6.249	0.000

explains the path coefficient value.

5.5.1. Corporate Governance Influences Economic Performance

Governance is a wide-ranging and complex concept, defined in various ways by scholars, researchers, and policymakers. It encompasses a network of interactions between structures, attributes, and processes, all of which are characterized by transparency [38]. Stakeholders, including employees, the environment, and products, should be engaged while providing open and transparent information [41].

The path coefficient shown in Table 6 indicates that the T-Statistic value of 3.579 exceeds the T-Table value of 1.96, signifying a statistically significant and moderately positive impact; this also reflects a positive impact, with the original sample value of 0.271 indicating a medium–low effect. This is further validated by a p-value of 0.000, which confirms a significant influence of corporate governance on economic outcome, as the p-value is well below the 0.05 threshold. Consequently, the governance performance of the firm has a notable effect on the business outcome of the paint industry supply chain in Indonesia.

These findings are consistent with those of [42], who explored the relationship between governance practices, corporate outcome, and economic growth, highlighting that strong governance practices enhance firm performance and contribute to economic growth by attracting investment and improving operational efficiency. Additionally, these results align with the previous research by [10], who found that social and governance performance significantly influences the economic outcome of paint producers in Malaysia and Singapore.

The sustainability-focused business model is a crucial driver of value creation across the three dimensions of sustainable development [38], and manufacturing firms must invest more effort in understanding customer needs and expectations to better anticipate evolving preferences. By aligning green product innovation initiatives with consumer values, companies can more effectively meet market demand and gain a competitive advantage. These activities can be translated into profit efficiency. In summary, companies with strong corporate governance, especially in transparency and information sharing, tend to improve their financial performance [69]. Understanding these corporations’ governance and transparency practices is essential for international organizations, policymakers, investors, and stakeholders who want to benefit from them.

5.5.2. Corporate Governance Influences Environmental Performance

Adopting environmentally friendly manufacturing processes, such as reducing volatile organic compounds (VOCs) and transitioning to water-based paints, is one of the alternative strategies the paint industry’s supply chain can use to boost economic outcome. The disclosure plays a significant role in both governance and environmental outcomes. Firms that are more transparent about their non-financial activities tend to perform better environmentally. This indicates that as companies improve governance through better disclosure practices, their environmental performance also benefits, creating a link between good governance practices and positive environmental outcomes; corporate governance factors play a crucial role in achieving solid ecological performance [45].

Table 6 shows the path coefficient that indicates a positive direction of impact, indicating a moderate effect indicated by an original sample value of 0.369. A statistically significant and robust positive impact was demonstrated by the T statistic value of 4.712, which exceeds the T table value of 1.96. This is further reinforced by a p-value of 0.000, showing that governance significantly impacts environmental outcomes. Therefore, corporate governance practices significantly impact the business performance of Indonesia’s paint industry supply chain. Corporate governance is also considered significant or actively linked to environmental programs, as these practices positively correlate with solid environmental performance.

These results align with the previous study by [45], which analyzed data from 27 listed manufacturing companies in Zimbabwe between the years 2011 and 2020. Their findings revealed that the size of the board, diversity of gender, and managerial ownership significantly enhance environmental performance. In contrast, board independence and institutional ownership had statistically insignificant effects, but they were positive. The findings of [20] also support this. According to [45], the role of governments in the relationship between corporate governance and environmental performance has been studied. The findings strongly link corporate governance (CG) and environmental performance (EP). Since governments are vital in promoting good governance practices, companies are encouraged to strengthen their governance efforts. This, in turn, leads to greater involvement in sustainability initiatives by improving the regulatory environment and enforcement mechanisms.

5.5.3. Corporate Governance Influences Social Performance

The paint industries can enhance its CSR profile through active social engagement, such as contributing to community welfare and sustainability programs. This boosts public perception and positions the company as a responsible and ethical entity in the market. CSR is becoming an essential part of the business. Companies are putting more effort into actions that directly affect their stakeholders, like environmental sustainability, community support, and employee well-being [48].

The path coefficient of corporate governance and social performance presented in Table 6 indicates a positive influence, with a high value of the original sample of 0.799. The statistically significant and robust positive effect was also shown in the T statistic value of 25.898, well above the T table value of 1.96; this is further supported by a p-value of 0.000, confirming that corporate governance has a significant impact on social outcomes. These findings are consistent with a previous study by [52], which explored the relationship between governance practices and corporate social responsibility (CSR) and identified key factors influencing CSR engagement.

The T-statistic of 25.898 demonstrates a highly significant and strong relationship between corporate governance practices and social performance in the context of the Indonesian paint industry. This highlights the critical role governance plays in shaping corporate social responsibility (CSR) and other social outcomes. One key reason for this strong influence is that effective governance ensures regulatory compliance and enhances social accountability. In Indonesia, initiatives like the PROPER program [5] require companies to adhere to environmental and labor regulations, particularly in industries with high environmental and societal impacts like paint manufacturing. Governance frameworks play a crucial role in meeting these standards, thereby improving outcomes such as fair labor practices, community engagement, and stakeholder trust.

Moreover, transparency, a cornerstone of good governance, fosters trust among stakeholders by ensuring that operations, decision-making, and reporting are open and ethical. This is particularly significant in the paints industry, where environmental and health risks, such as emissions and hazardous waste, can lead to societal concerns. Governance that prioritizes transparency signals a commitment to protecting employee welfare, consumer safety, and community well-being, directly enhancing social performance. Strong governance also extends its influence across supply chains by ensuring ethical sourcing, equitable treatment of suppliers, and compliance with fair trade practices—an essential factor in the paints industry, which relies heavily on raw material suppliers and distributors.

The alignment of governance with ESG principles further amplifies its impact on social outcomes. In Indonesia, where public awareness of corporate responsibility is growing, companies with robust governance are better equipped to align their objectives with societal values. This is particularly important in the paint industry, where environmental and health considerations are closely tied to community welfare. Additionally, the industry’s landscape, which is dominated by small and medium-sized enterprises (SMEs), highlights the importance of governance systems in setting higher standards for labor conditions, ethical conduct, and stakeholder engagement. Cultural norms in Indonesia, emphasizing community well-being and collective responsibility, also reinforce the link between governance and social performance.

In conclusion, the strong relationship between corporate governance and social performance underscores the transformative role of governance in ensuring sustainable and socially responsible practices in the Indonesian paint industry. By enhancing transparency, regulatory compliance, and ethical supply chain management, governance provides a foundation for long-term social impact. This highlights the need for continued strengthening of governance frameworks to better align corporate objectives with societal and environmental goals.

5.5.4. Environmental Performance Influences Economic Performance

An eco-efficiency paradigm means doing more with less, such as reducing resource use while maintaining value. Therefore, being responsible for the environment is positively related to economic efficiency [36] the company’s explicit goals for reducing the carbon footprint of production processes, distribution, and logistics will reduce carbon emissions, enhance environmental performance and compliance with global environmental standards, and improve the company’s long-term sustainability.

These strategies can be achieved by implementing renewable energy solutions, optimizing logistics, and minimizing transportation-related emissions. The literature [39,74] consistently reports a positive and statistically significant relationship between economic performance and typically measured by profitability indicators. The influence direction is evident from the coefficient value in Table 6, with the value of the original sample of 0.291 indicating a positive effect. The p-value of 0.000 is below the significance threshold of 0.05, and the T-Statistic value of 4.177 exceeds the T-Table value of 1.96, confirming this factor as a positively moderate and statistically significant influence. This confirmed that environmental outcomes positively support financial outcomes in Indonesia’s paint industry supply chain. These results are also consistent with [10,63], which conducted a correlation analysis between ESG practices and economic performance, and there was correlation between environmental performance and economic growth. The findings indicated that all variables had a significant relationship with the financial outcome at the 0.05 significance level. However, these results differ from those of a previous study by [9], which found that the input category indicator negatively impacts the economic dimension and does not affect social performance. These research findings, in line with other studies, demonstrated a positive relationship between environmental and economic performance [74]. Although initially costly, adopting eco-friendly materials and processes demonstrated a significant return on investment, enhancing economic and environmental performance. A study was conducted by [51] at the country level. It shows a link between GDP per capita and environmental outcomes, with ecosystem vitality and ecological health enhancing as GDP per capita improves. Environmental health performance is more strongly related to GDP per capita; as countries grow economically, they invest more in public health, sanitation, and infrastructure.

5.5.5. Social Performance Influences Economic Performance

The business model enhances traditional CSR initiatives by embedding them into the company’s core operations rather than treating them as peripheral activities. By aligning CSR initiatives with broader ESG goals, the model ensures that companies meet social expectations and derive tangible business benefits from their sustainability efforts. CSR programs are generally connected to a better reputation, higher customer satisfaction, and improved organizational and environmental practices. A study results performed by [58] shows that past corporate social performance positively affects return on assets in the following period.

The statistical analysis for this hypothesis can be explained as follows. The positive direction of the factor’s impact can be indicated by the value of the original sample, which is 0.416. The significance of the tested factors can be assessed using a T statistic value of 5.142, which exceeds the T table value of 1.96 and a p-value of 0.000. This is significant because it is <0.05; it confirms that social responsibility significantly influences the economic outcome of Indonesia’s paint industry supply chain. Companies should pay more attention to social performance to maintain the financial performance of their business.

These results are in line with a previous study by [61], who examined the effects of good corporate governance (GCG) practices and social performance of the firms (CSR) on companies’ performance and value during the COVID-19 pandemic and the “new normal”. By analyzing 162 Indonesian and Taiwanese companies’ observations, the study found that board size and CSR positively impact firm performance and value. This finding also aligns with the opinion of [10], which highlighted that social responsibility practices are expected to affect economic performance. Their findings indicate that social performances significantly influence the financial outcome of companies in Singapore. The differences between the two countries may be due to variations in community, stakeholders, and cultural factors. Although they are neighboring nations, business cultures can vary.

Therefore, companies should consistently implement solid social practices to improve the quality of employment, safety and health, education, community responsibility, diversity, and human rights, ultimately creating long-term stakeholder value. However, this is different from a previous study conducted by [9], found that environmentally friendly products can enhance society’s trust among the surrounding community, customers, and employees. However, using eco-friendly input materials is perceived to hurt economic performance.

5.5.6. Social Performance Influences Environmental Performance

They were engaging in CSR activities that support local communities, such as education programs on sustainable practices or partnerships with environmental organizations. The CSR initiatives can improve the company’s social performance, enhance its reputation, and foster stronger stakeholder relationships. Some programs, such as launching community projects or participating in environmental conservation programs, can be set up to demonstrate the company’s commitment to social responsibility.

The significance of the firm’s social outcome factor on environmental outcome is evident from the p-value of 0.000; it is below the 0.05 threshold. Additionally, the confirmation of the independent variable significantly influences the dependent variable, which can be seen in the T statistic value of 6.249, which exceeds the T table value of 1.96. The positive direction of the impacts can be shown in the value of the original sample of 0.502, though the effect is relatively moderate. The firm’s social outcome has a statistically significant, moderate influence on environmental performance. These are supported by earlier studies done by [56] that resulting a robust positive link between the four areas of corporate social responsibility—suppliers, environment, human resource management, and society—and environmental performance. This research finding was also consistent with the previous study done by [54], resulting in past corporate social performance positively affecting return on assets in the following period. In conclusion, integrating green innovation, green capacity, environment strategy, and green transformation leadership is crucial in promoting CSR regarding environmental performance.

6. Discussion

6.1. Addressing Research Gaps

This study addresses critical gaps in the existing literature by focusing on the integration of ESG principles, sustainable supply chain practices, and data-driven decision-making within the paints industry in Indonesia. While prior research has predominantly explored ESG implementation in large-scale industries such as manufacturing and energy, this study offers a novel perspective by tailoring ESG-oriented business models to the unique challenges and opportunities of the paints industry [9,10]. This sector-specific analysis enriches the discourse by highlighting practical strategies for achieving sustainability in a niche yet impactful industry.

Furthermore, the study provides valuable insights into sustainability practices within small and medium-sized enterprises (SMEs), which are often underrepresented in the literature. By examining how SMEs in the paint industry can align with global sustainability standards, the research bridges the gap between theoretical frameworks and their practical application in smaller organizations [69]. This focus underscores the importance of extending sustainability practices beyond large corporations to create a more inclusive and equitable approach to ESG implementation.

Finally, the study addresses the limited research on data-driven ESG strategies in emerging economies. By presenting empirical evidence from Indonesia, it highlights how data can inform sustainable practices and decision-making in resource-constrained environments. This contribution is particularly relevant for emerging markets, where economic and environmental challenges often intersect, and sustainable solutions are urgently needed [9]. Together, these insights position the study as a significant addition to the existing body of knowledge on ESG integration and sustainability in the paints industry and beyond.

6.2. Implementing ESG in Paints Industry Supply Chain

The research results have significant implications for Indonesia’s paint industry supply chain. The key findings suggest that integrating ESG principles into the supply chain can positively impact sustainability and economic outcomes. A relevant study was conducted by [74] ESG practices can help company management manage environmental and social risks efficiently and effectively and minimize reputational, regulatory, and legal costs that influence the economic outcome.

These are the key actions for the paint industry’s supply chains or other sectors related to the findings: (1) Environmental impact: The paint industries should adopt eco-friendly production processes and minimize harmful emissions, waste, and water use. Implementing energy-efficient practices and focusing on water-based paints can improve environmental performance, directly influencing economic performance through increased market demand for green products. This also supports previous research, such as [75] the positive impact of ESG on the financial performance of polluting firms is more significant than it is on non-polluting firms [9], eco-friendly products can enhance social trust among community customers and employees [10], there were found that ESG practices impact the economic outcome of firms in Malaysia and Singapore. There is evidence of a correlation between the environmental and financial performance in the non-metal and energy sectors [73]. (2) Social responsibility: Ensuring compliance with health and safety regulations, promoting sustainability, and educating consumers about sustainable choices is essential. The supply chain actors in the paint industry should focus on maintaining ethical labor practices and supporting local communities, as these factors positively influence environmental and economic outcomes. This is consistent with previous studies, such as the study by [58], that shows the link between corporate social responsibility and financial performance forms an inverted U-shape, with accounting indicators explaining this relationship better than market indicators; the following study by [4] shows a positive relationship between CSR and the accounting measures of financial performance; the following study was conducted by [10], and the results indicate the manufacturing operations and output categories that positively influence social performance. (3) Governance: Strong corporate governance practices, such as compliance with regulations, transparency, and environmental targets, are critical for improving economic performance. The governance performance also enhances social and environmental dimensions, thus driving the overall sustainability of the supply chain. These findings are also in line with some previous studies, such as a study conducted by [50] which found that board size and independence as part of the governance dimension positively and significantly impact the level of CSR disclosure. Other research conducted by [51] found that independent directors, as part of the governance dimension, and firm size significantly boost CSR. A similar research study by [30] found that governance practices are closely linked to environmental outcomes. The government could enforce better governance, prompting firms to improve their practices and increase sustainability involvement through stronger regulations and enforcement. The relationship was also found in other studies conducted by [44], which found that effective governance enhances economic outcomes by reducing risks and fostering long-term sustainability when aligned with environmental responsibility.

Based on the research results, incorporating ESG-oriented business models into business strategy will benefit paint industry supply chain companies. These include compliance with the Indonesia Green Industry Standard, obtaining Ecolabel certification, and achieving a higher local content value. According to [75], meeting the green industry standards involves requirements such as energy and water use efficiency, waste minimization, and implementation of the reuse, recycle, and replace concepts along with compliance with regulations and CSR. These are all closely aligned with the ESG concepts highlighted in this research. The Indonesia Standard Body [76] issued the ecolabel standard, which includes several ESG-related requirements such as limiting the use of hazardous materials, complying with relevant regulations, efficient use of water and energy, and waste minimization through re-use, recycling, and replacement practices, all of which correspond to the findings of this study. Additionally, a regulation from the Ministry of Industry on local content requirements [77], it also emphasizes that CSR implementation within firms contributes to calculating corporate value and local content. The research confirms these benefits of implementing ESG concepts in corporate strategy.

The results of this study provide significant theoretical contributions by validating, extending, and challenging established theories such as stakeholder theory [2] and agency theory [3]. First, the findings strongly validate stakeholder theory, which emphasizes that businesses must address the needs of a diverse group of stakeholders, including employees, customers, suppliers, communities, and regulators. The significant influence of corporate governance on social performance (T statistic: 25.898) highlights the pivotal role of governance in balancing stakeholder interests. Governance practices that prioritize transparency and accountability foster trust and align corporate objectives with societal and environmental expectations, supporting stakeholder theory’s core premise that stakeholder engagement drives long-term sustainability.

The study also extends stakeholder theory by [2] demonstrating that governance influences not only direct stakeholder relationships but also systemic outcomes across the supply chain. Integrating ESG principles into governance practices enables companies to shape ethical sourcing, supplier equity, and environmental stewardship, expanding the theory’s scope beyond direct stakeholder interactions to include indirect relationships within the value chain. This systemic perspective highlights the interconnectedness of stakeholders and the broader impact of governance on supply chain sustainability.

In relation to agency theory [3], which focuses on resolving conflicts between principals (e.g., shareholders) and agents (e.g., managers), the findings challenge its traditional emphasis on financial performance. The results show that governance mechanisms designed to mitigate agency conflicts also enhance external stakeholder outcomes, such as improved social and environmental performance. For instance, governance practices that ensure regulatory compliance and foster transparency not only align managerial actions with shareholder interests but also build trust with external stakeholders. This broadens the scope of agency theory by illustrating how governance can serve dual purposes: resolving agency conflicts while promoting sustainability and stakeholder trust.

Moreover, the study extends agency theory by advocating for the inclusion of non-financial metrics, such as ESG outcomes, in governance structures and performance evaluations. Traditional applications of agency theory have predominantly focused on financial goals, but the findings suggest a shift toward a sustainability-oriented perspective. This broader view integrates environmental and social dimensions into governance, reflecting the evolving priorities of modern business practices.

In summary, the study bridges critical gaps in the literature by integrating these theories within the context of the paint industry in an emerging economy. The strong relationship between governance and social performance underscores the importance of culturally adaptive governance models, particularly in regions like Indonesia, where community welfare and environmental concerns are intertwined. By validating stakeholder theory, extending its application to systemic supply chain relationships, and broadening agency theory to include sustainability metrics, this study offers meaningful advancements to the theoretical understanding of governance’s role in driving ESG performance.

6.3. Research Implication

The critical implications for the paint industry’s supply chains based on the ESG-oriented sustainable business model are: (a) Environmental impact: The paint industry needs to adopt eco-friendly production processes, reduce harmful emissions, minimize waste, and improve water efficiency. Water-based paints and energy-efficient practices can enhance environmental performance, increase market demand for green products, and improve economic outcomes [9]. The supply chains must prioritize sustainability in their operations to align with environmental goals. (b) Social responsibility: The supply chains should focus on health and safety compliance, promoting sustainability, and educating consumers about sustainable practices. Ethical labor practices and community support are essential. Strong social responsibility positively influences both environmental and economic outcomes, highlighting the importance of balancing social initiatives with business goals. (c) Governance: Good governance practices, such as regulatory compliance, transparency, and transparent environmental targets, are crucial for improving economic and environmental performance. A strong governance enhances social responsibility efforts and ensures supply chains align with ESG principles, contributing to long-term sustainability. Overall implications can be summarized as follows: The proposed ESG-oriented model provides a roadmap for stakeholders to integrate sustainability into core operations. Key recommendations include environmental initiatives, such as transitioning to water-based paints, minimizing VOC emissions, and adopting renewable energy solutions. Social responsibility: Strengthen community engagement, promote consumer education on sustainability, and ensure ethical labor practices. Governance improvements: Enhance transparency, comply with environmental standards, and set clear sustainability targets integrating ESG principles into the supply chain management of the paint industries is essential for improving sustainability, enhancing brand reputation, and ensuring long-term profitability.

The strengths of this research can be explained as follows:

• Theoretical Contributions

This study contributes to the existing body of knowledge on ESG-oriented sustainable business models by integrating stakeholder theory, agency theory, and the triple-bottom-line (TBL) framework within the context of the Indonesian paint industry’s supply chain. Unlike previous studies that have examined sustainability separately in terms of CSR, supply chain management, or governance, this research synthesizes these dimensions into an ESG-focused framework. The findings confirm that corporate governance is a key driver of social and environmental performance, which in turn enhances economic outcomes.

Furthermore, the study extends the resource-based view (RBV) theory [17] by demonstrating how firms that leverage ESG-driven strategies—such as local material sourcing, supplier equity, and regulatory compliance—can achieve competitive advantages in emerging markets. This novel contribution addresses the gap in research on ESG implementation in developing economies, where regulatory support, financial constraints, and market volatility pose unique challenges.

2.

Managerial Implications

For paint industry practitioners, the study offers practical guidance on implementing ESG-driven supply chain management. Key managerial takeaways include:

Supplier relationship management: Firms should prioritize strategic collaborations with local suppliers to reduce dependence on imports, which currently account for 77% of raw materials. This will help stabilize production costs, shorten lead times, and reduce carbon footprints.

Sustainable resource allocation: The adoption of green manufacturing practices (e.g., water-based paints, energy-efficient processes, and waste minimization) should be a strategic priority to meet regulatory standards such as PROPER and ISO 14001 while maintaining profitability.

Corporate governance enhancement: Transparency in sustainability reporting and compliance with ESG disclosure frameworks can strengthen investor trust, regulatory compliance, and brand reputation, positioning firms as ESG leaders in the Southeast Asian market.

3.

Policy and Regulatory Implications

The findings underscore the need for policy interventions and regulatory support to facilitate ESG integration in the Indonesian paint industry. Key policy recommendations include:

Incentives for ESG adoption: The Indonesian government should introduce tax benefits, subsidies, or green financing programs to encourage paint manufacturers to adopt ESG-aligned practices, particularly for SMEs struggling with high investment costs in green technology.

Strengthening ESG regulations: Mandatory ESG disclosures should be introduced for all paint manufacturers, ensuring greater transparency, accountability, and alignment with global sustainability standards.

Support for local raw material development: Policies promoting local resin and pigment production can reduce dependency on imports, enhance supply chain resilience, and minimize environmental impacts associated with international transportation.

6.4. Limitations and Future Research Directions

The limitations of the research indicate that the first is the lack of long-term analysis; the study only focuses on a snapshot of ESG performance and its impact on the supply chain, but it lacks a longitudinal approach; therefore, it limits the understanding of the effect of long-term financial, social, and environmental outcome over time. Secondly, this study also covers a broad scope of the supply chain. The third limitation is narrowing the geographical; extending to other regions of the country might improve the coverage of findings.

Future research can recommend expanding the geographical area covered, improving coverage of a wide range of supply chains, and adopting a more focused or longitudinal approach to capture the evolving dynamics of ESG integration in other industry areas.

7. Conclusions

This study provides a comprehensive analysis of how environmental, social, and governance (ESG) practices influence the sustainability of the paint industry’s supply chain in Indonesia. The findings highlight that a balanced focus on all three ESG dimensions is essential for achieving long-term sustainability and competitiveness.

From an environmental perspective, the results emphasize the critical role of sustainable practices in supply chain such as waste reduction, emissions control, and eco-friendly sourcing. Companies that integrate these practices into their operations not only reduce their environmental footprint but also enhance their compliance with regulatory standards, such as those established by the PROPER initiative in Indonesia [5]. These efforts contribute to improved resource efficiency and environmental stewardship, laying the foundation for a more sustainable industry.

The study also underscores the importance of social performance in the context of labor practices, supplier equity, and community engagement. Strong social initiatives, supported by transparent governance, foster trust and collaboration among stakeholders. By prioritizing social sustainability, companies can create positive impacts that extend beyond their immediate operations, including improved working conditions, equitable treatment of suppliers, and enhanced community well-being. These efforts are particularly significant in Indonesia, where societal values emphasize collective responsibility and community welfare.

Finally, governance emerges as a pivotal factor influencing both environmental and social outcomes. Transparent, accountable, and ethical governance frameworks ensure that companies align their operations with ESG principles. Effective governance not only drives regulatory compliance but also facilitates systemic improvements across the supply chain, such as ethical sourcing and supplier collaboration. This study demonstrates that governance serves as the backbone of sustainability initiatives, enabling organizations to integrate environmental and social considerations into their decision-making processes.

In conclusion, the study highlights the interconnected nature of environmental, social, and governance dimensions, emphasizing that a holistic approach to ESG is essential for driving sustainable development in the paint industry. By balancing these aspects, companies can achieve operational excellence, enhance stakeholder trust, and contribute meaningfully to societal and environmental goals. Future research should explore the dynamic interactions between these dimensions in other industries and regions to further refine ESG-oriented business models and practices.

In today’s globally interconnected business environment, stakeholders increasingly acknowledge that a firm’s ESG responsibilities are crucial to long-term sustainability and overall performance. The study confirms that fostering a business climate that enhances the firm’s social integrity and builds stakeholder trust can be used to manage ESG issues effectively. In conclusion, companies that openly promote ESG practices often gain reputational benefits, boost investor confidence, promote efficient resource use, and remain competitive. This study’s findings show evidence of the positive effects of ESG performance on the economic outcome of firms in Indonesia. These findings offer valuable insights for policymakers, company leaders, and stakeholders, guiding the implementation of ESG practices. The other contribution of this study to the existing body of research on ESG is to address several gaps in the literature. First, while many studies focus on a single ESG dimension, this research considers all dimensions—environmental, social, governance, and economic. Second, most of the ESG studies are concentrated on financial performance, but this study examines ESG’s broader impact on economic performance.

The novelty of this research lies in its comprehensive examination of ESG principles within a sector-specific supply chain framework. Unlike prior studies that focus on broad manufacturing industries, this study tailors its approach to the paint manufacturing sector, which faces unique sustainability challenges. By utilizing a mixed-method approach, the research bridges the gap between theoretical ESG frameworks and practical business applications, offering new insights into the interplay between governance, environmental, and social factors in supply chain decision-making. Furthermore, this study establishes ESG-driven performance indicators specific to the paint industry, providing a foundation for future research and industry benchmarking. These contributions make this research particularly valuable for policymakers, business leaders, and stakeholders aiming to enhance ESG adoption and long-term financial sustainability in emerging economies.

In summary, corporate governance, social responsibility, and environmental sustainability are interlinked and crucial for the economic success of Indonesia’s paint industry’s supply chain. Companies that integrate ESG strategies into their long-term strategic direction are more likely to enhance their financial performance and social trust. However, balancing eco-friendly practices with economic feasibility remains challenging, indicating the need for strategic investment and innovation. This research supports the ESG-oriented sustainability model, confirming that all proposed relationships between ESG performance and financial performance were statistically validated. This model can reference companies developing paint industry supply chain strategies. Additionally, it is expected to guide regulators in policy-making for developing downstream industries in Indonesia. The future regulations should aim for compatibility between downstream and upstream sectors, ensuring that the rules benefit not just one industry but all players across the entire industrial system. This study demonstrates that integrating ESG principles within the paint industry supply chain significantly improves economic, social, and environmental outcomes. By embedding these principles, companies can achieve resilience and long-term success.