ESG Disclosure To Financial Risks of Coal Companies: The Role of Profitability and Operational Capability

Abstract

Growing expectations for sustainable business practices have encouraged coal mining companies to strengthen Environmental, Social, and Governance (ESG) disclosure as part of their corporate accountability. Despite this development, prior studies have reported inconsistent evidence regarding the relationship between ESG Disclosure and financial risk, particularly within Indonesia's coal mining industry. This study examines the effect of ESG Disclosure on financial risk while investigating the moderating roles of profitability and operational capability. Secondary data were obtained from the annual reports and sustainability reports of 10 coal mining companies listed on the Indonesia Stock Exchange (IDX) during 2021–2025, resulting in 50 firm-year observations. The hypotheses were tested using panel data regression and Moderated Regression Analysis (MRA). The findings indicate that ESG Disclosure does not exert a statistically significant direct effect on financial risk. However, profitability, measured by Return on Assets (ROA), and operational capability, measured by Total Asset Turnover (TATO), significantly strengthen the relationship between ESG Disclosure and financial risk. These findings imply that the effectiveness of ESG Disclosure in supporting financial risk management depends on a company's financial capacity and operational efficiency rather than on sustainability disclosure alone.