Ekuitas: Jurnal Ekonomi dan Keuangan p-ISSN 2548 – 298X

Akreditasi No. 158/E/KPT/2021 e-ISSN 2548 – 5024

DOI: 10.24034/j25485024.y2024.v8.i2.6072

GREEN INNOVATION PRACTICE ON CORPORATE’S SUSTAINABLE

GROWTH IN NON-FINANCIAL: THE MEDIATING EFFECT OF
ENVIRONMENTAL MANAGEMENT ACCOUNTING

Annisa Aulia Rahma Atmariani

Dian Agustia
Yani Permatasari
Gatra Kautsar Lusandi
[email protected]
Universitas Airlangga, Indonesia

ABSTRAK

Dalam memahami bagaimana inovasi hijau dan pertumbuhan berkelanjutan terkait, penelitian ini bertujuan
untuk menyelidiki fungsi Akuntansi Manajemen Lingkungan (Environmental Management Accounting-EMA)
sebagai mediator. Dengan menggunakan 539 korporasi non keuangan yang terdaftar di Bursa Efek Indonesia
(BEI) pada periode 2013-2020 dengan total 2.716 hasil observasi, dengan menggunakan uji analisis jalur dan uji
Sobel dalam penelitian ini untuk menguji hipotesis menggunakan software STATA 14. Menurut temuan analisis
jalur, jelas bahwa (1) inovasi hijau berpengaruh terhadap EMA; (2) inovasi hijau berdampak pada pertumbuhan
berkelanjutan; (3) EMA tidak berdampak pada pertumbuhan berkelanjutan; dan (4) EMA tidak mampu memediasi
hubungan antara inovasi hijau dan pertumbuhan berkelanjutan. Last but not least, penelitian ini juga melakukan
uji ketahanan dan mendapatkan hasil yang sesuai dengan tes analisis jalur. Harapannya perusahaan
menginovasikan berbasis lingkungan ke dalam strateginya yang menawarkan keuntungan signifikan untuk
pertumbuhan berkelanjutan dengan mengurangi biaya, meningkatkan keunggulan kompetitif, memastikan
kepatuhan terhadap regulasi, dan membuka peluang pasar baru.

Kata kunci: inovasi hijau, akuntansimanajemen lingkungan, pertumbuhan berkelanjutan.

ABSTRACT

This research explores the role of Environmental Management Accounting (EMA) as a mediator in the
relationship between green innovation and sustainable growth. This research utilized the STATA 14
program to test hypotheses using the path analysis test and the Sobel test. The analysis was conducted
on 2,716 observations from 539 non-financial corporates listed on the Indonesia Stock Exchange (IDX)
between 2013 and 2020. The path analysis findings indicate that (1) green innovation positively
influences EMA; (2) green innovation positively affects sustainable growth; (3) EMA does not have a
significant impact on sustainable growth; and (4) EMA does not operate as a mediator between green
innovation and sustainable growth. Additionally, the present research conducted a rigorous robustness
test, which yielded results that aligned with those obtained from the path analysis test. Incorporating
environmentally focused innovation into company plans provides substantial benefits for achieving
sustainable growth, including cost reduction, improved competitive advantage, compliance with
regulations, and exploring new market opportunities.

Key words: green innovation, environmental management accounting, sustainable growth.

INTRODUCTION placed 5th in the Asia Pacific region for

Each year, the ongoing growth in carbon carbon dioxide emissions in 2019. It
dioxide emissions remains a significant con- contributed 1.8% of world carbon dioxide
cern, as it is a crucial element in severe cli- emissions, following China, India, Japan,
mate change. According to the "BP Statistical and South Korea (BP p.l.c., 2020). The
Review of World Energy 2020", Indonesia persistence of statistical issues led to sus-
363
364 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

tainable development, initially suggested in environmentally friendly products with pro-

1972 by the global environmental sector duction processes that can minimize energy,
(Marietza and Nadia, 2021). reduce the use of materials that can pollute
The idea of sustainable development in the environment, and prevent the creation of
business inspires nations and international pollution by business actors (Song and Yu,
organizations to adopt a principle that incur- 2018; Li et al., 2020; Novitasari and Agustia,
porates environmental (E), social (S), and 2021). In addition to reducing negative
governance (G) considerations to build a impacts on the environment, green innova-
framework for sustainable development in tion can also advance performance in sus-
society. ESG is a byproduct of responsible tainability and corporate finance (Sezen and
investment activities, which include active Çankaya, 2013).
ownership and techniques and procedures One of the growth rates in the financial
that incorporate ESG factors into investment aspect that can provide future benefits if
decisions (PRI, 2022). In order to assess maintained is sustainable growth, which was
corporate behaviour and potential financial first introduced by Higgins (1977) as a
performance, investors frequently utilize concept to test the consistency of growth
ESG as a guideline and method. objectives with corporate financial policies.
In recent years, green innovation (GI) has By measuring sustainable growth, corpo-
become a popular concept, along with the rates have a reference in managing their
problems of global warming and environ- internal funds to achieve their growth wi-
mental damage, which pose a severe threat thout borrowing funds from external parties
to the world's population. Sustainable deve- (Higgins, 1977). As a sustainable approach,
lopment addresses humanity's aspirations green innovation can encourage the corpo-
for a better life while observing the limita- ration's sustainable growth through internal
tions imposed by nature. The 17 sustainable cost savings, such as energy consumption
development goals (SDGs) the United costs and waste treatment costs, as well as
Nations (UN) promoted aim to meet current expanding the corporation's market share
and future stakeholder needs and ensure a (Sezen and Çankaya, 2013). In line with this
better and sustainable future for all while statement, research by Cigoj (2020), Asadi et
balancing economic, social, and environ- al., (2020), Li et al., (2020), and Skare and
mental development. Business innovations Porada-Rochon (2022) prove that green
resulting from the adaptation of sustaina- innovation can significantly boost a cor-
bility models have brought changes to manu- porate's economic growth. In contrast, in
facturing processes by considering the their research, Cai and Li (2018) and Larbi-
impact of operations on environmental risks, Siaw et al., (2022) did not find any effect
such as green innovation. Through this regu- caused by green innovation on the cor-
lation, companies, such as GI, are indirectly poration's sustainable growth.
required to innovate by finding or modifying However, corporations also need a lot of
process cycles or environmentally friendly costs when starting to implement green inno-
products (Agustia et al., 2022). GI motivation vation, such as research and development
in the industry is carried out if the company (R&D) costs, material acquisition costs,
uses environmentally friendly innovation labour safety costs, and product certification
strategies in its production value chain. costs (Agustia et al., 2019). Due to hidden
Adopting innovative, environmentally expenses, corporate managers need help to
friendly goods and services is one of the measure and report information about the
environmental ESG principles that might environment, especially costs related to the
impact corporate finances, or what can be environment, using traditional accounting
referred to as green innovation (EBA, 2021). systems (Gunarathne et al., 2021). In respon-
Green innovation is an effort to create se to these limitations, Environmental Mana-
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 365

gement Accounting (EMA) has emerged and which in this study is a measurement of
is getting more and more attention from EMA, has no consequence on the corpo-
business actors. EMA manages quantitative ration's financial performance.
and qualitative information on environ- The application of green innovation and
mental impacts and financial consequences EMA in a corporation is in accord with the
of business activities relevant to the environ- theory of legitimacy that counts on a social
ment and provides information that sup- contract that the corporation will continue to
ports decision-making, reporting, and ac- meet society's expectations (Deegan, 2002).
countability (Latan et al., 2018). Agustia et al., The concept of legitimacy is essential for
(2019) and Chaudhry et al., (2020) reveal that corporations in analyzing their relationship
green innovation has a significant positive with the environment. Legitimacy theory
effect on EMA; this indicates that EMA can shows that corporations try to adjust the
help corporations make reliable decisions for social values in their business activities with
the corporation's economic growth. Account- the norms that apply in people's lives (Amir
ing practices such as EMA can help corpo- et al., 2020); this is carried out voluntarily so
rations gain potential environmental advan- that the community can accept the
tages while understanding their responsi- corporations.
bilities as business actors. The gap in this research lies in the need
The use of EMA in a corporation can for more research results on the relationship
provide important information about the life between green innovation and sustainable
cycle of a product (life cycle analysis), which growth. When Przychodzen and
is then used as evaluation material. Phan et al., Przychodzen (2015), Asadi et al., (2020), Li et
(2017) and Chichan et al., (2021) claim that al., (2020), and Skare and Porada-Rochon
the application of EMA can provide accurate (2022) argue that green innovation can affect
information about the dimensions of sus- a corporate's sustainable growth through
tainable development and has a remarkable higher asset efficiency in generating revenue,
part in improving the corporate's environ- better cost management, and achieving
mental performance by considering environ- market differentiation, Cai and Li (2018) and
mental issues when making decisions. More Larbi-Siaw et al., (2022) argue that the high
effective and efficient cost management costs and risks associated with green inno-
through EMA can make it easier for corpo- vation will make it challenging for corpo-
rates to achieve one of the goals of sustaina- rations to realize financial gains shortly, ne-
ble growth, namely managing corporate gating any direct impact of green innovation
finances to expand without overspending or on the corporate's sustainable growth. The
underspending (Brugmann, 2021). Research research results must also be more consistent
by Christine et al., (2019) further indicates in the relationship between EMA and
that implementing the EMA can significantly sustainable growth. The effectiveness and
boost the corporation's economic growth. efficiency of cost management generated by
Although EMA can produce positive finan- EMA can increase the corporation's sus-
cial performance results in the long term, tainable growth through internal fund
Riaz and Saeed (2020) argue that by the "cost management (Phan et al., 2017; Chichan et
to be green" ideology inherent in improving al., 2021; Christine et al., 2019). Contrary to
environmental management, corporates this argument, Riaz and Saeed (2020) and
must incur high costs and may lose money Testa and D'Amato (2017) prove that due to
control to manage the corporate's internal large expenditures to improve environ-
funds, so that the corporate cannot maintain mental management, corporations can lose
its level of sustainable growth. In line with control in managing their internal funds,
this argument, Testa and D’Amato (2017) leading to corporate failures to increase their
prove that environmental certification, sustainable growth.
366 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

Therefore, the researcher wants to which managers are increasingly pressured

examine the effect of green innovation and to focus more on environmental issues will
sustainable growth with EMA as a mediating certainly respond well to innovation efforts
variable. This research was also developed made by business actors. This research also
by Agustia et al., (2019), which examines the contributes to researchers by increasing
effect of green innovation on firm value with knowledge about green innovation and its
EMA as a mediating variable. The study effect on sustainable growth and the role of
explains that with a sound management EMA in mediating the relationship.
system, corporates can get economic benefits
from implementing green innovation be- THEORETICAL REVIEW
cause EMA can solve problems that arise Legitimation Theory, Green Innovation,
from implementing green innovation, such Environmental Management Accounting
as environmental problems and costs, which and sustainable growth
escalate the value of a corporation. Legitimacy theory posits that managers
This study adds to the knowledge of should strategically select strategies that
management accounting in the environment- maintain the company's social legitimacy.
tal sector, mainly green innovation, EMA, According to this theory, if there is an adverse
and sustainable growth. Applying green change in how society perceives the
innovation can reduce the negative environ- company's operations, the company will be
mental impact and boost the corporation's more motivated to actively manage and ad-
economic and social performance by re- dress that change in perception. Companies
ducing waste and costs. Creating environ- strive to maintain legitimacy by adopting
mentally friendly production processes and various strategies to align with societal
products prompted corporations to adopt norms, aiming to influence perceptions,
EMA to manage costs. However, the cor- expectations, and social values. The legiti-
poration's efforts to adopt EMA do not affect macy hypothesis is based on the concept of a
sustainable growth because the corporation's social contract and the premise that com-
inability to control spending from internal panies will adopt a strategy that demon-
funds does not affect sustainable growth. strates their commitment to meeting societal
Therefore, it is essential to obtain empi- expectations (Deegan, 2002). By embracing
rical evidence on (1) the effect of green the legitimacy theory perspective, firm
innovation on sustainable growth, (2) the management proactively discloses informa-
influence of green innovation on EMA, (3) tion about behaviours they perceive as
the effect of EMA on sustainable growth, and socially expected. Thus, it is evident that
(4) the influence of EMA as a mediating external entities grant legitimacy to the
variable between green innovation and sus- corporation, but the company itself can
tainable growth. This research can contribute regulate and oversee it (Ashforth and Gibbs,
to the management accounting literature in 1990). Legitimacy theory connects manage-
the environmental field, especially green ment accounting and organizational social
innovation, EMA, and sustainable growth. responsibility about environmental, social,
For business actors, this research is intended and economic factors. This connection ena-
to provide information about the importance bles companies to grow methodically and
of green innovation in increasing sustainable attain sustainable development within the
growth. The application of green innovation current business environment paradigm
can reduce negative impacts on the envi- (Amir et al., 2020).
ronment and improve the company's eco- Efforts to improve company hardware
nomic and social performance due to waste or software related to environmentally frien-
and cost reduction. The stakeholders are dly products or processes that can save
customers, employees, and governments in energy, prevent pollution, or develop envi-
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 367

ronmental management practices by compa- In addition, EMAs are essential in mana-

nies that encourage sustainability are known gers' and stakeholders' decision-making
as green innovation (Song and Yu, 2018). Tu processes. Appropriate EMA can assist
and Wu (2021) stated that one of the unique managers in managing and analyzing
characteristics of green innovation is the environment-related costs to obtain expected
involvement in creating products or produc- benefits and carry out effective and efficient
tion processes that are environmentally conservation activities (Agustia et al., 2019;
friendly, which can ultimately improve the Chichan et al., 2021). The availability of
company's environmental performance or internal and external data and financial and
meet regulations related to environmental non-financial information by EMA for
protection. Consistent with this statement, stakeholders can strengthen decisions related
some researchers argue that green inno- to the environment and the company to be
vation consists of product and process taken. In business, sustainable growth is the
innovation (Song and Yu, 2018; Husnaini maximum benchmark for companies to
and Tjahjadi, 2021). The purpose of green increase their revenue without reducing
innovation that does not only focus on their financial resources (Higgins, 1977).
improving company performance is the Sustainable growth is the maximum per-
difference between green innovation and centage of a company's sales growth that can
conventional innovation concepts (Agustia be achieved based on operational targets,
et al., 2019). By creating environmentally debt levels, and dividend distribution.
friendly products and processes, green inno- The level of sustainable growth of the
vation aims to create a competitive ad- company can be measured by the Sustainable
vantage for companies by reducing negative Growth Rate (SGR), which is the maximum
environmental impacts. level of use of internal company funds to
In practice, EMA combines financial achieve its growth without borrowing money
accounting, cost accounting, and material from banks or financial institutions (Higgins,
flow balance to improve the materials' 1977). The combination of operating compo-
efficiency, reduce environmental risks and nents (profit margin and asset efficiency) and
impacts, and reduce environmental protec- financial components (capital structure and
tion costs (Sari et al., 2020). EMA practice retention ratio) of the company in one
includes the process of identifying, mea- measurement model makes SGR one of the
suring, analyzing, and interpreting both company's financial performance measure-
financial (such as cost measurement) and ments that are very useful for companies
non-financial (such as the amount of was- (Rahim, 2017; Wahyuni and Dino, 2017). By
tewater recycled) of environmentally related calculating SGR, companies can manage their
business activities (Ferreira et al., 2010; financial resources to grow by staying within
Tashakor et al., 2019). a reasonable amount of money (Brugmann,
The use of EMA in the company can help 2021). Xu and Wang (2018) stated that
managers identify, classify, and allocate envi- companies with stable SGR can avoid
ronment-related costs that are often hidden in unprofitable growth through the manage-
production overhead costs so that further ment of their financial resources so as not to
cost analysis and possible cost reductions can over-pressure the company's leverage level.
be carried out (Asiaei et al., 2022; Schaltegger Higgins measures sustainable growth
et al., 2022). EMA can help companies meet with SGR (Sustainable Growth Rate), which
environmental responsibility while identi- is the maximum rate at which a company can
fying economic benefits from improving their use its internal funds to achieve its growth
environmental and economic performance without borrowing money from banks or
(Latan et al., 2018). financial institutions (Xu and Wang, 2018).
With the company's ability to use its internal
368 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

funds, it is assumed that its production Research by Przychodzen and Przychodzen

activities do not need to rely on funds from (2015), Li et al., (2020), and Skare and Porada-
external parties, so the company is expected Rochon (2022) also prove that green inno-
to continue to grow and survive. vation can essentially boost a corporation's
According to Arora et al., (2018), sus- economic growth. As previously explained,
tainable growth is a forward-looking ap- the researcher formulated the following
proach that helps managers balance their hypothesis:
operational and financial strategies. It can H1: Green innovation has a positive effect on
also benefit companies as an effective finan- sustainable growth
cial planning tool for company survival. By
growth, investors and managers can mea- Green innovation and Environmental
sure whether the company's future growth Management Accounting (EMA)
plans are based on the reality of the com- Involved in the creation of environ-
pany's current performance. mentally friendly products or production
processes, and green innovation not only
Green Innovation and Sustainable Growth focuses on improving corporate performance
Instead of solely aiming to lower nega- but also on environmental management. The
tive environmental impacts, green innova- corpo-ration strives to create new techno-
tion aims to impact the environment while logies that can minimize energy, reduce
improving human life positively (Agustia et environmental pollution, and prevent the
al., 2019). Due to the inherent nature of creation of pollution in the production pro-
"greening" in economic growth, implemen- cess. However, corporations must spend
ting environmentally friendly innovation is money to create environmentally friendly
considered to have the potential to help products or production processes, such as
corporations recover from the economic research and development (R&D) costs, pro-
crisis (Karman et al., 2020). Through internal duct certification costs, and other environ-
cost savings caused by reducing energy mental related expenses (Agustia et al.,
consumption costs, reducing waste pro- 2019). These costs are often hidden in pro-
cessing and disposal costs, avoiding fines in duction overhead costs, so corporate mana-
case of violations of environmental regula- gers cannot identify, classify, and analyze
tions, and expanding market share as a result these costs quickly. Therefore, corporate
of implementing environmentally based managers are encouraged to use EMA, which
innovations, corporates can increase and can assist managers in identifying, orga-
maintain their sustainable growth rate nizing, and allocating environmental-related
(Sezen and Çankaya, 2013). Under the legi- costs (Asiaei et al., 2022; Schaltegger et al.,
timacy theory, applying green innovation 2022).
reflects the corporation's concern for the Under the legitimacy theory, they are
surrounding environment. The corporation applying green innovation, and EMA is one
is considered to have carried out its envi- of the corporate efforts to gain community
ronmental responsibility and gained legi- legitimacy. Implementing these two things
timacy from the community (Deegan, 2002). reflects the corporation's concern for the sur-
Asadi et al., (2020) show the importance rounding environment. Research by Agustia
of the role of green innovation in et al., (2019) and Chaudhry et al., (2020)
encouraging the realization of sustainable proves that green innovation significantly
growth. Emerging economic benefits, such as affects EMA. In the end, the data offered by
reduced waste management costs, have led EMA can assist managers and stakeholders
many corporations to design products or in making decisions. The researcher deve-
production processes promoting energy sa- lops the following hypothesis in light of the
vings and better pollution prevention. given description:
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 369

H2: Green innovation has a positive effect on Environmental Management Accounting

EMA (EMA) as a Mediation Variable Between
Green Innovation and Sustainable Growth
Environmental Management Accounting Through green innovation, the corpo-
(EMA) and Sustainable Growth ration no longer only focuses on profit but
EMA's management of environmental- strives to ensure the corporation's sustain-
related financial and non-financial informa- nability in the future. The creation of envi-
tion can generate information that supports ronmentally friendly products or production
managers' and stakeholders' decision- processes that can encourage sustainability
making, reporting, and accountability. Cor- or green innovation seeks to minimize
porates implementing EMA have a greater adverse environmental effects to give
chance of fulfilling their environmental businesses a competitive edge, expand the
responsibilities while identifying economic corporate's market share, and save internal
benefits and improving their ecological and costs to encourage the corporate's sustain-
financial performance (Latan et al., 2018). nable growth (Tu and Wu, 2021; Agustia et
The community has evidence that the EMA al., 2019; Sezen and Çankaya, 2013). This
is effective because of its application, which statement is supported by the research
proves that the corporation still pays atten- results of Przychodzen and Przychodzen
tion to the benefits for the community and (2015) and Skare and Porada-Rochon (2022),
the norms that apply in the community. proving that corporations implementing
Legitimacy theory creates a connection be- green innovation can increase sustainable
tween management accounting and corpo- growth through asset efficiency to generate
rate social responsibility (Amir et al., 2020), income. Li et al., (2020) also prove that green
where this responsibility will help corpo- innovation can encourage corporate econo-
rations in their efforts to encourage sustaina- mic growth through more effective cost
ble growth. management and market differentiation.
Phan et al., (2017) prove that EMA infor- Due to the lower cost of purchasing materials
mation is critical in providing information and energy consumption, reduced waste dis-
that increases managers' awareness of posal, and penalties for environmental inci-
environmental issues and allows them to dents costs, environmental-based innovation
respond better to external pressures. It sup- is also considered a form of positive
ports corporations in continuing to consider economic promotion (Asadi et al., 2020).
environmental problems when making de- However, green innovation requires suf-
cisions. Ultimately, the corporation will take ficient resources and time for the best results.
action to improve environmental performan- While Agustia et al., (2019) state that there
ce and promote sustainable growth. In line are many costs that corporates have to incur
with previous studies, the outcome of when implementing environmental-based
research by Christine et al., (2019) and innovations, such as research and develop-
Chichan et al., (2021) also stated that ment costs (R&D), EMA exists to make it
applying EMA provides information that can easier for managers to identify, classify, and
improve the corporation's financial perfor- allocate costs related to the environment and
mance. According to the concept discussed, to provide information that can assist
the researcher formulates the following stakeholders in making reliable decisions.
hypothesis: Chaudhry et al., (2020) prove that when
H3: EMA has a positive effect on sustainable corporations adopt green innovation, they
growth will seek to improve the EMA system for the
managers and stakeholders to effectively
propose a better and more informative de-
cision through an EMA system. This im-
370 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

provement in the EMA system positively The study's population consists of all
contributes to the corporation's financial Indonesian corporations listed on the
performance. Indonesia Stock Exchange (IDX) between
According to Phan et al., (2017), the 2013 and 2020. The initial sample consisted of
infor-mation produced by EMA helps 3,393 observations. The researcher then
increase managers' awareness of environ- excluded the 677 observations that did not
mental issues. It always involves ecological offer all of the financial data required for the
matters as one of the considerations in study. Hence, the study's final sample
decision-making. That way, corporations can consisted of 2,716 observations.
promote sustainable growth through acti-
vities that can improve corporate perfor- Measures
mance. The same thing was also stated by Dependent Variable
Christine et al., (2019) and Chichan et al., Sustainable growth is the leading bench-
(2021), who stated that applying EMA pro- mark for corporations to increase revenues
vides information that can help corporates without reducing their financial resources
improve their economic performance. As (Higgins, 1977; Rahim, 2017). Through the
discussed above, the researcher formulates corporation's operational objectives, level of
the following hypothesis: leverage, and dividend payments, the corpo-
H4: EMA mediates the effect of green ration can attain the maximum percentage of
innovation on sustainable growth sales growth or what is known as sustainable
Figure 1 shows the research conceptual growth. Sustainable Growth Rate (SGR) by
framework. Higgins (1981) is used to measure the
corporate's value of sustainable growth by
multiplying the retention ratio and Return
on Equity (ROE).

Independent Variable
Green innovation uses new technology
(hardware and software) to create environ-
mentally friendly products or processes that
encourage sustainability (Song and Yu,
2018). This study measures green innovation
by dividing the total R&D costs by total sales
(Tsai and Huang, 2020). Developing environ-
mentally friendly production processes and
products begins with research and develop-
Figure 1 ment (R&D) activities. Companies actively
Conceptual Framework involved in R&D activities will find it easier
Source: Literature Review, 2024 (Processed) to develop products by considering envi-
ronmental issues (Agustia et al., 2019). In
RESEARCH METHOD addition, R&D costs are a significant factor
Sample and Data Sources for companies to improve the technological
The data needed in the study were capabilities needed for green innovation. The
obtained from two primary sources. First, the increase in R&D spending led to the ace-
researcher used the OSIRIS database to ob- leration of technological innovation and
tain corporate financial information. Second, environmentally friendly products, as well
the corporate annual report was used to as an increase in the company's ability to
determine whether the corporation had been meet people's expectations.
certified to ISO 14001.
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 371

Mediation Variable loan funds as a company's effort to increase

The International Federation of profits in a business. Leverage is calculated
Accountants (IFAC) (2005) interpret Envi- by dividing total assets by total long-term
ronmental Management Accounting (EMA) debt. Profitability is a company's ability to
as a method of creating and putting into generate profits during a specific period with
practice accounting procedures in the a certain level of sales, assets, and share
context of managing the performance of the capital. Earnings Before Interest and Tax
economy and the environment. In practice, (EBIT) divided by total sales is the ratio used
EMA includes identifying, measuring, analy- to measure profitability. Tangibility or asset
zing, and interpreting all the corporate structure is part of the source of collateral of
information from business activities linked the overall assets that can be submitted and
to the environs (Tashakor et al., 2019). EMA received by the bank when the company
is a dummy variable, where corporates cer- applies for a loan. Finally, the ratio of total
tified to ISO 14001 are given a score of 1; if fixed assets to total assets is used to compute
they are not certified, they are given a score tangible value.
of 0 (Ong et al., 2016). An international stan-
dard known as ISO 14001 specifies the con- Statistical Model
ditions for a structured management stra- This study examines the effect of green
tegy relating to the environmental protection innovation on corporate sustainable growth
of a corporation's business operations. with EMA as a mediating variable. There-
ISO 14001 certification is an interna- fore, this study uses path analysis to examine
tional standard that establishes require- the effect of mediation. Ghozali (2018) pro-
ments for a structured management ap- posed path analysis as a buildup of multiple
proach related to the environmental protec- linear regression analysis for estimating
tion of a company's business activities. To causal relationships between variables deter-
meet this standard, companies need to inte- mined based on theory. There are four
grate environmental management system regression equations formulated to calculate
requirements into their various business path coefficients and show the hypothesized
processes, such as design and development, relationships of variables:
procurement, resources, sales, and mar- SGR =  + 1GI + 2LEV + 3PRO + 4TAN
keting. Resources needed in improving the + ε …………………………………..…….. (1)
environmental management system include EMA =  + 1GI + 2LEV + 3PRO + 4TAN
resources from outside (external) and from + ε …………………………………………. (2)
within (internal) the company, including SGR =  + 1EMA + 2LEV + 3PRO +
human resources, natural resources, infras- 4TAN + ε ……………………………….. (3)
tructure, technology, and financial resources SGR =  + 1GI + 2EMA + 3LEV + 4PRO
such as the cost of purchasing raw materials + 5TAN + ε ……………………………… (4)
and related environmental costs. Finally,
companies need to manage, measure, and Where GI is green innovation as the
document all financial and non-financial independent variable, EMA is the mediating
information about the company's efforts to variable, SGR is sustainable growth as the
obtain ISO 14001 certification for trans- dependent variable, and LEV (leverage),
parency, accountability, continuity, consis- PRO (profitability), and TAN (tangibility)
tency, training, or ease of audit. are control variables.
The influence of the mediating variable
Control Variables on the explained variable through the expla-
In this study, we included several con- natory variable is also examined using the
trol variables, namely leverage, profitability, Sobel test. This study uses the Sobel calcula-
and tangibility. Leverage is the use of debt or tor (https://quantpsy.org/sobel/sobel.htm) to de-
372 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

termine the significant effect of the media- statistical analysis. Table 1 shows the
ting variable. findings of this study's descriptive statistical
analysis.
ANALYSIS AND DISCUSSION Based on table 1, GI's lowest and maxi-
Descriptive Statistics mum values are 0.000 and 0.009, respect-
Descriptive statistics are used to analyze tively. The sample corporates' average GI is
data by describing the collected data without 0.000, with a 0.001 standard deviation. The
aiming to provide generalized conclusions. SGR variable ranges from a minimum of -
Descriptive statistical analysis provides in- 167,880 to a maximum of 135,650. The SG
formation regarding the variables used in variable has an average value of 2,160 and a
this study, namely Green Innovation (GI), standard deviation 30,897. Finally, EMA's
EnVironmental Management Accounting lowest and highest values are 0.000 and
(EMA), and Sustainable Growth (SG). The 1,000, respectively. The average EMA owned
mean, median, maximum, minimum, and by the sample corporates is 0.337, with a
standard deviation of each of these variables standard deviation of 0.473.
will be displayed in this study's descriptive

Table 1
Descriptive statistics

Mean Med Min Max Std. Dev

GI 0.000 0.000 0.000 0.009 0.001
SGR 2.160 4.000 -167.880 135.650 30.897
EMA 0.337 0.000 0.000 1.000 0.473
LEV 0.175 0.127 0.000 1.164 0.189
PRO 0.016 0.073 -3.008 1.052 0.461
TAN 0.591 0.608 0.071 0.972 0.233
Source: Authors Process with STATA, 2024

Table 2
Pearson Correlation

GI SGR EMA LEV PRO TAN

GI 1.000

SGR 0.053*** 1.000

(0.006)
EMA 0.070*** 0.035* 1.000
(0.000) (0.070)
LEV - -0.043** 0.056*** 1.000
0.058***
(0.003) (0.025) (0.003)
PRO 0.019 0.172*** 0.101*** -0.037* 1.000
(0.328) (0.000) (0.000) (0.051)
TAN - - 0.010 0.342*** - 1.000
0.075 *** 0.095 *** 0.108***
(0.000) (0.000) (0.611) (0.000) (0.000)
Source: Authors Process with STATA, 2024
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 373

Pearson Correlation ther without a third variable, mediating the

The Pearson correlation test provides relationship between the two variables. An
information about the strength of the linear indirect relationship occurs when a third
relationship between two variables. The variable mediates the relationship between
results of the Pearson correlation test in Table the two variables. The results of this research
2 show a significant positive relationship path analysis test can be seen in table 3.
between GI and SGR (coef = 0.053***). The This study uses a 95% confidence level
data means that the increasing and intense limit (p-value of 5%) to accept all hypotheses.
application of green innovation has a strong Based on table 4, it can be seen that GI
relationship with the corporation's ability to significantly positively affects SG, with a
increase its revenue without reducing its coefficient value of 2.49 and a significance
financial resources. The relationship be- value of 0.015 (p-value less than 5%),
tween GI and EMA is also significantly posi- resulting in the first equation testing the
tive (coef = 0.070***), indicating that the relationship between green innovation and
application of green innovation is strongly sustainable growth. Then, H1 is accepted.
related to environmental management ac- The second equation explores how environ-
counting. In addition, there is a significant mental management accounting is impacted
positive relationship between EMA and SGR by green innovation. It is clear that GI sig-
(coef = 0.035*). nificantly positively affects EMA based on
the coefficient value of 3.41 and the
Table 3 significance value of 0.001 (p-value less than
Path Analysis 5%); it can be concluded that GI has a sig-
nificant positive effect on EMA. Therefore,
(1) (2) (3) H2 is accepted. The solutions to the third
SGR EMA SGR equation show that EMA significantly im-
GI 1194.419** 29.503*** proves SG with a coefficient value of 1.76 but
(2.49) (3.41) a significance value of 0.084 (p-value more
EMA 2.077* than 5%). With such a p-value level, H3 is
(1.76) rejected.
LEV -2.218 0.183*** -2.878
(-0.37) (3.27) (-0.47) Sobel Test
PRO 10.583*** 0.106*** 10.380*** The Sobel test shows an indirect rela-
(5.13) (6.49) (5.01) tionship formed between the explanatory
TAN -8.831*** 0.078 -9.284*** and explai-ned variables through the me-
(-3.98) (1.59) (-4.21) diating vari-able. According to the Sobel test
SIC Included Included Included findings shown in Table 4, H4 is not accepted
YEAR Included Included Included since EMA cannot mediate the association
_cons 10.337*** 0.215*** 10.238*** be-tween GI and SG, which has a t-test value
(4.36) (5.04) (4.46) of 1.562 and a significance level of 0.118 (sig
r2 0.043 0.115 0.042 > 10%).
r2_a 0.037 0.109 0.036
N 2709 2709 2709 Robustness Check
Source: Authors Process with STATA, 2024 In order to guarantee that testing
between the treatment group and the control
Path Analysis group was done at random, the Coarsened
Path analysis is used to provide infor- Exact study employed the CEM (Matching)
mation regarding causal relationships bet- approach. CEM will partition each research
ween research variables. A direct relation- covariate into homogeneous strata of similar
ship occurs when one variable affects ano- size and incorporate it into the CEM model.
374 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

Table 4
Sobel Test

Input Test Statistic Std. Error p-value

a 29.50301 1.56158039 39.23586861 0.11838687
b 2.076736
Sa 8.651387
Sb 1.182271
Source: Authors Process with STATA, 2024

Table 5 proach are presented in Panel B. The re-

Coarsened Exact Matching (CEM) gression results align with the path analysis
test results in table 5, indicating that H1 and
Panel A H2 are supported, whereas H3 is not.
EMA = 0 EMA = 1
All 1800 916 Discussion
Matched 1767 915 Green Innovation and Sustainable Growth
Unmatched 33 1 The path analysis test findings show that
Panel B green innovation considerably increases the
(1) (2) (3) company's sustainable growth with a sig-
SGR EMA SGR nificance value of 0.015 (p-value less than
GI 1076.747** 33.234*** 5%), leading to the conclusion that H1 is
(2.01) (3.38) approved. The results suggest that green
EMA 2.181* innovation is advantageous for corporations
(1.84) in terms of efficient financial planning for the
LEV -4.172 0.327*** -5.213 corporation's future, sometimes referred to
(-0.62) (5.24) (-0.75) as sustainable growth. Consequently, mana-
PRO 10.727 *** 0.105 *** 10.574*** gers are motivated to cultivate production
(4.94) (6.02) (4.86) processes and products that exhibit enhan-
TAN -8.631*** 0.010 -8.876*** ced environmental sustainability. According
(-3.20) (0.22) (-3.35) to the legitimacy theory, green innovation is
SIC Included Included Included seen as a way for corporations to demon-
YEAR Included Included Included strate their commitment to meeting com-
_cons 11.026 *** 0.224 *** 10.842*** munity expectations (Deegan, 2002). As the
(4.75) (5.20) (4.89) level of corporate innovation in developing
r2 0.044 0.121 0.044 environmentally-based production process-
r2_a 0.038 0.115 0.037 ses and products increases, the corporation's
N 2682 2682 2682 ability to manage its finances will also
Source: Authors Process with STATA, 2024 improve. The growth will lead to profitable
growth for the company by effectively
Of the 23 strata produced by the CEM balancing its operational and financial stra-
model, 13 include data for companies that tegies. By implementing GI, corporations can
have and have not adopted the EMA. Table achieve self-sufficiency and sustain growth
5, Panel A provides a concise overview of the by using the benefits of innovation without
corresponding items. Of 916 observations in relying on external funding sources.
corporations adopting an EMA, 915 were This study's results comply with the re-
matched with 1767 out of 1800 observations search conducted by Asadi et al., (2020), who
in corporations not implementing an EMA. found that implementing green innovation
The regression results using the CEM ap- in the workplace considerably improved the
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 375

workplace's economic performance. As one green innovation and EMA is often asso-
of the drivers of economic growth, many ciated with EMA's benefits, which can assist
corporations are starting to implement green managers in identifying, classifying, and
innovation to encourage profitable financial allocating corporate-related costs. The emer-
growth in the future. Although the corpo- gence of environmental costs tends to be
ration needs to spend money at the begin- hidden, increasing the use of EMA in ful-
ning, green innovation can provide financial filling the corporation's environmental res-
benefits to the corporation in the end, such as ponsibilities. These results support the
reduced spending on waste treatment, lower theory of legitimacy. The implementation of
material and energy consumption costs, and green innovation and EMA reflects the cor-
reduced costs related to environmental poration's seriousness in protecting the
pollution (Li et al., 2020; Shahzad et al., 2020). surrounding environment as well as the
Skare and Porada-Rochon (2022) also point- corporation's efforts to gain legitimacy from
ed out the importance of corporations in- the community.
creasing their technological innovation in- This study's results align with research
vestments to achieve the desired growth rate. conducted by Agustia et al., (2019), which
Corporations must develop technological found empirical evidence that green inno-
innovations that can increase production vation benefits EMA. In decision-making,
efficiency and support the growth rates EMA plays a significant role in managing
needed to address environmental problems environmental-related costs, often only
in the short and long periods. Therefore, the categorized as overhead costs in conven-
application of green innovation in the tional financial statements. EMA's ability to
corporation can increase the corporation's trace R&D, waste treatment, and product
sustainable growth. certification costs into specific environ-
Asadi et al., (2020) show the importance mental costs clarifies the importance of
of the role of green innovation in encourage- implementing EMA for corporations actively
ing the realization of sustainable growth. implementing green innovation. Chaudhry
Emerging economic benefits, such as re- et al., (2020) also provided the same results
duced waste management costs, have led with this study. Corporations implementing
many corporations to design products or green innovation are better positioned to use
production processes promoting energy sa- and improve the corporate EMA system. The
vings and better pollution prevention. proper use of EMA can help stakeholders to
Research by Przychodzen and Przychodzen decide by providing information about
(2015), Li et al., (2020), and Skare and production costs that is more accurate and
Porada-Rochon (2022) also prove that green efficient. Over time, the increase in EMA in
inno-vation can essentially boost a the corporation can positively contribute to
corporation's economic growth. the corporation's performance.

Green Innovation and Environmental Environmental Management Accounting

Management Accounting (EMA) (EMA) and Sustainable Growth
Following H2 in this study, statistically, Statistically, EMA has not been proven
green innovation proved to have a signifi- to significantly affect sustainable growth,
cant positive effect on EMA with a signifi- with a significance value of 0.084 (p-value
cance value of 0.001 (p-value less than 5%). more than 5%). The statistical test results
The results of this study indicate that create- contradict the hypothesis formulated in this
ing environmentally friendly production study, so it can be concluded that H3 is
processes and products encourages corpo- rejected.
rates to apply environmental management As a form of developing and implemen-
accounting or EMA. The correlation between ting accounting practices in the context of
376 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

environmental and economic performance other sustainable and responsible projects

management (IFAC, 2005), EMA focuses on sometimes improve with sustainable growth
the process of discovering and evaluating improvements. The short-term economic
data from corporate activities related to the performance of the corporation is unaffected
environment, both financially and non- by the adoption of environmental manage-
financially (Tashakor et al., 2019). The results ment, and long-term economic performance
show that the application of EMA in a corpo- is also unaffected or just slightly affected
ration cannot promote sustainable growth over time. In addition, due to the absence of
because large expenditures will undoubtedly clear future economic benefits, most corpo-
occur to improve environmental manage- rate environmental management practices
ment, so the corporation may lose control of are driven by external pressures such as
managing its internal funds. In addition, government regulations or restrictions (Phan
most of the sample corporates in Indonesia et al., 2017).
(68%) still need to be certified by ISO 14001.
Utilization of EMA in the short term cannot Environmental Management Accounting
produce equivalent cost savings easily and (EMA) as a Mediation Variable Between
quickly (Marrucci et al., 2022), so investors Green Innovation and Sustainable Growth
often need to pay more attention to adopting Based on the results of the Sobel test,
EMA. Their assumption of EMA can conflict EMA proved unable to mediate the
with the fundamental goal of a corporation, relationship between green innovation and
namely maximizing shareholder wealth sustainable growth. A significance level of
through cost reduction and direct profit 0.597 (sig > 10%) can show that H4 is rejected.
increase (Paulraj and De Jong, 2011). Phan et al., (2017) prove that EMA
Corporates implementing EMA have a information is critical in providing informa-
greater chance of fulfilling their environmen- tion that increases managers' awareness of
tal responsibilities while identifying econo- environmental issues and allows them to
mic benefits and improving their ecological respond better to external pressures. It
and financial performance (Latan et al., supports corporations in continuing to con-
2018). The community has evidence that the sider environmental problems when making
EMA is effective because of its application, decisions. Ultimately, the corporation will
which proves that the corporation still pays take action to improve environmental perfor-
attention to the benefits for the community mance and promote sustainable growth. In
and the norms that apply in the community. line with previous studies, the outcome of
These results contradict the legitimacy research by Christine et al., (2019) and Chichan
theory, which states a connection between et al., (2021) also stated that applying EMA
management accounting and CSR (Amir et provides information that can improve the
al., 2020), which can encourage the corporate corporation's financial performance.
level of sustainable growth. However, the In addition to focusing on profit, the
results of this study indicate that EMA, as a corporation seeks to encourage the sustaina-
management accounting practice, must bility movement by applying green innova-
maintain the corporation's sustainable tion. In order to gain a competitive edge, the
growth. The outcome of this study is con- corporation develops environmentally
sistent with the research of Testa and friendly products or production methods to
D’Amato (2017), which provides empirical reduce their negative environmental impact.
evidence that there is no influence between Of course, the corporation will incur costs as
environmental certification, which in this the first step to creating innovation, such as
study is the measurement of EMA and R&D, raw material purchasing, and product
corporate financial performance. The results certification costs. The management of these
show that environmental management or costs can be facilitated by EMA, which, in its
 Examining Green Innovation Practice...– Atmariani, Agustia, Permatasari, Lusandi 377

adoption, will incur significant costs. ongoing development of environmental

Ultimately, the corporation may lose the challenges has led to the emergence of the
ability to manage its internal funds, so it ESG concept, which recognizes that green
cannot maintain or achieve the sustainable innovation is one of the environmental ele-
growth it wants (Paulraj and De Jong, 2011). ments that might affect a company's finan-
As consumers are not always keen to pay ces. The findings demonstrated that imple-
more for products created using environ- menting green innovation has a very bene-
mentally friendly procedures, these results ficial effect on sustainable growth. Green
demonstrate that investing in sustainable innovation has emerged as a successful
and ethical projects only sometimes matches financial planning strategy for corporations,
better profitability (Testa and D'Amato, allowing them to achieve growth and
2017). Moreover, 68% of the sample cor- sustainability through innovative excellence
porates still need to be certified to ISO 14001, without relying heavily on external funding.
so it can be concluded that EMA cannot Furthermore, research has shown that green
mediate the relationship between green in- innovation significantly improves environ-
novation and sustainable growth. mental management accounting (EMA).
Implementing environmentally friendly
Additional Analysis production processes and goods motivates
Higgins (1977) defines sustainable corporations to utilize Environmental Mana-
growth as the corporation's sales growth gement Accounting (EMA), which aids ma-
without any process of borrowing funds and nagers in detecting, categorizing, and allo-
selling new equity to external parties. In ad- cating costs associated with the environ-
dition to using green innovation as the ment.
dependent variable and EMA as a mediating Research findings demonstrate that
variable, this study uses leverage, profi- EMA has little impact on sustainable growth.
tability, and tangibility as control variables. In order to enhance environmental manage-
Interestingly, from the analysis and robust- ment, substantial expenses will unavoidably
ness test results, we highlighted the negative be incurred, perhaps resulting in the
effect of leverage on sustainable growth. corporate entity relinquishing control over
These results follow the results of research by its internal financial resources. In order to
Akhtar et al., (2022), which explains that examine the role of EMA as a mediating
corporations that tend to ignore bankruptcy variable, the researcher employed the Sobel
costs from liquidation can generate debt test and obtained a finding indicating that
levels that are higher than the standard level, EMA does not serve as a mediator for the
causing the corporation's performance to impact of green innovation on sustainable
decline. The corporation's cash flow and growth. The corporation's lack of ability to
reserves of funds devoted to profitable effectively handle internal finances, pri-
future projects can be reduced due to debt marily due to substantial expenses and the
payments and interest, which can negatively implementation costs of sustainable projects,
affect the corporation's performance (Stulz, coupled with the fact that only 32% of
1990). surveyed corporations have obtained ISO
14001 certification, hinders the potential
CONCLUSION AND SUGGESTIONS impact of adopting Environmental Manage-
This study examines green innovation's ment Accounting (EMA) on sustainable
influence on sustainable growth by utilizing growth in Indonesia.
Environmental Management Accounting Naturally, this research is not exempt
(EMA) in a sample of 539 non-financial cor- from its limits. This study employs the Ratio
porations listed on the Indonesia Stock of Research And Development (R&D) expen-
Exchange (IDX) between 2013 and 2020. The ses to total sales to measure green innova-
378 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 8, Number 2, June 2024 : 363 – 381

tion. It utilizes ISO 14001 certification to Performance: A Legitimacy Theory.

evaluate the implementation of Environ- Journal of Management and Research (JMR)
Mental Management Accounting (EMA). 7(1): 132–160. https://doi.org/
Future research should utilize alternative 10.29145//jmr/71/070106.
methodologies to assess the extent to which Arora, L., S. Kumar, and P. Verma. 2018. The
green innovation is implemented within a Anatomy of Sustainable Growth Rate of
business setting. Corporations can benefit Indian Manufacturing Firms. Global
from enhancing their capacity for Business Review 19(4): 1050-1071.
environmental-based innovation and effect- https://doi.org/10.1177/097215091877
tively managing associated expenses. Thus, 3002.
implementing green innovation can impact Asadi, S., S. O. Pourhashemi, M. Nilashi, R.
the corporation's long-term viability. Abdullah, S. Samad, E.
Yadegaridehkordi, N. Aljojo, and N. S.
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