Corporate sustainability reporting practices, diversification strategy and firm performance: evidence from Indonesia's mining sector

Purpose This study aims to investigate the effect of sustainability report disclosure on firm performance, moderated by business diversification strategy, in energy and mining companies in Indonesia. Design/methodology/approach The study is a panel data of 35 mining companies listed in the Indonesia Stock Exchange from 2016 to 2022 and 210 firm-year observations. The corporate sustainability reporting use the global reporting initiative framework which was applied through content analysis in the annual and sustainability reports. The diversification strategy and firm performance were also extracted from the report. Findings The results show that the economic aspect has a significant positive effect on both Tobin's Q and ROE. The social aspect also has a significant positive effect on Tobin's Q. The environmental aspect has a significant negative effect on Tobin's Q, while its effect on ROE is significantly positive. This study supports the legitimacy theory, which posits that responsible behavior encourages companies to act ethically by considering the social, environmental, and economic impacts of their business. The business diversification strategy strengthens the relationship between the economic pillar and both Tobin's Q and ROE, it also strengthens the influence of the social sector on company performance as measured by Tobin's Q, but weakens its influence on financial performance as measured by ROE,. Additionally, the diversification strategy weakens the influence of the environmental pillar on company performance as measured by both Tobin's Q and ROE. Practical implications The findings indicate that the economic and social aspects in the company's SR report benefits stakeholders, while the environmental aspect does not yield similar recognition. The market still perceives environmental initiatives as costly, leading investors to overlook this aspect and hesitate to invest in environmentally responsible companies. Therefore, regulations in Indonesia should aim to increase awareness and disseminate information regarding the importance of environmental aspects in corporate sustainability. In the short term, this aspect may not provide significant benefits for the company; however, in the long term, it can generate advantages and support cost efficiency. For companies, the findings of this study highlight that when disclosing sustainability activities in the SR, economic, social and environmental aspects are equally important to stakeholders globally. Originality/value This is the first study to examine the relationship between corporate sustainability disclosure and company performance, moderated by business diversification strategy, in energy and mining companies in Indonesia. Indonesia is one of the developing economies with a low gross domestic product per capita, weak institutional structure, and poor corporate governance.