The Influence of Green Accounting

on the Company Profitability

Alphasyah Lazuardy Sidarta(B) , Eko Ganis Sukoharsono,

and Alfauzia Noer Rochmatul Laily

Brawijaya University, Malang, Indonesia

alphasyah@gmail.com

Abstract. This study aims to investigate the influence of green accounting on

company profitability. This study is conducted due to the negative ecological
impact of industrial business processes, such as environmental pollution, which
can affect organisms in the surrounding area. This study focuses primarily on
chemical industries listed on the Indonesia Stock Exchange in 2021 and evaluates
them using PROPER. This study employs a purposive sampling method and uses
secondary data of the 2021 annual reports of the industry as its source of informa-
tion. The result of the study finds that green accounting and environmental per-
formance positively impact on company profitability. Environmental performance
has a positive effect on company profitability (ROA and ROE), meaning that the
higher the PROPER rating, the greater the company’s profitability. Companies
are advised to be more concerned about the environment because their business
processes must rely on natural resources that are detrimental to the environment
and the people who experience it. Businesses must create a green background to
have a more significant positive impact on the environment or industry.

Keywords: environmental performance · green accounting · profitability

1 Introduction
Modern economics has revealed numerous environmental issues, such as global warm-
ing, eco-efficiency, and industrial activities, directly affecting the surrounding environ-
ment [1]. Accounting for corporations focuses more on the management and owners of
company capital (Stockholders and Bondholders) than on other parties [2]. Because the
company is accountable to stakeholders and does not prioritize the interests of manage-
ment and capital owners over those of employees, consumers, and the community, the
demands placed on the company are increasing. These demands extend beyond man-
agement and capital owners to employees, customers, and society. Accounting plays
a crucial role in managing the relationship between a company and its external envi-
ronment. From an accounting perspective, social and environmental responsibility are
distinct, particularly in reporting and reporting requirements [3].
The company’s efforts to increase productivity and efficiency include the use of
modern technology in the production of goods, the reduction of costs, the completion

© The Author(s) 2023

Y. A. Yusran et al. (Eds.): BIC 2022, AEBMR 235, pp. 91–101, 2023.
https://doi.org/10.2991/978-94-6463-140-1_10
92 A. L. Sidarta et al.

of mergers and acquisitions, and the utilization of more affordable resources. These
measures are taken to ensure stakeholders receive the most favorable outcome possible.
However, in the era of industrial revolution 4.0, business actors prioritize not only the
owners and management of the company but also all parties related to the company in
multiple ways, including employees, customers, society, and the environment. Since the
interests of multiple parties cannot be separated from the company’s existence. Envi-
ronmental preservation is one of them. Productivity and efficiency frequently lead to
improved environmental quality, mainly due to a decline in soil function. Environmen-
tal protection has long-term advantages for the company and benefits the surrounding
community [4].
The application of environmental accounting by the company is an attempt by the
company to satisfy the desires of its stakeholders. Since the focus of stakeholders is not
solely on the financial aspects of the company but also on environmental aspects, such
as whether or not the company strictly adheres to environmental standards. Consider the
impact of the organization’s operational activities on the surrounding environment. The
use of environmental accounting, or what is commonly referred to as green accounting by
businesses, is viewed favorably by their stakeholders. Due to the application of healthy
environmental accounting, the company has paid attention to its environmental impact
on its surroundings. The company is not only concerned with maximizing profits.
The company’s main objective is the enhancement of company performance. Accord-
ing to De Beer and Friend [5], today’s industry is becoming increasingly concerned with
environmental factors because they believe it affects the company’s finances. The busi-
ness hopes that by improving its environmental performance, it will also be able to
improve its financial performance. Humanity’s increasing awareness of the effects of
environmental degradation on future life has led to a rise in expectations for the entire
society. Because protecting the environment is not only beneficial for the surrounding
community but also the company’s long-term success. Accounting science contributes
to the advancement of science by including environmental costs in its financial state-
ments. In Europe, green accounting was recognized for the first time in the 1970s and
began to take shape [6]. Green accounting refers to a form of accounting that includes
costs associated with the environment [7]. Green Accounting is an effort to improve the
company’s economic performance without negatively impacting the environment. The
term for this initiative is “greening” the accounting process.
Based on the information presented above, this study aims to investigate the influence
of green accounting on company profitability. The study is also incorporating environ-
mental performance to examine the influence on company profitability. As regulated
by Indonesian government, PROPER is used to control the company environmental
performance.

2 Method and Data

This study uses a quantitative type with a descriptive approach. This method is systematic
and structured research. The population used is all industries that are included in the
primary and chemical industry sectors that are listed on the IDX and publish an annual
report in 2021, while the sample uses purposive sampling with the following criteria:
 The Influence of Green Accounting on the Company Profitability 93

No Description Quantity
1 Basic Industry and Chemical Sector on the IDX in 2021 169
2 Companies that do not get a PROPER rating in 2021 (103)
3 Number of samples used 66
4 Final sample total 66

2.1 Operational Definition

The operational variable determines the construct so that it becomes a variable that
can be measured. The operational definition describes a certain way that researchers
can use in operationalizing the construct, making it possible for researchers to replicate
measurements in the same way or develop better ways of measuring constructs [8]. This
study consists of two independent variables, are Green Accounting and Environmental
Performance, and the dependent variable is Company Profitability. The explanation of
each of these variables is as follows:

Variable Concept Indicator Scale

Green Accounting (X1) The total environmental totalcost
• Gr.Acc = environmentalcost Ratio
costs incurred by the
company in one year.
Enivroment Performance Company performance in Refers to the PROPER Ratio
(X2) creating a good color rating obtained by the
environment company:
1 = Very bad/black
2 = Bad/red color
3 = Good/color blue
4 = Very good/green color
5 = Very good/golden color
netprofit
Company Profitability (Y) Profitability is the • ROA = totalassets Ratio
company’s ability to earn
profits in relation to sales, • ROE = netincome(Annual)

shareholder sequity
total assets, and own
capital.

2.2 Data Analysis Technique

In analyzing the data in this study, the STATA MP16 application was used by performing
the following series:

2.2.1 Descriptive Statistics

In descriptive statistics, it is described with data that can be seen from the mean, standard
deviation, maximum, minimum, sum, range [9].
94 A. L. Sidarta et al.

2.2.2 Normality Test

The normality test aims to determine whether the data used in this study is normally
distributed or not by using the Kolmogrov Smirnov Test method in measuring a small
sample of data validly and effectively.

2.2.3 Multicollinearity Test

The multicollinearity test aims to determine whether the data used in this study has an
indication of multicollinearity between independent variables or not by using the VIF
value which can also be called the tolerance value.

2.2.4 Heteroscedasticity Test

The heteroscedasticity test aims to determine whether the data used in this study contains
indications of heteroscedasticity, because a data test that is said to be good is data that
has homoscedasticity test results.

2.2.5 Correlation Test

The correlation test aims to find out how far the relationship between the independent
variables and the dependent variable is. Therefore, the researcher used the Durbin Watson
test model.

2.2.6 Hypothesis Testing

The partial hypothesis test (t-test) aims to determine the individual significance level of
the independent variable on the dependent variable. If the result of the probability level is
less than 0.05, it can be said that the independent variables used, namely green account-
ing and environmental performance have an influence on the company’s profitability
variables [10].

2.2.7 Test Adjusted R2

Adjusted R2 test aims to determine the ability of the independent variable used to explain
the dependent variable [11]. If the results of Adj-R2 are close to the value of 1, it can be
concluded that the independent variable can provide all information on the dependent
variable used by the researcher. Conversely, if the results of Adj-R2 are getting closer
to the value 0, it can be concluded that the independent variable is less able to provide
information on the dependent variable used by the researcher [12].

3 Result and Discussion

3.1 Green Accounting Influences on the Company’s Profitability

Green accounting is accounting that identifies, measures, evaluate and discloses costs
associated with environmental company activities [13]. Green accounting is the process
 The Influence of Green Accounting on the Company Profitability 95

of incorporating environmental consequences into financial statements. Green account-

ing is a method for reporting a company’s environmental cost. The objective is to pro-
vide information on the company’s environmental performance. Voluntary factors are
the primary impetus for businesses to report environmental issues [14]. Environmen-
tal accounting provides internal and external stakeholders with reports. The purpose of
environmental accounting is to serve as a tool for environmental management and as
a communication tool with the community, as well as to increase the amount of rele-
vant information made available to those who need or can use it so that they are aware
of the company’s efforts to combat environmental pollution and its obligations on this
issue through financial reports. Environmental accounting reports a company’s oper-
ations concerning environmental costs [15]. In addition to focusing on economic and
social aspects, companies that wish to achieve corporate sustainability must also focus on
environmental aspects to ensure the company’s continued existence and environmental
sustainability [16].
The application of green accounting has been regulated for companies that refer to
Government Regulation No. 47 of 2012, where limited liability companies have social
and environmental responsibilities when operating a business related to natural resources
[17]. However, there are still a large number of companies that are not overly concerned
with responsibility. According to stakeholder theory, all company activities must provide
benefits to stakeholders.
Aniela’s [18] research indicates that the application of green accounting positively
affects financial performance because it will reflect the company’s business ethics
and increase social trust from stakeholders, thereby sending a positive signal to the
community and affecting the company’s profitability.

H1: Green Accounting influences on company profitability

3.2 Environmental Performances Influences on the Company’s Profitability

Environmental performance refers to the impact and damages the company’s operations
have had on the environment. Management of the company’s waste disposal and manage-
ment to minimize environmental damage around the factory and maximize business pro-
ductivity. The less environmental damage a company causes, the better its environmental
performance, while the environmental damage it causes, the worse its performance.
The Minister of Environment Regulation Number 03 of 2014 concerning PROPER
is a method of evaluating the company’s compliance in the field of controlling pollution
and environmental damage, as well as how to manage waste, which is determined by
performance ratings in the gold, blue, green, red, and black categories. The rating will
enhance the company’s reputation among stakeholders and users of financial statements,
as the company will be viewed as caring about the environment, which will positively
impact its profitability. The company’s reputation will be a positive indicator for its
annual report users, who will respond positively.
96 A. L. Sidarta et al.

H2: Environmental Performance influences on company profitability

3.2.1 Descriptive Statistics

Based on the results above, it shows that N or the amount of data for each valid variable
is 66, from 66 sample data Profitability (Y), the minimum value is 0.027, the maximum
value is 46.55, from the 2021 period, the mean value is 13.4212, and the standard
deviation value is 13.4212. 10,92758 means that the mean value is greater than the
standard value so that the deviation of the data that occurs is low, so the distribution of
the values is evenly distributed.

N Minimum Maximum Mean Std. Deviation

Gr. Acc 66 2.00 8.00 3.9123 1.97557
Env.Performance 66 9.87 16.78 13.8072 1.54895
Profitability 66 .27 46.55 13.4212 10.92758
Valid N 66

Green Accounting (X1) from 66 samples, it is known that the minimum value is
2.00, the maximum value is 8.00, the mean value for the 2021 period is 3.9123, and
the standard deviation value is 1.97557. The data deviation that occurs is low, and the
distribution of the values is evenly distributed.
Environmental Performance (X2) from 66 samples, it is known that the minimum
value is 9.87, the maximum value is 16.78, the mean value for the 2021 period is 13.8072,
and the standard deviation value is 1.54895 is low, the distribution of values is even.

3.3 Classic Assumption Test Results

The classical assumption test consists of normality, multicollinearity, autocorrelation,
and heteroscedasticity tests in order to meet the sample criteria and can be continued in
the linear regression test. Here are the results of the analysis:

Test Type Gr. Acc Env.Performance Description

Normality test .200 sig
Kolmogrov Smirnov Result
Multicollinearity Test
Tolerance .963 .963 sig
VIF 1.039 1.039 sig
Heteroscedasticity Test
Scatter Plot The pattern is spread and there is
no special forming pattern
Glejser Test .261 .052 sig
Correlation Test
Durbin Watson Test Result 1.666
 The Influence of Green Accounting on the Company Profitability 97

3.3.1 Normality Test Results

The results of the classical assumption test show a significance value of 0.200, which
means that the data is normally distributed because it exceeds the 0.05 sig normality
level. The results of the normality test in the multiple linear regression model of this
study were met.

3.3.2 Multicollinearity Test Results

The results of the classical assumption test show that the tolerance of each variable
is 0.963 and also the VIF of each variable is 1.039, so that in this test it is free from
multicollinearity data and is fulfilled.

3.3.3 Heteroscedasticity Test Results

The results of the classical assumption test show that each independent variable through
the glejser test is worth 0.261 and 0.052, which exceeds a significance of 0.05 so that
this data is free from heteroscedasticity and deserves to be tested for multiple linear
regression and the scatter plot shows an irregularly distributed pattern.

3.3.4 Correlation Test Results

The results of the classical assumption test show that the Durbin-Watson value is 1.666.
The appropriate dU value is 1.6120 so that the DW value has exceeded DU and is less
than (4–1.666) which is 2.334, so this data is free from autocorrelation problems and is
fulfilled to perform multiple linear regression.

3.4 Multiple Linear Regression Analysis

3.4.1 Simultaneous Test (F)

The results of the regression test stated a significance value of 0.032, which is <0.05,
so that in this case it can be interpreted that Profitability is influenced simultaneously by
Green Accounting and Environmental Performance variables.

Unstandardized
Coefficients
Model B Std. Error
1 (Constant) .251 .069
Gr. Acc .011 .015
Env. Performance .055 .023
98 A. L. Sidarta et al.

Test Type Gr. Acc Env.Performance Description

F Test .032 sig
F Test Result
t Test
t Test Result .044 .020
significant significant
Coefficient of
Determination
R-Square Result .845 15.5%
influenced
by other
variables

3.4.2 Partial Test (t)

The results of the regression test state that the significance value of the Green Accounting
variable is 0.044 and the Environmental Performance variable is 0.020, so it is interpreted
that the Green Accounting variable has a partial effect on the dependent variable of
company profitability because it is less than 0.05, with this H1 in this study is accepted.
The environmental performance variable has a partial effect on the dependent variable
of the company’s profitability because it is less than 0.05 so that H2 in this study is
accepted.

3.4.3 Coefficient of Determination

The results of the regression test show that R Square is 0.845. The magnitude of the
influence of the independent variables of green accounting and environmental perfor-
mance is 84.5% on the dependent variable of company profitability, while 15.5% gets
the influence of other variables.

3.5 The Effect of Green Accounting on Company Profitability

This study demonstrates that green accounting impacts the profitability of businesses.
Incorporating environmental costs, waste recycling, and research and development costs
into their business operations set a standard for consumers and investors. The imposition
of costs for the environment will also reduce the capital owned by the company, as it
is a burden that the company must finance in order for companies to prioritize their
production processes in order to maximize profits, and it is still optional for the company
to disclose costs associated with green accounting. The imposition of environmental
costs also inspires consumer confidence, which affects sales and profits; consequently,
environmental accounting becomes the company’s top priority. According to the theory
of signaling, annual report users will receive a positive signal if the information obtained
from the company itself is considered accurate.
 The Influence of Green Accounting on the Company Profitability 99

3.6 The Effect of Environmental Performance on Company Profitability

This study demonstrates that environmental performance affects profitability of busi-

nesses, which creates an excellent or green environmental performance for companies
that have received a rating from KLH through the PROPER program, as it sends a positive
signal to investors and enables the company to obtain credit. Because it has partnered
with Bank Indonesia to offer different credit terms to companies with a GOOD rat-
ing from KLH, this rating improves the company’s image and reputation in the eyes
of consumers and annual report readers, as it is viewed as having contributed to more
significant concern for the environment and a gradual reduction in the negative impact
of the company’s business processes.
The company has persuaded consumers, investors, and the public due to its com-
pliance with applicable regulations. Signaling theory explains that if the information
obtained from the company itself is deemed accurate, users of the annual report will
receive a positive signal. Consumers and investors have accepted environmental per-
formance as a basis for action. According to stakeholder theory, all company business
processes involve stakeholders. According to the research of Wijaya & Nuryatno [19],
and Al-Tuwaijr, et al. [20], environmental performance affects a company’s economic
performance. It has been demonstrated that environmental performance stimulates eco-
nomic performance, especially when coupled with a company’s attainment of a PROPER
rating. This promotes a positive corporate image and incentivizes creditors to extend
credit.

4 Conclusion
Profitability as measured by Return on Assets (ROA) and Return on Equity (ROE), has
a significant positive effect on company profitability, if a business has an environmen-
tal component, an environmental cost component, and a recycling cost. Costs associ-
ated with product reuse and ecological research and development. In other words, the
company’s profitability will increase if it applies green accounting in its annual report.
Based on the results of the regression test above, environmental performance has a
positive effect on company profitability (ROA and ROE), meaning that the higher the
PROPER rating, the greater the company’s profitability. Companies are advised to be
more concerned about the environment because their business processes must rely on
natural resources that are detrimental to the environment and the people who experience
it. Businesses must create a green background to have a more significant positive impact
on the environment or industry.
Based on the results of this study, suggestions can be given to further researchers
regarding the use of several variables or other industrial sectors related to economic
performance that are still in the environmental context, such as ecological disclosure.
This research can also be a consideration for businesspeople in making decisions. Based
on the results of the discussion that has been described previously, this study concludes
that Green Accounting has a positive effect on profitability, both profitability is measured
by ROE and ROA. In addition, environmental performance positively affects business
profitability. This study only considers green accounting and environmental performance
100 A. L. Sidarta et al.

variables. Other variables reflecting the company’s ecological concerns can be used for
additional research.

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