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THE INFLUENCE OF GOOD CORPORATE GOVERNANCE

(GCG) IMPLEMENTATION TOWARD QUALITY

SUSTAINABILITY REPORTING (SR) DISCLOSURE (SURVEY ON INDONESIA COMPANIES LISTED IN INDONESIA

STOCK EXCHANGE)

By:

Berliansyah Nugraha Putra

Student ID: 108082100012

ACCOUNTING DEPARTMENT

INTERNATIONAL CLASS PROGRAM

FACULTY OF ECONOMICS AND BUSINESS

STATE ISLAMIC UNIVERSITY SYARIF HIDAYATULLAH

JAKARTA

1436 H /2015




STOCK EXCHANGE)

By:


Student ID: 108082100012





JAKARTA

1437 H /2016 M

ii




STOCK EXCHANGE)

Undergraduate Thesis

Submitted to Faculty of Economy and Business

As Partial Requirement for Acquiring Bachelor Degree of Economics

By:


Student ID: 108082100012

Under Supervision of:

Supervisor I Supervisor II

Prof. Dr. Margareth Gfrerer Atiqah, SE, M. Si

ID. 19820120 200912 2 004





JAKARTA

1436 H /2015

v

CURRICULUM VITAE

Personal Detail

Full Name : Berliansyah Nugraha Putra

Nick Name : Berly

Address : Ciledug Indah 2, Jalan Garuda 1 D 1 No 14/A

Ciledug Tangerang – Banten 15158

Mobile Number : 0813 80880 435

E-mail : [email protected]

Date of Birth : Jakarta, April 8th

, 1990

Sex : Male

Religion : Moslem

Nationality : Indonesian

Competences and Personality : Hard worker, Good working in team, Available

work in pressure.

Educational Background School Year

Elementary SDI Al-Hasanah Tangerang 1996-2002

Junior High School YPI An-Nisaa’ Tangerang 2002-2005

Senior High School SMAN 90 Jakarta 2005-2008

University State Islamic University Syarif 2008-Now

Hidayatullah Jakarta

Major : International Accounting

Non Formal Education

1. EF Pamulang ( Real English, Advance) 2010-2011

2. Chinese Course (Basic) 2012

3. Germany Course (Pre-intermediate) 2005

4. Japanese Course (Basic) 2007

vi

Working Experience

1. Computer Technician at CrownBase.Net Ciledug Tangerang 2009-2015

2. Cooker at Resto Pawon Bu Puji Ciledug Tangerang 2009-Now

3. Quality Control Standard Food and Beverage at Pawon Bu Puji 2010-Now

4. Quality Control Standard of Berlian’s Bakery, Cake and Cookies 2015-Now

Organization Experience

1. Chairman of Islamic extracurricular (ROHIS) SMPI AN-NISAA’ 2003

2. Vise chairman of Islamic extracurricular (ROHIS) SMA 90 JKT 2007

3. Chairman of Remaja Masjid Al-Muhajirin Ciledug Tangerang 2010-2012

Conference Participations

1. Climate Change Economy held by DAAD alumni (February 14, 2012)

2. Summer School in Weyden, Germany with theme “Renewable Energy-

Leadership and Entrepreneurship”, supported by DAAD

(10-18 September 2011)

3. Seminar about Economic Issues in global was held by United Nation (2010)

Activity of Co-curricular

1. Company visit to BMW Center Germany 2012

2. Company visit to P.T. Sucofindo Jakarta Selatan 2008

This statement, I create with the truly as the consideration.

Sincerely


vii

FOREWORD

Assalammu'alaikum Wr.Wb

All Praise to Allah SWT as the Hearer, the Seer and above all an

abundance of grace, Taufiq, as well as his guidance. So, because Allah SWT I can

finish this research on time.

Shalawat always gives to the Prophet of Muhammad SAW and all his

family and friends who always helped him in establishing Dinullah in this earth.

With the strength, intelligence, patience, and strong desire from Allah

SWT, it is a pleasure and honorable to finish this mini thesis as graduation pre

requirement for bachelor degree. I believe there is an invisible hand that has

helped me going through this process.

My special thank for my Mom, Puji Arwati Zaini, who has been helping

and support her son to finish the thesis. You are the embodiment of angels in

human form. So, I want to make you always smile because your happiness is the

best moment that I’ve ever had. You always pray and give spirit, you always pray

for the pleasure for your family and your sons. Thank you mama.

I also would like to extend my gratitude to my father, Mufti Bernado who

has helped me to be the one and only investors to pay attention and the fee

semester of University. I often become very annoying during my thesis process

since I often asking him for pay some university activities. But all of your

viii

scarification has been paid off your son has got her bachelor degree. Thank you

also, you always pray for me in your sholah.

I believe I am nothing without each one of you who has helped me in finishing

this mini thesis. Thus, in this very special moment, let me say many thanks to all

of them who have been helping me the process of this thesis, including:

1. Dr. M. Arief Mufraeni, Lc., Msi., as the Dean of Faculty of Economics and

Business.

2. Prof. Dr. Margareth Greferer, as thesis supervisor I. A special person who

always give me spirits and motivation to keep continue with study until finish

my mini thesis. Also a mentor, who has provided direction and guided me,

gives the great knowledge and thank you for your time. So, Alhamdulillah this

mini thesis has done.

3. Atiqah, SE, MS., Ak., as thesis Supervisor II who has provided direction,

guidance, and thank you for your time and your helping. So I can finish this

thesis.

4. All Lecturers who have taught patiently, may what they have given are

recorded in Allah SWT almighty and all staff UIN Jakarta, special thanks to

Mr. Sugi and Mr. Bonic " thanks you have taught me and given explanation

about thesis"

5. All my friends in accounting, management2008 int'l. Shinta- Lucky- Novita-

Farah “Big love for you guys”. Thanks to My girlfriend Novita Megawati who

already help me and support me in finishing this thesis. You are so special for

me. Angga - Royan- Abhi- Ustadz Mahmud- Pitoy - Vivin- Mia- Shita- Ryan-

ix

Gugun, and Danke Prima for my Friend from Germany ‘Sebastian’ who

already help me in understanding about environmental indicators and motivate

me. Thanks all who could not mention one by one "Thanks for your prayers

and forward your ways.

6. Seniors and juniors prodi int'l accounting and management. Thank you

brothers and sisters for your pray and spirits.

7. Resto Pawon Bu Puji Team and Berlian’s Bakery Team. You are amazing

team that I’ve ever had. Let’s meet you again with another goal and

achievement to be successful on 2016.

I realize this mini thesis is still far from perfection, thus suggestions and

constructive criticism from all parties are welcome, in order to improve my thesis.

Finally, only Allah SWT will return all and I hope this mini thesis will be useful

to all parties, especially for writers and readers in general, may Allah bless us and

recorded as the worship of Allah’s hand. Amin.

Wassalamu’alaikum Wr.Wb.

Jakarta, December 2015


x

ABSTRAK

Penelitian ini bertujuan untuk menganalisis faktor karakteristik Good

Corporate Governance (GCG) dalam perusahaan yang dapat mempengaruhi

kualitas pengungkapan laporan keberlanjutan pada Laporan keberlanjutan

perusahaan-perusahaan yang ada di Indonesia. Faktor-faktor karakteristik Good

Corporate Governance yang digunakan antara lain ukuran Dewan Komisaris,

proporsi Komisaris Independen dan ukuran Komite Audit.

Populasi dari penelitian ini adalah semua perusahaan di Indonesia yang

telah menerbitkan laporan keberlanjutan pada tahun 2009 hingga 2014. Total

sampel penelitian adalah 5 perusahaan yang ditentukan melalui purposive

sampling. Penelitian ini menganalisis pada laporan tahunan perusahaan dengan

metode Content analysis. Analisis data dilakukan dengan uji asumsi klasik dan

pengujian hipotesis dengan metode regresi linear berganda.

Hasil dari penelitian ini menunjukkan bahwa faktor Dewan Komisaris dan

Dewan Komisaris Independen berpengaruh signifikan terhadap kualitas

pengungkapan laporan keberlanjutan di Indonesia, sedangkan ukuran Komite

Audit, tidak berpengaruh signifikan terhadap kualiatas pengungkapan laporan

keberlanjutan di Indonesia.

Kata kunci: Sustainability Report (SR), Karakteristik Mekanisme pengawasan

dalam GCG, Dewan Komisaris, Dewan Komisaris Independen, Komite Audit,.

xi

ABSTRACT

This study aimed to analyze the characteristics of good corporate

governance (GCG) in a company that can affect the quality of sustainability

reporting disclosure on sustainability report companies that exist in Indonesia.

Factors characteristics of good corporate governance which is used are the size of

the Board of Commissioners, Independent Commissioner Proportion and size of

the Audit Committee.

The populations of this research were all Indonesian companies which has

published a sustainability report in 2009 to 2014. The total sample are 5

companies determined through purposive sampling. This study analyzed the

company’s annual reports with Content analysis method. Data analysis was

performed with the classical assumption and hypothesis testing with multiple

linear regression method

Results from this study indicate that factors Board of Commissioner are

significantly influence the quality of disclosure of Sustainability Report in

Indonesia, while the size of Audit Committee does not significantly influence the

quality of disclosure of Sustainability Report in Indonesia.

Keywords: Sustainability Report (SR), Characteristics Mechanism surveillance in

good corporate governance, the Board of Commissioners, Board of Independent

Commissioners, the Audit Committee ,.

xii

LIST OF CONTENTS LIST OF CONTENTS

SUPERVISION SIGN .................................................................................... ii

CERTIFICATION OF THESIS EXAM SHEET ............................................. iii

SHEET STATEMENT AUTHENTICY SCIENTIFIC WORKS .................... iv

CURRICULUM VITAE .................................................................................. v

FOREWORD ................................................................................................... vii

ABSTRAK ....................................................................................................... x

ABSTRACT ..................................................................................................... xi

LIST OF CONTENTS ..................................................................................... xii

LIST OF FIGURE ............................................................................................ xvii

LIST OF TABLE ............................................................................................. xviii

CHAPTER I INTRODUCTION

1.1. Background .................................................................. 1

1.2. Problem Definition ...................................................... 3

1.3. Purpose of this Research .............................................. 3

1.4. Benefit of Research ...................................................... 4

CHAPTER II LITERATURE REVIEW

2.1 Introduction................................................................... 5

2.2. Theory Development ................................................... 7

2.2.1. Agency Theory ................................................... 7

2.2.2. Earning Management ........................................ 10

2.3. Good Corporate Governance ........................................ 11

2.3.1 Theoretical Foundation of Corporate

Governance ........................................................ 12

2.3.2 Definition of Corporate Governance ................. 13

xiii

2.3.3. National Committee of Governance (KNKG)

Definition of GCG ............................................. 15

2.3.4 Good Corporate Governance Mechanism ......... 19

2.3.4.1 General Meeting of Shareholders ......... 21

2.3.4.2 Board of Commissioners and Board of

Directors ............................................... 20

2.3.4.3 Board of Commissioners ....................... 20

2.3.4.4 Board of Directors ................................ 20

2.3.5 The Impact of Corporate Governance

Disclosure of Firm Performance ........................ 21

2.3.6 Good Corporate Governance Development in

Indonesia ............................................................ 23

2.4. Sustainability Report .................................................... 25

2.4.1 The Concept of Sustainable Development .......... 26

2.4.2 Sustainability Report Definition in General ........ 29

2.4.3 Global Reporting Initiative (GRI) Definition of

Sustainability Report .......................................... 31

2.4.4 Impact of Sustainability Disclosure of Firm

Performance ........................................................ 33

2.4.5 Relationship between GCG and Sustainability

Reports ................................................................ 35

2.4.6 Sustainability Report in Indonesia ...................... 37

2.5 Previous Research ......................................................... 39

2.5.1 Analisis Pengaruh Good Corporate Governance

(Gcg) Terhadap Kualitas Pengungkapan,

Sustainability Report (Abdul Aziz, Desember

xiv

2014).................................................................... 39

2.5.2 Corporate Governance and Sustainability

(Alena Kocmanová, Jiří Hřebíček, Marie

Dočekalová, 2011) .............................................. 40

2.5.3 Corporate Governance, Sustainability and the

Assessment of Default Risk (Christina James-

Overheu, Asian Journal of Finance &

Accounting) ......................................................... 41

2.6 Theoretical Framework ................................................. 41

2.7 Hypothesis Development ............................................. 45

CHAPTER III RESEARCH METHODOLOGY

3.1. Scope of Research ........................................................ 46

3.1.1 Dependent Variable ............................................. 46

3.1.2 Independent Variable .......................................... 47

1. The size of Board of Commissioners ............ 47

2. The proportion of Independent

Commissioners ............................................ 47

3. The size of the Audit Committee .................. 48

3.2. Sampling Method.......................................................... 49

3.3. Data Collection Method ............................................... 50

3.4. Analysis Method .......................................................... 51

3.4.1 Descriptive Method ............................................. 51

3.4.2 Classical Assumption .......................................... 52

1. Normality Test............................................... 52

2. Multicollinearity Test ................................... 53

xv

3. Heteroscedasticity Test ................................. 53

4. Autocorrelation.............................................. 54

3.4.3 Multiple Regression Analysis ............................. 55

a. Simultaneous Regression Analysis (Test - F) 56

b. Partial Regression Testing (T-test) ...……… 56

3.4.4 Coefficient Determination Test (R2) .................. 56

CHAPTER IV FINDING AND ANALYSIS

4.1. General Description of Research Object ...................... 58

4.1.1. Overview of 5 selected Companies ..................... 58

4.1.2. Overview of business development 5 selected

Companies ........................................................... 59

4.2. Analysis and Discussion ............................................... 59

4.2.1.Descriptive Analysis ........................................... 59

4.2.1.1 Independent Variable (GCG Components) . 60

4.2.1.2 Dependent Variable (Sustainability Report

Indicator) ....................................................... 69

4.2.2 Classical Assumption .......................................... 75

1. Normality Test............................................... 75

2. Multicollinearity Test ................................... 77

3. Heteroscedasticity Test ................................. 78

4. Autocorrelation .............................................. 79

4.2.3 Multiple Regression Analysis ............................. 80

a. Simultaneous Regression Analysis (Test - F) 82

b. Partial Regression Testing (T-test) ……....... 82

xvi

4.2.4 Coefficient Determination Test (R2) ................. 84

4.3. Interpretation................................................................. 85

1. The influence of Board of Commissioners to the

quality of Sustainability Report Disclosure ............. 85

2. The influence of Board of Independent

Commissioners to the quality of Sustainability

Report Disclosure .................................................... 85

3. The influence of Audit Committee to the quality of

Sustainability Report Disclosure ............................ 86

CHAPTER V CONCLUSION AND RECOMMENDATION

5.1 Conclusion ..................................................................... 87

5.2 Recommendation .......................................................... 89

REFERENCE ................................................................................................ 91

APPENDIX ..................................................................................................... 93

xvii

LIST OF FIGURE

Figure 2.1 Theoretical Framework ............................................................... 44

Figure 4.1 The Compliance with Size of Board of Commissioners in 2009

– 2014 ......................................................................................... 60

Figure 4.2 The Compliance with Size of Independent Commissioners in

2009 – 2014 ................................................................................ 63

Figure 4.3 The Compliance with Size of Audit Committee in 2009 – 2014 .. 67

Figure 4.4 The Compliance with GRI G3 Index in 2009 ................................ 70






xviii

LIST OF TABLE

Table 2.1 Matrix of the Logical Framework ............................................... 42

Table 3.1 Operational Variable ................................................................... 48

Table 4.1 COMPANIES SECTOR ............................................................. 59

Table 4.2 SIZE OF BOARD OF COMMISSIONERS IN 2009 -2014

BOARD OF COMMISIONERS ................................................. 60

Table 4.3 SIZE OF INDEPENDENT COMMISSIONERS IN 2009 -

2014 SIZE OF INDEPENDENT COMMISSIONERS .............. 63

Table 4.4 SIZE OF AUDIT COMMITTEE IN 2009 -2014 AUDIT

COMMITTEE ............................................................................. 66

Table 4.5 GRI G3 INDEX IN 2009 -2014 .................................................. 69

1

CHAPTER I

INTRODUCTION

1.1.Background

In the last decade, especially in Indonesia, the sustainability reporting

began to receive attention by stakeholders, especially among investors. Investors

are not only rely simply on the financial statements consisting of balance sheet,

income statement, cash flows, and notes to the financial statements as a tool to

make investment decisions. Trend of making sustainability reporting is increasing

every year, according to Indonesian sources Sustainability Report Award (ISRA)

and some information about the company official web page up until the year of

2014 was 60 companies that have issued sustainability reports.

Practices and disclosure Sustainability Report is a logical consequence of

implementation of the concept and mechanism of Good Corporate Governance

(GCG), which principally functioned as states that the company needs to consider

the interests of their stakeholders, according with the existing rules and establish

active cooperation with stakeholders for the sustainability of the companies in a

long term.

Additionally, mechanisms and governance structures in the company can

be used as a supporting infrastructure for practices and disclosure Sustainability

Report in Indonesia. With the mechanism and governance structure, it can reduce

asymmetry information. If the asymmetry of information is allowed, then it can

lead to adverse selection and moral hazard, as the consequence for every company

which does not carry out practicing and disclosure Sustainability Report.

2

Another side, in this unprecedented economic growth era, achieving

sustainability can be seemed more of an aspiration than a reality. As economies

globalize, new opportunities in generating prosperity and quality of life are arising

though the trading, knowledge-sharing, and access to technology. However, these

opportunities are not always available for an ever-increasing human population,

and accompanied by new risks to the stability of the environment. The indicators

used in measuring of sustainability in companies are developed continuously by

some different international organizations with the aim of achieving an

internationally acknowledged sta Therefore, based on phenomena above, the

author interested to analyze “The Influence Of Good Corporate Governance

(Gcg) Implementation Toward Quality Sustainability Reporting (Sr)

Disclosure”dard. The most widely international activity known is the Global

Reporting Initiative (GRI) which concentrates on standardization of a report on

sustainable development (Sustainability Report).

Therefore, based on phenomena above, the author interested to analyze

“The Influence Of Good Corporate Governance (Gcg) Implementation

Toward Quality Sustainability Reporting (Sr) Disclosure”

Sustainability is strategy of the process of sustainable development. It wins

a special importance where this process assists the management in reaching

sustainability or can discourage from this process. It means that sustainability is

the corporate strategy in monitoring corporate growth, efficiency, performance

and competitiveness by incorporating economic, environmental and social aspects

into corporate management.

3

This research has been done by Alena Kocmanová, Jiří Hřebíček, Marie

Dočekalová in 2011 concern with the research of “Corporate Governance and

Sustainability”. The paper focuses on Sustainability and Corporate Governance

from the point of view of integration and, in connection with the measurement of

corporate performance, Corporate Sustainability Reporting is also gaining in

importance. The end of the results show that Corporate governance is understood

as the key element in achieving economic performance and growth ensuring

increased trust of the investors. It covers a wide range of relationships between the

company management, governing bodies, stakeholders and other parties with

justified interests.

1.2. Problem Definition

In problem definition, the current and require situation is formed as a

structured description of the design problem, with the goal of creating an explicit

statement on the problem and possibly the direction of idea generation. Also, it

clearly written down and provides a global understanding of the problem and its

relevant aspects.

1. Are Board of Commissioners influence the quality of Sustainability Report

Disclosure?

2. Are Board of Independent Commissioners influence the quality of

Sustainability Report Disclosure?

3. Are Internal Auditor influence the quality of Sustainability Report Disclosure?

1.3. Purpose of this Research

4

The purpose of this research is to investigate the extent of qualified

sustainability reports printed voluntary by companies listed on the Indonesian

Stock Exchange regarding to the requirements provided by GRI G3 guideline. The

purpose is as follow by:

1. To observe and clarify the influence the Board of Commissioners to the

quality of Sustainability Report disclosed.

2. To observe and clarify the influence the Board of Independent Commissioners

to the quality of Sustainability Report disclosed.

3. To observe and clarify the influence Audit Committee to the quality of

Sustainability Report disclosed.

1.4. Benefit of Research

Some benefits of this research are:

1. Contribute to the development of the science of Management Accounting,

primarily on how the implementation of GCG in a company can influence the

company's decision to disclose qualified sustainability report practice in the

company's annual report.

2. It provides a practical contribution to the company / management about the

benefits implementation and mechanisms of good corporate governance

(GCG) and disclosure of sustainability report for the company.

3. As reference material or reference for those who will perform further research

on this issue.

4. As a guidance to build transparency about non-financial performance that can

help to reduce reputational risks, open up dialogue with stakeholders such as

customers, communities and investors, and demonstrate leadership, openness

and accountability.

5

CHAPTER II

LITERATURE REVIEW

2.1 Introduction

Each company is committed to implementing the highest standards of

corporate governance in every aspect of the business operations. Good corporate

governance principles are embodied in values, Code of Business Principles,

business processes, controls and standard operating procedures, and how

companies strive to ensure that these are internalized and consistently practiced by

every board of the Company.

Corporate governance has recently received much attention due to

Adelphia, Enron, WorldCom, and other high profile scandals, serving as the

impetus to such recent U.S. regulations as the Sarbanes-Oxley Act of 2002,

considered to be the most confiscate corporate governance regulation in the past.

If better corporate governance is related to better firm performance, better-

governed firms should perform better than worse-governed firms.

Further, regulators and governance advocates argue that the stock price

collapse of such former corporate as Adelphia, Enron, and WorldCom was due to

poor governance. If their controversies are valid, a market premium should

implement for relatively well-governed firms. It also shown by Gompers et al.

(2003), and Bebchuk and Cohen (2004), those firms with stronger stockholder

rights have higher Tobin Q’s, and their proxy for firm value, suggesting that

better-governed firms are more valuable, as measuring of firm performance.

6

In other side, manager has a prerogative to expropriate a firm’s assets by

undertaking projects that giving benefits themselves personally, but impact the

shareholder wealth adversely (Jensen and Meckling, 1976; Shleifer and Vishny,

1997). Effective corporate governance reduces “control rights” stockholders and

creditors confer on managers, increasing the managers probability invest in

positive net present value projects, (Shleifer and Vishny, 1997), and suggesting

that better-governed firms in having better operating performance as the proxy for

firm performance.

Prominent examples of corporate scandals in the US, UK and many others

in different continents of the world, many of which were caused by, or at least

exacerbated by governance weaknesses, give rise to financial community’s which

concern about the appropriateness of the firm profitability or growth prospects in

valuing a firm as well as the necessity of effective control mechanisms in ensuring

the investors’ funds in value-maximizing projects. However, there is no

unequivocal evidence to suggest that better corporate governance enhances firm

performance in different market settings (Klein, Shapiro and Young, 2005).

As a result, investors are still much skeptic about the existence of the link

between good governance and performance indicators like share price

performance and for many practitioners and academics in the field of corporate

governance. It remains their search for the Holy Grail – “the search for the link

between returns and governance” (Bradley, 2004, p. 9). In spite of increasing

volume of cross-country and individual country level evidence especially

suggesting a positive link between corporate governance and firm performance,

7

many companies still remain unconvinced and to them, “the practical adoption of

good governance principles has been “patchy” at best, with “form over substance”

of the norm” (Bradley, 2004, pp. 8-9).

2.2. Theory Development

2.2.1. Agency Theory

Since the publication of Jensen and Meckling's seminal work in 1976,

agency theory has become an important part of modern financial economics. It is

commonly cited as one of the key areas in the development of modern financial

considerations. This principles have been extended provide explanations of

merger activity and corporate restructuring, dividend policies, executive

compensation, composition of corporate boards, and capital structure, among

other issues.

Agency theory is the basis of the theory underlying the company's

business practices used at this time. The theory develops from the synergy of

economic theory, decision theory, sociology, and organizational theory. Main

principle of this theory suggested a working relationship between the investor

who gives authority and agency who receive authority, called manager.

Agency theory has basic roots in economic theory which was exposed by

Alchian and Demsetz (1972) and further developed by Jensen and Meckling

(1976) who defines as “the relationship between the principles, such as

shareholders and agents, such as the company executives and managers”. It

defines the firm as a "nexus of contracts" between different resource suppliers.

Two parties are central to the agency theory; principals, who supply capital, and

agents, who manage the day to day of the firm’s affairs (CBFA, 2000).

8

More formally, Jensen and Meckling (1976) define an agency relationship

as a contract under which one or more persons (the principals), engage another

person (the agent), to perform some service on their behalf that involves

delegating some decision making authority to the agent. In an organizational

context, a firm hires agents in part to exploit economies in specialization.

Shareholders who are the owners or principals of the company, hires the gents to

perform work. Principals delegate the running of business to the directors or

managers, who are the shareholder’s agents (Clarke, 2004).

Jensen and Meckling assume that the behavior of all parties, both

principals and agents, is motivated by self-interest. However, utility of wealth

maximization is remains the single human motivator in their entire theory. They

have individual goals and perquisites that will sometimes take precedence. Self-

interest is defined as maximization of the utility of personal wealth. In making this

assumption, Jensen and Meckling make no assertion about its morality. Rather,

they simply claim that it is the best descriptor of human motivation. Nevertheless,

this assertion generates a great deal of criticism in the literature of financial ethics.

Meanwhile, the agency theory developed by Michael Johnson, considers

that the company's management as "agents" for the shareholders, will act with full

awareness of their own interest, not as the wise and prudent and also fair to

shareholders.

Daily et al (2003) argued that two factors can influence the prominence of

agency theory. First, the theory is conceptually and simple theory that reduces the

corporation of two participants of managers and shareholders. Second, agency

9

theory suggests that employees or managers in organizations can be self-

interested.

In further development, agency theory got a broader response deemed as

better reflect of reality. Some various considerations of corporate governance

were developed by relying on agency theory where the management should

conduct with full compliance according to various rules and regulations exist.

Eisenhardt (1989) use three assumptions on human nature to clarify the

agency theory are: (1) general human selfishness (self-interest), (2) humans have a

limited power of thinking about the future perception (bounded Rationality), and

(3) people always avoid risk (risk averse). Based on the assumption of human

nature, manager as human will most possibility act opportunistic that relates to

prioritizing personal interests.

The world of business has competition at its very core. Competition exists

not only among firms, but within firms, as employees compete for recognition,

promotions, and salary increases. Agency theory acknowledges this world, but did

not create it. As reconceptualized, Agency Theory provides a basis for ethical

behavior. It focuses on the responsibilities of the firm to society as a whole.

To date, agency theory has defined the firm as the principal, and managers

as the agents-trustees. This focus naturally highlights the responsibilities of agents

to the corporation, while the responsibilities of the corporation to others have been

ignored. If the role of the firm is redefined as an agent of society, which is

represented by governmental bodies, the responsibilities of the corporation can be

given a sharper focus.

10

2.2.2. Earning Management

Healy and Wahlen (1999), in their article states that earning management

were often happened by the management to increase compensation and job

security. Beside it, earning management is also done to avoid rules breaking in a

loan contract, reduce regulatory cost, or increase regulatory benefit (Cornett et al.,

2008).

Earning management is not only done by the management for their benefit,

but also for major shareholder, even though it will cause loss for the minor

shareholder. This fit the statement of Laporta et al (1999, 2000) that present an

argument that the real problem of most big company listed on Indonesia Stock

Exchange’s agency conflict is to limit the resources usage by the major

shareholders (who are the controller shareholder) that can cause mean of resources

transfer from the company to major shareholder’s benefit.

Cheung et al. (2005) has done a study about tunneling activities in China

that shows there are transaction done between the companies listed in the Stock

Exchange with the major shareholder. The research shows that the transaction

done by them can cause bad effects to minor shareholders. Jiang et al. (2005) then

documented practices done by most of China’s company, where major

shareholders used company’s loan for their own benefit. Tunneling activities

happen often in a developing country; a country that hasn’t applies GCG well. If a

company really did tunneling, major shareholders will hide the real condition of

the company and use the information for their own benefit. One of the ways to

cover the real condition of company is doing earning management. To reduce

11

earning management activities, GCG need to be applied (Klein, 2002; Warfield,

Wild, and Wild, 1995; Dechow, Sloan, Sweeney, 1996; Beasley, 1996).

Ortega and Grant (2003) stated that earning management is possible

because there is flexibility in a financial report making in order to change the

operational profit of a company. In other words, Abdelghany (2005) explains that

earnings management is revenue manipulation done to fulfill the target stated by

the management. Lo (2008) then relates earnings management and earnings

quality, where a company that did earnings management the most has a bad

earning quality. But a company that didn’t do earning management doesn’t always

have good earning quality, because earning quality is affected by many factors.

This opinion is supported by Schipper and Vincent (2003) whom states that

earning management will affect earning quality.

2.3. Good Corporate Governance

As explanation of the agency theory and earning management, so each

company has to commit to implementing the highest standards of corporate

governance in every aspect of the business operations to implement the principles

of Good Corporate Governance.

Corporate governance consists in contributing to not only corporate

prosperity, but also to the responsibility. Along with the increasing of global

markets investors’ development activity, these will be focusing on demand higher

standards of responsibility, conduct and performance.

Investors tend to seek opportunities outside their domestic markets even

more. The companies try to gain resources on the international capital markets,

12

even find that capital only available for those who conform to the internationally

accepted standards of corporate governance and publishing of information. These

are only some of the reasons leading to the worldwide improvement of the

Corporate Governance standard and, in some degree to its convergence. The

defining of corporate governance is not a matter of unified terminology.

Policies and corporate governance in the future should be more attentive to

the needs of stakeholders (Murtanto, 2005; 4). Disclosure on the economic

aspects, environmental and social has now become a way for companies to

communicate the accountabilities form to stakeholders. This is known as

sustainability reporting, or triple bottom line reporting recommended by the

Global Reporting Initiative (GRI).

2.3.1 Theoretical Foundation of Corporate Governance

Corporate governance lacks any accepted theoretical base or commonly

accepted paradigm as yet (Carver, 2000; Tricker, 2000; Parum, 2005; Larcker,

Richardson and Tuna, 2007; Harris and Raviv, 2008). Citing Pettigrew (1992),

Tricker (2000) and Parum (2005) argue that corporate governance research lacks

coherence of any form, either empirically, methodologically or theoretically,

means that only piecemeal attempts have been made to understand and explain

how complex modern organization is run.

As a result, a number of different theoretical frameworks originate from a

broad range of disciplines including economics, finance, management and

sociology; have been used by researchers in explaining and analyzing corporate

governance. Using various terminologies, these frameworks view corporate

governance from different perspectives.

13

Stiles and Taylor (2002) argue that fragmentation of these various

perspectives has led to a lack of consensus regarding corporate governance and

the actual role of the board of directors in the organization as the nature of board’s

contribution (and the expectations placed upon it) depends heavily on which

theoretical perspective used. However, these frameworks often overlap

theoretically and do share significant commonalities (Solomon and Solomon,

2004).

2.3.2 Definition of Corporate Governance

According to Cadbury (2000) in Dima Jamali (2008), Corporate

Governance (CG) defines as “the system by which companies are directed and

controlled”. The control aspect of CG encompasses the notions of compliance,

accountability, and transparency (MacMillan, Money, Downing and Hillenbrad,

2004), and how managers exert their functions through compliance with the

existing laws and regulations and codes of conduct (Cadbury, 2000). The

importance of CG lies in its quest at crafting/continuously refining the laws,

regulations, and contracts that govern companies’ operations, and ensuring that

shareholder rights are safeguarded, stakeholder and manager interests are

reconciled, and that a transparent environment is maintained wherein each party is

able to assume its responsibilities and contribute to the corporation’s growth and

value creation (Page, 2005). Governance thus sets the tone for the organization,

defining how power is exerted and how decisions are reached.

According to Macey (2008, p. 1), the purpose of corporate governance is

to persuade, induce, compel, and otherwise motivate corporate managers to keep

14

the promise they make to investors. Another way to say this is that corporate

governance is about reducing deviance by corporation where deviance is defined

as any actions by management or directors that are at odds with the legitimate,

investment-backed expectations of investors. Good corporate governance, then, is

simply about keeping promises. Bad governance (corporate deviance) is defined

as promise breaking behavior

The OECD Principles of Corporate Governance, inter alia referred to in

the EU Commission’s Action Plan on Company Law and Corporate

Governance, take a slightly broader view: “Corporate governance involves a set

of relationships between a company’s management, its board, its shareholders and

other stakeholders. Corporate governance also provides the structure through

which the objectives of the company are set, and the means of attaining those

objectives and monitoring performance are determined. Good corporate

governance should provide proper incentives for the board and management to

pursue objectives that are in the interests of the company and its shareholders, and

should facilitate effective monitoring.” This definition goes beyond the definitions

cited above mainly insofar as a company’s objective(s) and the mechanism for

setting the objective(s) are treated as a corporate governance issue, not as

endogenously given. Put succinctly, corporate governance “deals with the ways in

which suppliers of finance to corporations assure themselves of getting a return on

their investment.”

Regarding to Ministry Of Finance Of The Republic Of Indonesia

(BAPEPAM, 2006) in Corporate Governance, Annual report must include a brief

15

discussion regarding implementation of corporate governance that the company

has taken and intends to take in the last financial statement period. The discussion

must at least contain Board of Commissioner, Directors, Audit Committee, Other

Committees, job description and function of corporate secretary, description of

company internal control system and internal control audit, detailed description of

the company risks and preventive action toward the risks, description of social

responsibility activities and expenditure, Any lawsuit in which the Issuer or Public

Company, any of its directors or commissioners is involved, and description of

place/address that can be reached by the shareholders or public to obtain company

information.

2.3.3. National Committee of Governance (KNKG) Definition of GCG

Regarding to KNKG (2006), GCG is necessary to enhance the creation of

an efficient and transparent market that is consistent with the laws. Hence, the

implementation of GCG needs to be supported by three inter-related pillars; (1)

the regulatory, supervisory and enforcement authorities as regulator/policy

makers, (2) business community as market participants, and (3) public as users of

products and services of the business community. The basic principles that must

be implemented by each pillar are:

1. The regulatory, supervisory and enforcement authorities develop laws and

regulations that will promote the creation of a healthy, efficient and

transparent business climate, implement and maintain it, and support it with a

consistent law enforcement.

2. The business sectors as market participants implement GCG as the underlying

ground in conducting business.

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3. The public as users of the products and services of the business sectors and as

the party impacted by the existence of a company demonstrate its concern and

exercises an objective and responsible social control.

Some principles explained by KNKG (2006), that each company must

ensure that principle of Good Corporate Governance is applied in every business

aspect and at all levels of the company. The principles of Good Corporate

Governance to achieve business sustainability of the company (GCG) are:

1. Transparency

To maintain objectivity in running the business, the company must

provide materials and relevant information in easy way that accessible and

understandable by stakeholders. Companies should take the initiative to

disclose not only certain cases as seen and made by regulations, but also

important cases for decision-making by shareholders, creditors and other

stakeholders.

Companies should provide the information on time, appropriate, clear,

accurate and comparable, and easily accessible to interest stakeholders

according their rights. In other side, information that must be disclosed

include and not limited in: vision, mission, business objectives and corporate

strategy, financial condition, board structure and compensation, the controlling

shareholder, stock ownership by members of the Board of Directors and

members of the Board of Commissioners and their family members in the

company and other companies, risk management systems, monitoring and

internal control systems and the implementation of good corporate governance

17

and the level of compliance, and important incident that can affect the

condition of the company.

2. Accountability

Companies must be transparent and accountable of business

performance in responsibly. Thus, a company must be properly managed,

scalable and accordance with the company's interests by taking account of

interests of shareholders and other stakeholders. Accountability is a necessary

prerequisite needed to achieve sustainable performance.

In other side, companies should clearly define the roles and

responsibilities of each company’s comity and all employees clearly consist

with the vision, mission, corporate values, and corporate strategy. It must

ensure that all comities of the company and all employees have the ability

conform to the duties, responsibilities, and roles in the GCG implementation.

Another, Companies should ensure that there is an effective system of

internal control in company management and should have a range of

performance measures for all companies consist with the business objectives

of the company, and has a reward and punishment system. In carrying out its

duties and responsibilities, every comity of company and all employees must

hold on business ethics and code of conduct that has been agreed upon.

3. Responsibility

Companies must comply with the regulation of law and implement the

responsibility to society and the environment so it can well maintained in

business continuity in the long term and as a recognizing as good corporate

citizen.

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Company’s comity must adhere to the principle of circumspection and

ensuring compliance with the laws exist, basic estimation and regulations

companies (by-laws). It also should implement social responsibility by taking

care on society and the environment especially round company by make

adequate planning and implementation.

4. Independency

To expedite the implementation of good corporate governance

principles, the company should be managed independent so that each comity

does not dominate in each other and no intervention by other parties.

Each company comity should avoid domination by any party,

undeterred by the certain special interests, free from collision interest (conflict

of interest) and from any influence or pressure, so decision-making can be

done objectively.

Each commitee of the company must carry out its functions and duties

accordance with the statutes and regulations, not dominate by each other or

passing the duty from the others to others.

5. Fairness

In conducting its activities, the company should always consider of

shareholders interests and others stakeholders according to principles of

fairness and equality.

Companies should provide the opportunity for every stakeholder to

give inputs and express of companies sustainability and open access to

information in accordance with the principle of transparency within the scope

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of their respective positions. It also should provide fair and equitable treatment

to stakeholders in accordance with the benefits and contributions given by the

company.

2.3.4 Good Corporate Governance Mechanism

The organs of a company, consisting of the General Meeting of

Shareholders, the Board of Commissioners, and the Board of Directors, have an

important role in implementing the GCG effectively. The organs of a company

shall carry out their respective functions in accordance with an applicable

provision based on the principle that each organ is independent in carrying out its

duty, function and responsibility in the sole interest of the company;

2.3.4.1 General Meeting of Shareholders

The General Meeting of Shareholders is a company’s organ that facilitates

shareholders to make important decisions regarding their investment in a

company, by observing provisions in the articles of association and the rules and

regulations. Decisions taken in the General Meeting of Shareholders must be

based on the long term interest of a company. The General Meeting of

Shareholders and or shareholders cannot intervene in the exercise of the duty,

function and authority of the Board of Commissioners and the Board of Directors,

without curtailing the authority of the General Meeting of Shareholders to carry

out its rights in accordance with the articles of association and laws and

regulations, including the replacement or termination of the members of the Board

of Commissioners and or the Board of Directors.

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2.3.4.2 Board of Commissioners and Board of Directors

The management of a limited liability company in Indonesia is adopting a

two board system, namely the Board of Commissioners and the Board of

Directors, each of which has a clear authority and responsibility based on their

respective functions as mandated by the articles of association and laws and

regulations (fiduciary responsibility). Yet, they both have the responsibility to

maintain the company sustainability in the long term. Accordingly, the Board of

Commissioners and the Board of Directors must have the same perception

regarding the company’s vision, mission and values.

2.3.4.3 Board of Commissioners

The Board of Commissioners as an organ of the company shall function

and be responsible collectively for overseeing and providing advices to the Board

of Directors and ensuring that the Company implements the GCG. However, the

Board of Commissioners is prohibited from participating in making any

operational decision. Each of the members of the Board of Commissioners,

including the Chairman, has equal position. The duty of the Chairman of the

Board of Commissioners as primus inter pares is to coordinate the activities of the

Board of Commissioners.

2.3.4.4 Board of Directors

The Board of Directors as a company organ shall function and be

responsible collegially for the management of the company. Each member of the

Board of Directors can carry out its duty and take decisions in accordance with

21

their respective assignments and authorities. However, the execution of tasks by

each member of the Board of Directors remains to be a collective responsibility.

The position of each respective member of the Board of Directors including

President Director is equal. The duty of the President Director as primus inter

pares is to coordinate the activities of the Board of Directors. For the Board of

Directors to be able to effectively exercise its duties, the following principles shall

be observed:

1. The composition of the Board of Directors shall enable it to make effective,

right and timely decisions and to act independently;

2. The members of the Board of Directors must be professional that possess the

integrity, experience and capability required for carrying out their respective

duties;

3. The Board of Directors shall be responsible to manage the company for the

purpose of achieving profitability and ensuring the company’s sustainability;

4. The Board of Directors shall be accountable for its management to the General

Meeting of Shareholders in accordance with applicable laws and regulations.

2.3.5 The Impact of Corporate Governance Disclosure of Firm

Performance

Better corporate governance is likely to improve the performance of firms,

through more efficient management, better asset allocation, better labor practices,

or similar other efficiency improvements (Claessens, 2006). Drobetz et al. (2004)

argue that agency problem, the foundation of agency theory, is likely to exert

impact on a firm’s stock price by influencing expected cash flows accruing to

22

investors and the cost of capital. Firstly, low stock price result from the investors’

anticipation of possible diversion of corporate resources. Theoretical models by

La Porta, Lopez-de-Silanes, Shleifer and Vishny (2002) and Shleifer and

Wolfenzon (2002) also predict that in the existence of better legal protection,

investors become more assured of less expropriation by controlling bodies and

hence, they pay more for the stocks. Secondly, through reducing shareholders’

monitoring and auditing costs, good corporate governance is likely to reduce the

expected return on equity which should ultimately lead to higher firm valuation.

There exists a well number of anecdotal evidence of a link between corporate

governance practices and firm performance. But the empirical studies mainly

focus on specific dimensions or attributes of corporate governance like board

structure and composition; the role of non-executive directors; other control

mechanisms such as director and managerial stockholdings, ownership

concentration, debt financing, executive labour market and corporate control

market; top management and compensation; capital market pressure and short-

termism; social responsibilities and internationalization.

Though the relationship between shareholders, directors and management

has been the central topic of corporate governance research for a long time,

focusing merely on the legal company and the firm as the agent of the shareholder

seems no longer sufficient and time has come to view the governance of the firm

as a whole (Van den Berghe, 2002). Moreover, as Ho (2005) argues, evaluating

corporate governance on individual dimension or attribute may not capture the

total effect of corporate governance as much as the case where all the attributes

23

are considered collectively.3 Hence, researchers often attempt to measure overall

corporate governance and try to identify the relationship between corporate

governance and firm performance.

2.3.6 Good Corporate Governance Development in Indonesia

The Indonesian business world needs various instruments to increase its

competitiveness. One key instrument from a shareholder’s viewpoint is good

corporate governance. Companies who implement good corporate governance in a

proper and continuous manner have an advantage over other companies who do

not implement or have not implemented good corporate governance. Challenges

faced by the business world will continue to become more complex. The

challenges for business will be increasingly not limited by borders as information

technology development continues to penetrate our daily lives. The challenges

vary from the very simple to the vary complex. The Code and its application by

business will benefit businesses in responding to these many challenges. The

Code is intended to be dynamic and evolutionary in nature. It will need to reflect

the changes in the business environment in this era of globalization, and the

business world is faced with a new paradigm, the stakeholders’ value added

maximization paradigm. Without providing a value increase, it is difficult for the

business to maintain its competitiveness. The higher competitiveness will start as

companies gain enough experience and the benefit from good corporate

governance implementation.

Now, Indonesia has launched The Indonesian Good Corporate Governance

(GCG) Roadmap issued by Financial Services Authority (OJK) for issuers and

24

publicly listed companies on 2014. The corporate governance roadmap is

formulated by all stakeholders of corporate governance in Indonesia and

supported by International Financial Corporation (IFC), a World Bank subsidiary.

It is expected that this GCG roadmap can be used as the main reference for

comprehensively improving practices and regulations related to good corporate

governance in Indonesia, particularly for issuers and publicly listed companies,

said Chairman of OJK Board of Commissioners Muliaman D. Hadad. Considering

Indonesian’s role in Association of South East Asian Nations (ASEAN) region,

this roadmap will give a positive contribution for improving good corporate

governance. The aim is so that the GCG roadmap can stand equally to the

roadmap in ASEAN region, in the framework of welcoming ASEAN Economic

Community in 2015.

The roadmap is created to provide overall description about various

aspects of corporate governance that must be improved, namely: corporate

governance framework, shareholders protection, stakeholders’ roles, transparency

of information, as well as roles and responsibilities of the board of commissioners

(BOC) and board of directors (BOD). The roadmap is arranged using main

references and refers to international standards related to good corporate

governance.

Indonesia has learnt from experiencing the global financial crisis in 1998

and 2008 that corporate governance is highly crucial. Poor implementation of

corporate governance has been identified as one of the reasons that caused global

financial crisis. In relation to this, improvement of corporate governance

25

implementation in issuers and publicly listed firms in Indonesia becomes first

priority now. This roadmap exists to facilitate the priority realization.

OJK and IFC have been committed to leverage the quality of GCG

implementation in companies in Indonesia, particularly those in financial services

sector, based on corporation agreement signed on June 17th, 2013. IFC is a

subsidiary of the World Bank, which has been contributing to the development of

48 corporate governance codes in 32 countries.

OJK realizes that contributions from all stakeholders of corporate

governance in Indonesia are very significant in achieving the objectives of the

roadmap. Considering the matter, OJK has formed corporate governance task

force (CGTF), which has a special task to develop corporate governance roadmap

together with IFC. This task force encompasses representatives from regulatory

institutions (Bank Indonesia, State-Owned Enterprises Ministry, Taxation

Directorate General, State Development and Finance Comptroller, Indonesian

Accounting Association, and Indonesia Stock Exchange) and governance

institutions (National Committee on Governance Policy, Indonesian Institute for

Corporate Directorship, Indonesian Institute for Corporate Governance, and

Indonesian Institute of Commissioners and Directors).

2.4. Sustainability Report

The issue of sustainability has been one of the most significant

developments in the investment community in recent years, and corporate

information on environmental, social and governance (ESG) issues has become an

increasingly essential information source for investment decisions of capital

26

market participants. Broad empirical evidence supports the notion that ESG

factors are relevant to companies’ economic performance and, thus, are relevant to

investment analysis (Margolis et al., 2007; Orlitzky et al., 2003).

For a number of years, the investment community has had extensive

discussions of the quality of sustainability reporting, which constitutes a primary

reason for the community’s skepticism toward integrating ESG into investment

decision-making processes (Juravle and Lewis, 2008; Sullivan, 2011). Recently,

however, the content quality of corporate sustainability reports has improved

significantly (Foretica, 2011). This change is the result of greater awareness of

corporate governance issues, which in turn leads to greater transparency (Kolk,

2008), and of a growing number of mandatory sustainability frameworks around

the world (Ioannou and Serafeim, 2011).

Moreover, a number of sustainability initiatives have found wide-spread

adoption on a global scale. Nevertheless, the question of the reporting format for

sustainability reports has increasingly arisen in research and practice (Eccles &

Krzus, 2010; Eccles & Serafeim, 2011). Reports have increasingly arisen in

research and practice (Eccles & Krzus, 2010; Eccles & Serafeim, 2011).

2.4.1 The Concept of Sustainable Development

The development of non-financial reporting (which typically for

organizations beginning the sustainability reporting journey) began in the US in

the 1980s. The key focus at that time was on environmental reporting, as external

stakeholders became concerned with the impacts of organizations on a wide

variety of community resources (e.g. air, land and water emissions, waste and

27

whether the resources would be sufficient for future growth). In addressing the

issue, Hubbard (2008) stated that the Brundland Commission (WCED 1987)

developed the term “sustainable development” defining as: “Development that

meets the needs of the present without compromising the ability of future

generations to meet their own needs”

It is argued that globally we must ensure that our generation’s

consumption patterns do not negatively impact on future generation’s quality of

life (Deegan, 2000, p. 300). In 1998, Elkington developed the term “triple bottom

line” to argue the case for reporting environmental and social performance

together with economic performance. The triple bottom line concept implied that

economic, environmental, and social performance were to be balanced and were

of equal importance (Hubbard, 2008). Elkington’s first theory is capitalism must

satisfy legitimate demands for economic performance. Elkington echoes Adam

Smith’s theory that the firm has one and only one goal to satisfy the desires of

shareholders by making profits.

However, profit may not be attainable if the environment in which the

business operates is neglected. Hence, according to Elkington, firms must also be

accountable for social and environmental performance. The economic, social and

environmental consciousness of corporations, the tripod goal, creates a balance

that makes their operations and actions sustainable a corporation which

accommodates the triple bottom line is contributing to sustainable development

(Ngwakwe, 2008).

28

Corporate responsibility strategies are perceived to be related to

sustainable development. Sustainability philosophy assumes that we abandon a

narrow version of a classical economic theory and develop corporate strategies

that include goals that go beyond just maximizing shareholder’s interest.

Attention is directed to the demands of a wider group of stakeholders since the

firm’s success depends on stakeholder’s satisfaction (Bucholz and Roshenthal,

2005; Freeman, 1984; Hardjano and Klein, 2004; Michael and Gross, 2004 in

Lopez et al, 2007)

Companies are becoming aware that they can contribute to sustainable

development process (Lopez et al, 2007). Sustainable development is obtained

through the management of environmental, natural, economic, social, cultural and

political factors. These issues are interrelated and therefore should not be

considered independently (Sage, 1999, p. 196 in Lopez et al, 2007).

Furthermore, investors are increasingly seeking to invest in socially

responsible investments (SRI) in those companies deemed to be following good

social and environmental practices (Hubbard, 2008). They also need social,

ethical, and environmental information. Naturally, a company which is sustainable

will be less risky than one which is not. Consequently, most large companies in

their reporting mention sustainability and frequently it features prominently (Aras

and Crowther, 2009). Since the social, ethical, and environmental (SEE)

performance of a corporation may directly impact on its financial position, the

corporation has to provide sound (SEE) information to investors (Hummels and

Timmer, 2004).

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2.4.2 Sustainability Report Definition in General

Sustainability report is a new term which is widely used to explain the

communication of the companies’ effect on social, environmental and economic

performance which is also referred to as “triple bottom line reports” (profits,

people, and planet). Many large companies publish such kind of reports especially

for the company which is socially environmentally sensitive such as oil and gas,

mining, chemical, automotive, computers, and electronics (Choi, 2006, p. 158). It

is published to fulfill the need of wide range of stakeholders which is not only

limited to investors and creditors, but also include employees, customers,

suppliers, governments, activist groups, and the general public’s.

Hubbard (2008) states the purpose of sustainability reporting is to provide

information which holistically assesses organizational performance in a multi-

stakeholder environment. In the social area, it is focus on contributing back to the

society and community, providing growth and development opportunities for

employees and improving relationships and practices for customers, suppliers,

governments and communities. The notion of reporting against the three

components (or bottom lines) of economic, environmental, and social

performance is directly tied to the concept and goal of sustainable development

(Deegan, 2000, p. 289)

Triple bottom line reporting, if properly implemented, will provide

information to enable others to assess how sustainable an organization’s or a

community’s operations are. The perspective taken is that for an organization to

be sustainable (long-term perspective), it must be financially secure (as evidenced

30

by such measures as profitability), minimize or ideally eliminate its negative

environmental impacts and act in conformity with societal expectations. These

three factors are obviously highly interrelated (Deegan, 2000, p.289).

A sustainability report can be thought of as an impact statement for the

entire corporation, which is defined not only in terms of natural resources and

climatological effects, but also in terms of economic and social impacts of labor

practices, charitable endeavors, and governance structures (Leibs, 2007,

December).

Sustainability report is closely related with corporate social responsibility

reporting which has a voluntary character. Social responsibility reporting refers to

the measurement and communication of information about company’s effect on

employee welfare, the local community, and the environment. Information on

company welfare may involve working conditions, job security, equal

opportunity, workforce diversity, and child labor. Environmental issues may

include the impact of production process, products, and services on air, water,

land, biodiversity, and human health (Choi, 2006, p. 158).

However, corporate social responsibility reporting focuses only on

environmental and social disclosure, while the concept of sustainable

development tied in sustainability reporting involves broader area that covers

environmental, social, and economic performances. As the campaign of

sustainable development has been increase, many corporate non-financial reports,

corporate social responsibility reports now have been repackaged as sustainability

report (Lopez et al, 2007).

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2.4.3 Global Reporting Initiative (GRI) Definition of Sustainability Report

Global Reporting Initiative (GRI) is a network- based organization that has

pioneered the development of the world’s most widely used sustainability

reporting framework.

Sustainability reports based on the GRI framework can be used to

benchmark organizational performance with respect to laws, norms, codes,

performance standards and voluntary initiatives; demonstrate organizational

commitment to sustainable development; and compare organizational

performance. GRI promotes and develops this standardized approach to fulfill

demand for sustainability information.

As economy globalizes, new opportunities tend to generate prosperity and

quality of life that are arising are accompanied by new risks to the stability of the

environment. According to Global Reporting Initiative (2011), there is a contrast

between the improvement in the quality of life and alarming information about the

state of the environment and the continuing burden of poverty and hunger on

millions of people. It raises an issue about how to create new and innovative

choices and ways of thinking. New knowledge and innovations in technology,

management, and public policy are challenging organizations to make new

choices in the way their operations, products, services, and activities impact the

earth, people, and economics. It is the Global Reporting Initiative’s (GRI) mission

to fulfill this need by providing a trusted and credible framework for sustainability

reporting that can be used by organizations of any size, sector, or location.

Sustainability reports based on GRI Reporting Framework disclose

outcomes and results that occurred within the reporting period in the context of

32

the organization’s commitments, strategy, and management approach. The GRI

Reporting Framework is intended to serve as generally accepted framework for

reporting on an organization’s economic, environmental, and social performance.

Furthermore, The Global Reporting Initiative (GRI) is an Amsterdam-

based nonprofit organization, which is made up of stakeholders mainly from

business, government, and social advocacy groups (Leibs, 2007, December 1). For

the past eight years, GRI’s framework has been available as at least one formal

framework to follow when communicating corporate sustainability efforts and

exposures (Leibs, 2007, December 1). Although it is widely used, GRI’s

framework is not an officially sanctioned standard (Leibs, 2007, December 1).

The GRI’s generally accepted framework for companies implementing

sustainability reporting continues to evolve (“How accountants,”2002, October).

Now in its third iteration, the GRI framework has become much more detailed

regarding the performance indicators companies are urged to measure and monitor

(Leibs, 2007, December). By providing in six comprehensive categories guidance

on details such as how to craft a broad statement of strategy and which specific

performance indicators to measure, the GRI framework has brought increasing

levels of rigor to the practice of sustainability reporting (Leibs, 2007, December).

As of December 2007, the GRI framework had almost 80 indicators, many

of which could be broken down into various subcategories (Leibs, 2007,

December). For example, in the emissions, effluents, and waste subcategory, the

GRI framework advised companies to report total direct and indirect greenhouse

gas emissions by weight and total weight of waste by type and disposal method

(Leibs, 2007, December).

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2.4.4 Impact of Sustainability Disclosure of Firm Performance

It can be generalized that sustainability reports does have an association

with company performance. However, further analysis shows that only social

performance disclosure has an association with company’s performance. For

companies, improving sustainability performance is important. Even it is as

important as improving company’s financial performance. Sustainability means

the development that meets the needs of the present without compromising the

ability of future generations to meet their own needs. It means that, in running the

business, a company need to concern to the needs of future generations.

The consumptions made by a company as the input to produce and to

provide goods and services, should not negatively impact the quality of the

consumption of future generation. It is important to remind, especially for

companies, that generating profit is not merely the aims of the business. Being

care and responsible to the environment become important aspects in running the

business in order to increase the company’s reputation, increase profitability and

bring benefits to the entire stakeholders.

Obviously, stakeholders such as employees, suppliers, governments,

activist group, investors, and communities’ around the business are very important

to be considered. Without the credibility and trust that is put by them, business is

impossible to run. In addition, this world now has been facing global warming and

climate change problem. The awareness of a company regarding those problems is

a must. That is why besides improving the profitability, a company should be

responsible for managing the sustainability.

34

For investors, it is important for them to be selective in making investment

decision. Besides making investment decision based on information of financial

performance, it would be better if investors also consider about the performance

of companies in managing sustainability. They should consider about this non-

financial aspect in making investment and lending decision. Investing in profitable

and socially responsible companies would be better than investing in a company

with a high profitability but have been neglecting the environment. High

profitability might be look good in the eye of only one part of stakeholder that is

investors. Whereas, high performance of sustainability might be look good in the

eye of the entire stakeholders.

Sustainability reports cause company management to be more focused on

social and environmental issues (Leibs, 2007, December). For things that are truly

important to the company, management should set goals, establish metrics, and

then monitor progress against them (Leibs, 2007, December). Thus, sustainability

reports will help establish processes for gathering and reporting data (Leibs, 2007,

December). This means companies will become less focused on the report itself

and more focused on the reporting process, thereby conceiving of the act of

producing sustainability reports as part of a continuous activity that is as critical to

running the business as it is to selling the business (Leibs, 2007, December). In

addition to providing more information to customers and investors, the process for

producing sustainability reports could yield another benefit by providing more

information to management for decision making purposes (Leibs, 2007,

December). Therefore, capturing sustainability data more efficiently can make the

35

sustainability reporting process function more like traditional performance

management reporting and give management more current information, which

they can use to make decisions about emissions, energy usage, and other critical

business matters (Leibs, 2007, December).

2.4.5 Relationship between GCG and Sustainability Reports

At present companies tend to focus on sustainable development as well as

sustainability, which brings with it changes to the corporate culture as well as

society. Sustainability has three important dimensions for all companies:

economic growth, social responsibility and responsibility for the environment.

The social and environmental responsibility, however, cannot become separated

from economic growth. Profitability and growth create jobs and wealth;

companies have to continue to provide products and services that people need.

Sustainability is therefore a strategy of the process of sustainable

development. It acquires special importance when the process helps people

progress toward sustainability or may, on the contrary, dissuade them from

engaging in the process. Sustainability is the ability to sustain the quality of life or

the ability to maintain quality, which means that each generation has a

responsibility for the quality of life and needs to continue improve it.

Sustainability in connection with the business environment has become part of the

general awareness as a result of environmental approaches implemented in

companies.

Corporate sustainability is a strategic approach focusing apart from the

effectiveness and efficiency also on the company productivity, on the creation of

36

value for the owners (on competitiveness), as they follow from the environmental,

economic and social dimensions.

The defining of sustainability relates to the concept of the strategy known

as the strategy of sustainable development, according to the authors (Hart, 1995;

Shrivastava, 1996; Stead & Stead, 1995) in relation to the company.

The strategy of sustainability of the company currently includes a broad

approach aimed at the integration of economic, environmental and social

dimensions.

Based on the most extensive study on CEOs so far (Accenture, 2010), 93%

of them believe the sustainability issues will be important for future success of

companies. In 2007 72% of CEOs believed that sustainability issues should be

fully integrated into the strategy and running of the company, while in 2010 this

belief is expressed by 96%, which proves the increasing interest in sustainability.

The environmental, social and economic factors and Corporate

Governance are at the heart of the corporate and business strategies, they are part

and parcel of daily operations, stimulate work for success and work as an

indicator of threat and risk and push for seizing opportunity, and of course they

should become part of the voluntary corporate reporting on the assessment of

links between the environmental and economic assessment of performance, the

social assessment of performance and the relation to Corporate Governance.

Although there is no direct relation between the environmental performance and

that of Corporate Governance (Salo, 2008), we can state that the environmental

performance and the Corporate Governance performance individually contribute

to the general performance.

37

There is a fuzzy relation, too, between the environmental and the

economic performance (Horváthová, 2010). The relation of the social and

Corporate Governance performances and the relation of the social - environmental

performances and the economic performance should be the subject of further

research.

It is important to create measurable and relevant goals of sustainable

development and suitable metrics, and further integrated reporting on the financial

and non-financial information on the internet basis. The companies who provide

insufficient and incomplete information, while its delayed provision is also a flaw,

are regarded by investors as involving greater risk and in consequence they are

inclined to invest smaller amounts in such companies (Bartes,1994).The solution

is offered by the reporting integrating the financial and nonfinancial indicators.

The same principles should be applied to both the financial and nonfinancial

indicators. In both cases they should be relevant, measurable, comparable,

motivating and clearly understandable.

2.4.6 Sustainability Report in Indonesia

Sustainable Reporting is a report containing the company's performance in

three aspects, namely economic, environmental, and social. The objective of this

report was to be the assessment of whether a company has been able to overcome

issues related to sustainability, such as energy savings and conversion.

According to data from the National Center for Sustainability Reporting

(NCSR), the development of a sustainability report in Indonesia is quite good. In

2012, there were approximately 40 companies that make sustainability reports

38

with reference to the reporting standards issued by the Global Reporting Initiative

(GRI). The number of companies that make sustainability reporting in Indonesia

is the highest in Southeast Asia. In Malaysia, the number of reporting issuer is

only about 10 companies. Meanwhile, in Singapore there are 15 companies

(NCSR, 2012). Indonesian companies have gone public have an obligation to

make a sustainability report in accordance with the Article 66 paragraph 2 of Law

No. 40 Year 2007 regarding Limited Liability Company. Through the application

of Sustainability Reporting company is expected to develop in a sustainable

growth based on business ethics

The National Development of Indonesia is not separate from the

Sustainable Development objective which is “To fulfill the need for humans now

without demolishing the capability of future generations in fulfilling their needs”

(Brunt land Report 1987). For this reason, the strategy of development must be

based upon 3 (three) main pillars in sustainable development, which are:

Environment, Social and Economic”. This strategy has been conducted by the

business community with its concept of Corporate Social Responsibility (CSR) or

in a broader sense can be described as Corporate Sustainability (CS).

For the purpose of assisting, developing, measuring and reporting of the

implementation of CSR / Corporate Sustainability (CS) there is a need for a

independent organization. That is why the “National Center For Sustainability

Reporting (NCSR)” has been established which comprise of corporations, as an

Organizations and professional individuals which have the vision and

commitment in implementing and developing Sustainable Development in

Indonesia.

39

NCSR has been declared on June 23, 2005 by 5 (five) major independent

organizations which are the Indonesian Management Accountants Institute (IAMI

/ prev. IAI-KAM), the Indonesian-Netherlands Association (INA), National

Committee on Governance (KNKG), Forum for Corporate Governance in

Indonesia (FCGI) and the Public Listed Companies Association (AEI).

2.5 Previous Research

This literature review tries to find out the research conducted in this field

and to what this thesis could contribute. The following researches have been

conducted in this field:

2.5.1 Analisis Pengaruh Good Corporate Governance (Gcg) Terhadap

Kualitas Pengungkapan, Sustainability Report (Abdul Aziz, Desember

2014)

This research aims to analyze the characteristics of good corporate (GCG)

in a company that can affect the quality of sustainability reporting disclosure on

sustainability report or Sustainability Report corporations in Indonesia. Factors

characteristics of good corporate governance which is used are, the size of the

Board of Commissioners, the proportion of Independent Commissioner, the size

of the Audit Committee, managerial ownership, institutional ownership, share

ownership is concentrated, and the size of the company.

Results from this study indicate that factors managerial ownership

significantly influence the quality of disclosure of SR in Indonesia, while the size

of the Board of Commissioners, the proportion of Independent Commissioner, the

size of the Audit Committee, the shareholding institutional stock ownership is

40

concentrated, and the size of the company does not significantly influence

kualiatas disclosure of SR Indonesia.

2.5.2 Corporate Governance and Sustainability (Alena Kocmanová, Jiří

Hřebíček, Marie Dočekalová, 2011)

The paper focuses on Sustainability and Corporate Governance from the

point of view of integration and, in connection with the measurement of corporate

performance, Corporate Sustainability Reporting is also gaining in importance.

In accordance with the OECD principles (OECD Principles, 2004) it is

assumed that the effectively functioning Corporate Governance system within the

company and across the whole economy assists to create the confidence and trust

necessary for existence of the market economy. A very wide spectrum of sectors

coming under the Corporate Governance also appears when trying to define this

term succinctly. Integrated with sustainability which is defined as corporate

strategy, long-term corporate goals are followed along with effectiveness,

performance and competitiveness by means of incorporating of economic,

environmental and social aspects into corporate governance.

The end of the results show that Corporate governance is understood as the

key element in achieving economic performance and growth ensuring increased

trust of the investors. It covers a wide range of relationships between the company

management, governing bodies, stakeholders and other parties with justified

interests. It encompasses a widely varying range of areas, which is also

manifested by an effort to create a concise definition of the term

41

2.5.3 Corporate Governance, Sustainability and the Assessment of Default

Risk (Christina James-Overheu, Asian Journal of Finance &

Accounting)

This paper investigates whether the quality of a firm’s corporate

governance practices and its sustainability disclosures are inversely related to its

assessed default risk. It is expected that high reported standards of corporate

governance will reduce the assessment of a company’s default risk by lenders,

underwriters and ratings agencies, and therefore reduce the cost of debt for such

companies. A corporate governance index based on annual report disclosures was

developed to rate each company’s corporate governance quality. Derivation of this

index was centered on corporate governance indicators suggested by prior

research and best practice; particularly the Australian Stock Exchange “Principles

of Good Corporate Governance and Best Practice Recommendations”.

The assessment of default risk is captured by a firm’s individual credit

rating supplied by Standard and Poor’s. Our results indicate that neither annual

report disclosures about corporate governance practices nor sustainability

disclosures are significantly related to assessed default risk when firm size is

controlled.

2.6 Theoretical Framework

The logical framework for the following research will be used to elaborate a

structure for the research, to specify the results and to define the activities, which will

be required in order to achieve the respective results.

42

Table 2.1

Matrix of the Logical Framework

Summary Objective

Indicators

Verification

Method

Important

Assumption

Goal To contribute to

social,

economic and

environmental

improvement

Number of

Companies that

Issue

Sustainability

Report

All Companies

listed in IDX

Increasing of

welfare of

society,

environmental

and economic

Purpose To observe and

clarify the

Impact of

Corporate

Governance to

the quality of

Sustainability

Report

disclosure

Sustainability

Report

Disclosure

The

sustainability

Reports and

Annual reports.

Improving

and create

awareness for

others

companies to

disclose

Sustainability

Results GRI G3 Index

ratio

The ratio

expressed in

numbers

Compliance to

GRI G3

indicator

All Indonesian

companies get

compliant with

the GRI

guidelines in

their

sustainability

reporting

GCG

Component

Ratio

The ratio

expressed in

numbers

Annual report

of company

Better

Corporate

Governance to

implement the

better

sustainable

development

Interdependency

between

GCG and

Sustainability

Report

Disclosure

The ratio

expressed in

numbers

The

combination

of compliance

GCG

Components

and GRI G3

Corporate

Governance

has influence

relationship to

the

Sustainability

43

Summary Objective

Indicators

Verification

Method

Important

Assumption

indicators Report

Disclosure

Activities Select companies

with sustainability

report

Sustainability report that is published in

website company

Documentation of the planning

of the research

proposal

Quality of sustainability

reporting could be more

completed Check

applicability of GRI G3 Guideline

Application of GRI cross

index


of the research

proposal

All companies compliance all

indicator of GRI

Elaborate index

indicators and check the indicators of Sustainability

reports and follow

the GRI G3

The GRI G3 Indicators


of the research

proposal


indicator of GRI

Evaluate the companies checklist

The GRI G3 Indicators

Documentation of the planning of the research

proposal


indicator of GRI

Compliance ratio

calculating

The ratio expressed in

numbers


of the research

proposal

All Indonesian companies could be

compliant as GRI guideline in reporting

Sustainability. Select the GCG

components The ratio

expressed in numbers


of the research

proposal

Company with Good

Corporate Governance

can influence the Quality of Sustainable

Report The statistical

process The Statistical

express the number


proposal

The GCG has significant with

Quality of Sustainability

Report The analysis of

the results from the statistical

The significance

result is


The GCG has significant with

Quality of

44

Summary Objective

Indicators

Verification

Method

Important

Assumption process. express by

number proposal

Sustainability

Report

Source: Processed from secondary data

Figure 2.1

Theoretical Framework

to contribute for social economic and environmental improvement of on

nation or economy.

to prove the relationship between

sustainability reporting and financial report.

GRI G3 Index ratio

Select companies with

sustainability report

Check applicability of

GRI G3 Guideline

Elaborate index

indicators

and check the

indicators of

Sustainability

reports and follow

the GRI G3

Select the GCG

components

Independent

Variable

Evaluate the

companies

checklist

GCG Component

Ratio

Dependent

Variable

Compliance

ratio

calculating

45

2.7 Hypothesis Development

The Hypothesis is considered as a tentative statement that proposes a possible

explanation to some phenomenon or event. Based on the literature review previously,

the hypothesis development can be formulated as:

1. H1: The Board of Commissioners influence the quality of Sustainability Report

Disclosure

2. H2: The Independent Commissioner influence the quality of Sustainability

Report Disclosure

3. H3: The Audit Committee influence the quality of Sustainability Report

Disclosure

46

CHAPTER III

RESEARCH METHODOLOGY

3.1. Scope of Research

This research is quantitative research with the steps of causality

relationship and evaluation. Causality is a type of relationship, which can be seen

from the characteristics of the relationship between independent and dependent

variables. When the dependent variable explained or influenced by independent

variables, it can be stated that variable X cause variable Y.

The scope of this research is limited to sustainability reports and annual

report of 5 Indonesian nationally listed companies within 2009 and 2014. In total

there are 30 sustainability reports and 30 annual reports. These reports and

statements have been coded, analyzed and scored as content analysis.

The target samples of this research are Indonesian companies that are

listed in the Indonesian Stock Exchange. This research is using purposive

sampling method. The reason for this sampling method is that sustainability

reports are established voluntarily and not all Indonesian companies are

presenting their sustainability reports.

3.1.1 Dependent Variable

In this research, there is only one dependent variable, and it is

Sustainability Report which connected with the GRI G3 indicator. Subsequently,

the GRI G3 guidelines are applied to measure the compliance of Sustainability

reporting disclosure of company.

47

The GRI G3 indicator consists of the following indicator groups, which

are the social performance indicators, the environmental performance indicators

and the economic performance indicators. In detail there are 40 items for social

performance indicators, 32 items for environmental performance indicators and 7

items for economic performance indicators. In total 79 items will be examined in

each company’s sustainability report. The index for testing the compliance of

Sustainability Report by follow as formulation:

Description:

n = the total indicators in sustainability report that compliance with GRI G3

k = Total of GRI G3 indicator

3.1.2Independent Variable

In this research, there are 3 independents variables. It is the size of Board

of Commissioners, the proportion of Independent Commissioners, and Audit

Committee, which is the part of Good Corporate Governance Components.

4. The size of Board of Commissioners

The size of Board of Commissioners in this research is the total

number of members of the Board of Commissioners in a company. Board of

Commissioner Size is calculated by counting the number of members of the

Board of Commissioners in a company mentioned in the annual report.

5. The proportion of Independent Commissioners

Independent commissioner is a member of the Board of

Commissioners that is not derived from affiliated parties. Independence of the

𝐼𝑁𝐷𝐸𝑋 =n

k x 100%

48

Board of Commissioners referred to this research, is the proportion of

Independent Commissioners in a Board of Commissioners. Independence of

the Board of Commissioners is measured by the ratio or percentage (%)

between the numbers of the Independent Commissioner members as compared

to the total number of members of the Board of Commissioners.

6. The size of the Audit Committee

Size of the Audit Committee is the amount of number of Audit

Committee within a company. Audit committee size is calculated by counting

the number of members of the Audit Committee in the annual reports of the

companies listed in Indonesian Stock Exchange (IDX).

Table 3.1

Operational Variable

Variable Measurement Scale

Dependent Variable:

Sustainability Report

Amount of item that disclosure

as follow by GRI G3 indicators

in Sustainability reporting. If

the company disclosure as

follow the indicator of GRI G3

is obtained score one (one), but

if not disclosure is obtained

score zero (0).

𝐼𝑁𝐷𝐸𝑋 =n

k x 100%

Ratio

Independent Variable :

The size of Board of

Commissioners

Board of Commissioners size

is calculated by counting the

number of members of the

Board of Commissioners in a

company mentioned in the

annual report.

Ratio

49

Variable Measurement Scale

The proportion of

Independent

Commissioners

The size of the Audit

Committee

Independence of the Board of

Commissioners is measured by

the ratio or percentage (%)

between the numbers of the

Independent Commissioner

members as compared to the

total number of members of

the Board of Commissioners.

Audit committee size is

calculated by counting the

number of members of the

Audit Committee in the annual

reports of the companies

Ratio

Ratio


3.2. Sampling Method

Sampling method is kind of method that taken data from population. A

sample is a subset of the population. A sample consists of the member of

population. The sample in this research includes companies listed at the

Indonesian Stock Exchange within 2009 - 2014. The reason for choosing the

period 2009 until 2014, it’s due to some companies listed in Indonesia Stock

Exchange has just begun to disclose the sustainability report with good corporate

governance disclosure start in 2005.

This research use purposive sampling, which means determine in advance

the number of samples to be taken, then the sample selection is done based on

certain objectives. Start from 2005, it was a primary for some companies to

disclose their sustainability reporting as a voluntary and follow in according to

GRI guideline. This research will conduct a purposive sampling. Regarding to the

50

population in this research must meet the following criteria:

1. The Issuer has published sustainability reports within 2009 until 2014

2. The Issuer applies GRI cross index as the guidance for the sustainability report

3. The Issuer has published and disclosed the good corporate governance

information.

4. The Issuer has published the respective sustainability reports on the

company’s website

6.3. Data Collection Method

This research is using data from secondary sources, which was published

by the companies such as reports on the company’s website, annual reports of

company or media reports. The data used in this research is secondary data.

Secondary data is data that available from previous research, case studies, and

library records, online data, company websites, and the internet in general

(Sekaran and Bougie, 2010).

The data collection method in this research is a panel data. Panel data

analysis is a method of studying a particular subject within multiple sites,

periodically observed over a defined time frame. It means the combination of time

series with cross-sections can enhance the quality and quantity of data.

The data in this research is obtained from respective companies website

and Indonesia Stock Exchange (IDX). The Annual Report data from the sampled

Companies has been collected from the respective websites, and the sustainability

reports are taken from respective companies website and as appropriate with

population criteria. The good corporate governance reports have been taken from

51

the sustainability report (SR) from GRI Index. The research will examine 30

sustainability reports and Annual Report databases from 5 companies listed in

Indonesia Stock Exchange in the period of 2009 to 2014.

3.4. Analysis Method

The method of analysis data in this research is using statistical

calculations; the name of application is SPSS (Statistical Product and Service

Solutions). The emphasis will be put on the frequency of sustainability report

disclosure in sustainability report. The content analysis comprises 30

sustainability reports and annual reports which coded, analyzed and scored. The

limitation of the content analysis is to identify the disclosure of social information

under each theme.

Each type of information will be scored by using numbers. Zero numbers

for no disclosure through the GRI G3 in sustainability reports, 1 for element that

disclosure as guided by GRI G3 indicators. The variables in this research will be

tested through the method of descriptive statistical and hypothesis testing,

followed as:

3.4.1. Descriptive Method

Descriptive statistical testing in this research basically is a process

transformation research data in a form of tabulation in order that can be easier to

understand and interprets. Tabulation in generally is used by researcher to obtain

information about characteristics of primary variable in research.

The measurement applied in this descriptive statistical testing depends on

the type of scale of measurement. The descriptive statistical testing obtains a

picture or describes data that can be seen from median, mean, mode, standard

52

deviation, variance, maximum and minimum,

3.4.2 Classical Assumption

1. Normality Test

According to Hair et al. (2006) cited in Adinugraha et al (2007), the

purpose of the normality test is to determine whether the regression model

variables are normally distributed or not. The normality test conducted to

determine whether the inferential statistics to be used is a parametric or non-

parametric statistics. There are two ways to test, i.e. the graph analysis and

statistical tests Ghozali (2011). Researcher chooses two tools to test whether the

data is normally distributed or not.

a. Graph Analysis

When using graph analysis, normality test can be done by looking at the

spread of the data (dots) on the diagonal axis of the graph or by looking at the

histogram from the residual.

1) If the dots spread around the diagonal line and follow the direction of the

diagonal line, the regression model meets the normality assumption.

2) If the dots spread away from diagonal lines and / or do not follow the

direction of the diagonal line, the regression model does not meet the

normality assumption.

b. Statistical Test

Kolmogorov-Smirnov Z (1-Sample KS) uses for making decision regarding

the normality test.

1) If the value Asymp. Sig. (2-tailed) less than 0.05, it means that the data are

not normally distributed.

2) (b)If the value Asymp. Sig. (2-tailed) of more than 0.05, it means that the

53

data are normally distributed.

2. Multicollinearity Test

Multicollinearity test aims to test whether the regression model found a

correlation between the independent variables Ghozali (2011). A good regression

model should not happened correlation between the independent variables. To

detect the presence or absence of multicollinearity in the regression model can be

seen from the value of tolerance and the variance inflation factor opponent (VIF).

Multicollinearity views from the tolerance value <0.10 or VIF> 10. Both of these

measurements indicate each independent variable, which is explained by the other

independent variables.

3. Heteroscedasticity Test

Heteroscedasticity test aims to test if there is variance difference from

residual of one observation to (an) other observation(s) occurred (Santoso, 2010).

Furthermore, if the variance remains constant, it is called homoscedasticity and if

it is changing or different, it is called heteroscedasticity (Santoso, 2010). A good

regression model is homoscedasticity or there is no heteroscedasticity.

In this study, heteroscedasticity test can be viewed by using the Scatter

plot graph between the standardized predicted variable (ZPRED) and studentized

residual (SRESID). Y-axis becomes the axis that has been predicted and the X-

axis is the residual (Y predicted-Y actual). Decision-making can be made by this

consideration:

a. If there is a specific pattern, like dots, which form well-ordered pattern

(waving, spreading then narrowing), it indicates that heteroscedasticity occurs.

b. If there are no well-ordered pattern and the dots spread above and below 0 in

54

Y-axis, heteroscedasticity does not prevail.

4. Autocorrelation

Autocorrelation test aims to find if there is correlation in linear regression

model between disturbances in t period with previous period (t-1) (Santoso,

2010). A good regression model is a regression that is free from autocorrelation.

Autocorrelation can be determined using the Durbin–Watson. Durbin–

Watson statistic is a test statistic used to detect the presence of autocorrelation (a

relationship between values separated from each other by a given time lag) in

the residuals (prediction errors) from a regression analysis. It is named

after James Durbin and Geoffrey Watson.

To get a conclusion from the test, it need to compare the displayed statistic

with lower and upper bounds in a table. If D > upper bound, no correlation exists;

if D < lower bound, positive correlation exists; if D is in between the two bounds,

the test is inconclusive

Positive Autocorrelation Detection:

Negative Autocorrelation Detection:

Source: (Imam Ghozali, 2011:111)

If d < dL there is positive autocorrelation

If d > dU there is no positive autocorrelation,

If dL<d<dU the test does not convince or inconclusive.

If (4 - d) < dL there is negative autocorrelation

If (4 - d) > dU there is no negative autocorrelation,

If dL<(4-d)<dU the test does not convince or inconclusive.

https://en.wikipedia.org/wiki/Test_statistic

https://en.wikipedia.org/wiki/Autocorrelation

https://en.wikipedia.org/wiki/Errors_and_residuals_in_statistics

https://en.wikipedia.org/wiki/Regression_analysis

https://en.wikipedia.org/wiki/James_Durbin

https://en.wikipedia.org/wiki/Geoffrey_Watson

55

3.4.3 Multiple Regression Analysis

Multiple regression analysis used to test the effect of two or more

independent variables toward the dependent variable (Ghozali, 2011). Regression

analysis divided into two kinds, simple regression analysis (if there is only one

independent variable) and multiple regression analysis (if there is more than one

independent variable). Multiple regression analysis can be measured partially

(indicated by coefficient of partial regression) jointly indicated by coefficient of

multiple determination or R2.

Independent variable in this research is Good Corporate Governance

components which elaborate into size of board of commissioners, proportion of

independent commissioners and size of audit committee. Besides, dependent

variable is sustainability report which appropriates with GRI G3 Indicators.

Structural equation model that proposed as an empirical model is as

follows:

Y1 = β0 + β1X1 + β2X2 + β3X3 + ε

Where

Y1 Sustainability Report

X1 Size of Board of Commissioners

X2 Proportion of Independent Commissioners

X3 Size of Audit Committee

β1 Regression Variable Size of Board of Commissioners

β2 Regression Variable Proportion of Independent

Commissioners

β3 Regression Variable Size of Audit Committee

ε Error

56

a. Simultaneous Regression Analysis (Test - F)

Essentially, F- test has purpose to know whether among independent

variables simultaneously have significant influence toward dependent

variable. Independent variables in this research are good corporate governance

components structure whereas dependent variable is sustainability report

disclosure. So, F- test has a function to know the influence among good

corporate governance components towards the quality of sustainability report

disclosure. α that is used for this research is 0.05 (5%) with assumption:

1) α > 5%, Ho is accepted.

2) α < 5%, Ho is rejected.

b. Partial Regression Testing (T-test)

The T-Test has the purpose to examine the influences of the

independent variables (GCG Components) to the dependent variables, which

GRI G3 Indicators. The value significant T is compared with the degree of

believes.

The level of significance used in this test is 5% or (α) 0.05 Thus, if the

significant T is more than 0,05 so H1, H2 or H3 is rejected. Whereas, if

significant T is less than 0,05 so H1, H2 or H3 is accepted. If H1, H2 and H3

are accepted, this means that there is a significant relationship between

independent variable and dependent variables.

3.4.4 Coefficient Determination Test (R2)

Coefficient determination (R²) can measure how far ability of independent

variable (GCG Components) elaborate dependent variables (GRI G3 Indicators).

57

The value of coefficient determination (R²) can show the truth of the presentation

of the decomposition about regression prediction made.

R² has a value range between 0 to 1. If the value R² approaches 1, means

that the greatest of independent variables can explain the dependent variable. The

fundamental weaknesses of using the coefficient of determination is biased the

number of independent variables entered into the model.

58

CHAPTER IV

FINDING AND ANALYSIS

4.1. General Description of Research Object

This chapter presents and discusses the findings of the research. The

research is conducted as a descriptive study of 30 sustainability reports, which are

compliant with GRI G3. The Good Corporate Governance components of the

selected companies are compiled from the data from Annual Report 2009 - 2014

from Indonesia Stock Exchange (IDX). The hypothesis is tested by the Multiple

regression method. The selection of sample is chosen by criteria of population

that have explained in research methodology in previous chapter that is taken

annually in 2009 until 2014.

4.1.1. Overview of 5 selected Companies

Year 2015, the Indonesian Companies that listed in Indonesia Stock

Exchange are 517 companies. From 517 companies, it takes samples as purposive

sampling. In the time series 6 years, regarding on criteria of sampling in previous

chapter, so the amount of sampling are 5 companies.

In this objective research of independent variable, 30 of sustainability

report is taken from the 5 Indonesian companies website. The 5 Indonesian

companies published the sustainability reporting as a separate with annual report

and also the sustainability report as already guidance by GRI cross index. This is

the 5 companies that voluntarily reported the sustainability report in their

companies website as follow by:

59

Table 4.1

COMPANIES SECTOR

COMPANIES NAME SECTOR

PT TELKOM TELECOMUNICATION

PT ASTRA INTERNATIONAL AUTOMOTIVE

PT ANTAM MINING

PT TAMBANG BATU BARA

BUKIT ASAM

MINING

PT HOLCIM INDONESIA CEMENT


4.1.2. Overview of business development 5 selected Companies

The 5 selected companies can be seen in table. These selected companies

consist of 2 mining companies, 1 telecommunication companies, 1 cement

company and 1 automotive company. The mining company is the most revealing

sustainability report. It is due to mining company take directly of natural resources

and has responsibility to disclose sustainability report.

4.2. Analysis and Discussion

4.2.1. Descriptive Analysis

In this research, there are 3 independents variables. It is the size of Board

of Commissioners, the proportion of Independent Commissioners, and Audit

Committee, which is the part of Good Corporate Governance Components

60

4.2.1.1Independent Variable (GCG Components)

Table 4.2

SIZE OF BOARD OF COMMISSIONERS IN 2009 -2014

BOARD OF COMMISIONERS

COMPANY BOC

2009

BOC

2010

BOC

2011

BOC

2012

BOC

2013

BOC

2014

PT TELKOM 5 5 5 5 5 5

PT ASTRA 10 10 11 11 12 11

PT ANTAM 5 4 6 6 6 6

PT HOLCIM 7 7 7 6 6 6

PT BUKIT ASAM 5 5 6 6 6 6

MINIMUM 5 4 5 5 5 5

MAXIMUM 10 10 11 11 12 11

MEAN 5 5 6 6 6 6

Figure 4.1

The Compliance with Size of Board of Commissioners in 2009 - 2014

0

2

4

6

8

10

12

14

PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM

Size BOC 2009

Size BOC 2010

Size BOC 2011

Size BOC 2012

Size BOC 2013

Size BOC 2014

61

In this table 4.2, it shows that the mean of Size Board of Commissioner in

year 2009 are 5 persons. From 5 companies, the maximum numbers for the

amount of Board of Commisioners are PT Astra International that show 10 person

for the amount of Board of Commissioners. And Continue with PT Holcim with

show 7 person for the amount of Board of Commissioners and 3 companies, PT

Antam, PT Telkom and PT Bukit Asam that show the same amount of minimum

numbers of Board of Commissioner, it is 5 person.

Year 2010, it shows that the mean of Size Board of Commissioner are 5

persons. From 5 companies, the maximum numbers for the amount of Board of

Commissioners is still from PT Astra International that show 10 person for the

amount of Board of Commissioners. And Continue with PT Holcim with show 7

person for the amount of Board of Commissioners and 2 companies, PT Telkom

and PT Bukit Asam that show the same amount of numbers of Board of

Commissioner, it is 5 person. It continues with PT Antam with the minimum

number of Size Board of Commissioner with 4 persons.


persons, 1 number bigger than previous year. From 5 companies, the maximum

numbers for the amount of Board of Commissioners is still from PT Astra

International that shows 11 persons, 1 number bigger than previous for the

amount of Board of Commissioners. And Continue with PT Holcim with show 7

person for the amount of Board of Commissioners and 2 companies, PT Antam

and PT Bukit Asam that show the same amount of numbers of Board of

Commissioner, it is 6 person. It continues with PT Telkom with the minimum


62


persons, the same number with year 2011. From 5 companies, the maximum

numbers for the amount of Board of Commissioners is still from PT Astra

International that shows 11 persons, for the amount of Board of Commissioners.

And Continue with PT Holcim, PT Antam and PT Bukit Asam that show the same

amount of numbers of Board of Commissioner, it is 6 person. It continues with PT

Telkom with the minimum number of Size Board of Commissioner with 5

persons.


persons, the same number with year 2011 and 2012. From 5 companies, the

maximum numbers for the amount of Board of Commissioners is still from PT

Astra International that shows 12 persons, 1 number bigger than previous year and

it is the maximum number for the amount of Board of Commissioners from the

year 2009 to 2014. And Continue with PT Holcim, PT Antam and PT Bukit Asam

that show the same amount of numbers of Board of Commissioner, it is 6 person.

It continues with PT Telkom with the minimum number of Size Board of

Commissioner with 5 persons.


persons, the same number with year 2011, 2012 and 2013. From 5 companies, the

maximum numbers for the amount of Board of Commissioners is still from PT

Astra International that shows 11 persons, 1 number less than previous year for

the amount of Board of Commissioners. And Continue with PT Holcim, PT

Antam and PT Bukit Asam that show the same amount of numbers of Board of

63

Commissioner, it is 6 person. It continues with PT Telkom with the minimum


Table 4.3

SIZE OF INDEPENDENT COMMISSIONERS IN 2009 -2014

SIZE OF INDEPENDENT COMMISSIONERS

COMPANY IC 2009 IC 2010 IC 2011 IC 2012 IC 2013 IC 2014

PT TELKOM 0.4 0.4 0.4 0.4 0.4 0.4

PT ASTRA 0.5 0.5 0.454545455 0.454545455 0.416666667 0.363636364

PT ANTAM 0.6 0.75 0.333333333 0.333333333 0.333333333 0.333333333

PT HOLCIM 0.571428571 0.571428571 0.571428571 0.5 0.5 0.5

PT BUKIT

ASAM 0.4 0.4 0.333333333 0.333333333 0.333333333 0.333333333

MINIMUM 0.4 0.4 0.333333333 0.333333333 0.333333333 0.333333333

MAXIMUM 0.6 0.75 0.571428571 0.5 0.5 0.5

MEAN 0.5 0.5 0.4 0.4 0.4 0.363636364

Figure 4.2

The Compliance with Size of Independent Commissioners in 2009 - 2014

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


Size IC 2009

Size IC 2010

Size IC 2011

Size IC 2012

Size IC 2013

Size IC 2014

64

In this table 4.3, it shows that the mean of Size Independent

Commissioners in year 2009 are 0.50 or 50%. From 5 companies, the maximum

percentage for the amount of Size Independent Commissioners is PT Antam that

shows 0.60 or 60% for the amount of Size Independent Commissioners. And

Continue with PT Holcim with shows 0.571428571 or 57.14% for the amount of

Size Independent Commissioners and PT Astra International for showing the

amount of 0.50 of 50%. Besides, another 2 companies, PT Telkom and PT Bukit

Asam that show the same amount of minimum numbers of Board of

Commissioner, it is 0.40 or 40%.

Year 2010, it shows that the mean of Size Independent Commissioners are

0.50 or 50%, the same percentage number from the previous year. From 5

companies, the maximum percentage for the amount of Size Independent

Commissioners is PT Antam that shows 0.75 or 75% for the amount of Size

Independent Commissioners, 0.15 bigger than previous percentage. And Continue

with PT Holcim with shows 0.571428571 or 57.14% for the amount of Size

Independent Commissioners and PT Astra International for showing the amount

of 0.50 of 50%. Besides, another 2 companies, PT Telkom and PT Bukit Asam

that show the same amount of minimum numbers of Board of Commissioner, it is

0.40 or 40%, the same percentage with previous year in 2009.


0.40 or 40%, 10% less percentage number from the previous year. From 5


Commissioners is PT Holcim that shows 0.571428571or 57.14% for the amount

65

of Size Independent Commissioners. And Continue with PT Astra International

with shows 0.454545455 or 45.45% for the amount of Size Independent

Commissioners and PT Telkom for showing the amount of 0.40 of 40%. Besides,

another 2 companies, PT Antam and PT Bukit Asam that show the same amount

of minimum numbers of Board of Commissioner, it is 0.333333333 or 33.33%,

the minimum percentage from 2009 to 2014.


0.40 or 40%, the same percentage number from the previous year. From 5


Commissioners is PT Holcim that shows 0.50 or 50% for the amount of Size

Independent Commissioners. And Continue with PT Astra International with

shows 0.454545455 or 45.45% for the amount of Size Independent

Commissioners and PT Telkom for showing the amount of 0.40 of 40%. Besides,





0.40 or 40%, the same percentage number from the year 2011 and 2012. From 5



Independent Commissioners. And Continue with PT Astra International with

shows 0.416666667 or 41.66% for the amount of Size Independent Commissioners

and PT Telkom for showing the amount of 0.40 of 40%. Besides, another 2

66

companies, PT Antam and PT Bukit Asam that show the same amount of

minimum numbers of Board of Commissioner, it is 0.333333333 or 33.33%, the

minimum percentage from 2009 to 2014.


0.363636364 or 36.36%, less percentage number from the previous year. From 5



Independent Commissioners. And Continue with PT Telkom with shows 0.40 or

40.00% for the amount of Size Independent Commissioners and PT Astra

International for showing the amount of 0.363636364 of 36.36%. Besides,




Table 4.4

SIZE OF AUDIT COMMITTEE IN 2009 -2014

AUDIT COMMITTEE

COMPANY AC

2009

AC

2010

AC

2011

AC

2012

AC

2013

AC

2014

PT TELKOM 7 5 5 5 5 5

PT ASTRA 4 4 4 4 4 4

PT ANTAM 6 6 7 7 6 4

PT HOLCIM 3 3 3 3 3 3

PT BUKIT

ASAM 3 3 3 3 3 4

MINIMUM 3 3 3 3 3 3

MAXIMUM 7 6 7 7 6 5

MEAN 4 4 4 4 4 4

67

Figure 4.3

The Compliance with Size of Audit Committee in 2009 - 2014

In this table 4.4, it shows that the mean of Audit Committee size in year

2009 are 4 persons. From 5 companies, the maximum numbers for the amount of

Audit Committee size are PT Telkom that shows 7 persons for the amount of

Audit Committee. And Continue with PT Antam with shows 6 persons for the

amount of Audit Committee and PT Astra International with shows 4 persons for

the amount of Audit Committee. Besides, 2 companies, PT Holcim and PT Bukit

Asam show the same amount of minimum numbers of Board of Commissioner, it

is 3 persons.

Year 2010, it shows that the mean of Audit Committee size in this year are

4 persons, the same amount from the previous year. From 5 companies, the

maximum numbers for the amount of Audit Committee size are PT Antam shows

6 persons for the amount of Audit Committee. And Continue with PT Telkom

with shows 5 persons for the amount of Audit Committee and PT Astra

0

1

2

3

4

5

6

7

8


Size AC 2009

Size AC 2010

Size AC 2011

Size AC 2012

Size AC 2013

Size AC 2014

68

International with shows 4 persons for the amount of Audit Committee. Besides, 2

companies, PT Holcim and PT Bukit Asam show the same amount of minimum

numbers of Board of Commissioner, it is 3 persons, the same amount from the

previous year.


4 persons, the same amount from the year 2009 and 2010. From 5 companies, the

maximum numbers for the amount of Audit Committee size are PT Antam shows

7 persons for the amount of Audit Committee. And Continue with PT Telkom

with shows 5 persons for the amount of Audit Committee and PT Astra

International with shows 4 persons for the amount of Audit Committee. Besides, 2

companies, PT Holcim and PT Bukit Asam show the same amount of minimum

numbers of Board of Commissioner, it is 3 persons, the same amount from the

previous year.


4 persons, the same amount from the year 2009, 2010 and 2011. From 5

companies, the maximum numbers for the amount of Audit Committee size are

PT Antam shows 7 persons for the amount of Audit Committee. And Continue

with PT Telkom with shows 5 persons for the amount of Audit Committee and PT

Astra International with shows 4 persons for the amount of Audit Committee.

Besides, 2 companies, PT Holcim and PT Bukit Asam show the same amount of

minimum numbers of Board of Commissioner, it is 3 persons, the same amount

from the previous year.


4 persons, the same amount from the year 2009, 2010, 2011 and 2012. From 5

companies, the maximum numbers for the amount of Audit Committee size are

69

PT Antam shows 6 persons for the amount of Audit Committee. And Continue

with PT Telkom with shows 5 persons for the amount of Audit Committee and PT

Astra International with shows 4 persons for the amount of Audit Committee.

Besides, 2 companies, PT Holcim and PT Bukit Asam show the same amount of

minimum numbers of Board of Commissioner, it is 3 persons, the same amount

from the previous year.


4 persons, the same amount from the year 2009, 2010, 2011, 2012 and 2013.

From 5 companies, the maximum numbers for the amount of Audit Committee

size are PT Telkom shows 5 persons for the amount of Audit Committee. And

Continue with 3 companies, PT Astra International, PT Antam and PT Bukit

Asam with the same amount of numbers, it is 4 persons. Besides, PT Holcim

shows 3 persons for the amount of Audit Committee of minimum numbers.

4.2.1.2Dependent Variable (Sustainability Report Indicator)

Table 4.5

GRI G3 INDEX IN 2009 -2014

COMPANY GRI G3

2009

GRI G3

2010

GRI G3

2011

GRI G3

2012

GRI G3

2013

GRI G3

2014

PT TELKOM 0.911392405 1 0.721518987 0.924050633 1 1

PT ASTRA 0.240506329 0.759493671 0.82278481 0.784810127 0.82278481 1

PT ANTAM 1 0.987341772 1 1 1 1

PT HOLCIM 0.746835443 0.784810127 0.810126582 0.620253165 0.949367089 0.962025316

PT BUKIT

ASAM 0.569 1 1 1 1 1

MINIMUM 0.240506329 0.759493671 0.721518987 0.620253165 0.82278481 0.962025316

MAXIMUM 1 1 1 1 1 1

MEAN 0.746835443 0.987341772 0.82278481 0.924050633 1 1

70

Figure 4.4

The Compliance with GRI G3 Index in 2009

The results of mean from 5 selected companies of GRI G3 ratio in is

0.746835443 or 74.68% for the average value in 2009 (see on table).

There are 2 companies that achieve less than average value, it is PT Bukit

Asam with amount of 0.569 or 56.90% and PT Astra International with amount of

0.240506329 or 24.05% (see on table and figure).

There are 2 companies that achieve more than average value, as; PT

Telkom and PT Antam with the amount of 0.911392405 or 91.13% for PT

Telkom and 1 or 100% for PT Antam.

PT Antam is the best value of GRI G3 index in 2009 with value of 1 or

100% as the maximum index. Besides, the minimum value is achieved by PT

Astra International with the value of 0.240506329 or 24.05%.

Figure 4.5


00.20.40.60.8

11.2


Co

mp

anie

s R

atio

GRI G3 2009

0

0.2

0.4

0.6

0.8

1

1.2


Co

mp

anie

s R

atio

GRI G3 2010

71

Year 2010, the result of mean from 5 selected companies of GRI G3 ratio

is 0.987341772 or 98.73% for the average value (see on table).

There are 2 companies that achieve less than average value, it is PT

Holcim with amount of 0.784810127 or 78.48% and PT Astra International with

amount of 0.759493671 or 75.94% (see on table and figure).


Telkom and PT Bukit Asam with the amount of 1 or 100% for PT Telkom and 1

or 100% for PT Antam.

PT Bukit Asam and PT Telkom have the best value of GRI G3 index in

2010 with value of 1 or 100% as the maximum index. Besides, the minimum

value is achieved by PT Astra International with the value of 0.759493671or

75.94%.

Figure 4.6




There are 2 companies that achieve less than average value, it is PT

Telkom with amount of 0.721518987or 72.15% and PT Holcim with amount of

0.810126582 or 81.01% (see on table and figure).

0

0.2

0.4

0.6

0.8

1

1.2


Co

mp

anie

s R

atio

GRI G3 2011

72


Antam and PT Bukit Asam with the amount of 1 or 100% for PT Telkom and 1 or

100% for PT Antam.

PT Bukit Asam and PT Antam have the best value of GRI G3 index in


value is achieved by PT Astra International with the value of 0.759493671or

75.94%.

Figure 4.7




There are 2 companies that achieve less than average value, it is PT Astra

International with amount of 0. 784810127 or 78.48% and PT Holcim with

amount of 0.620253165 or 62.02% (see on table and figure).


Antam and PT Bukit Asam with the amount of 1 or 100% for PT Telkom and 1 or

100% for PT Antam.

PT Bukit Asam and PT Antam have the best value of GRI G3 index in


0

0.2

0.4

0.6

0.8

1

1.2


Co

mp

anie

s R

atio

GRI G3 2012

73

value is achieved by PT Astra International with the value of 0.620253165 or

62.02%.

Figure 4.8



is 1 or 100% for the average value (see on table).

There are 2 companies that achieve less than average value, it is PT Astra

International with amount of 0.82278481 or 82.27% and PT Holcim with amount

of 0.949367089 or 94.93% (see on table and figure).

There are 3 companies that achieve the same value of average value, as;

PT Antam, PT Bukit Asam and PT Telkom with the amount of 1 or 100% for PT

Antam, 1 or 100% for PT Bukit Asam and 1 or 100% for PT Telkom.

PT Telkom, PT Bukit Asam and PT Antam have the best value of GRI G3

index in 2013 with value of 1 or 100% as the maximum index. Besides, the

minimum value is achieved by PT Astra International with the value of

0.82278481 or 82.27%.

0

0.2

0.4

0.6

0.8

1

1.2


Co

mp

anie

s R

atio

GRI G3 2013

74

Figure 4.9



is 1 or 100% for the average value (see on table), as the same value from the

previous year.

There are 1 company that achieve less than average value, it is PT Holcim

with amount of 0.962025316 or 96.20 % (see on table and figure).

There are 4 companies that achieve the same value of average value, as;

PT Astra International, PT Antam, PT Bukit Asam and PT Telkom with the

amount of 1 or 100% for PT Astra International, 1 or 100% for PT Antam, 1 or

100% for PT Bukit Asam and 1 or 100% for PT Telkom.

PT Astra International, PT Antam, PT Bukit Asam and PT Telkom have

the best value of GRI G3 index in 2014 with value of 1 or 100% as the maximum

index. Besides, the minimum value is achieved by PT Holcim with the value of

0.962025316 or 96.20%

0.94

0.95

0.96

0.97

0.98

0.99

1

1.01


Co

mp

anie

s R

atio

GRI G3 2014

75

4.2.2 Classical Assumption

1. Normality Test

The purpose of the normality test is to determine whether the regression

model variables are normally distributed or not. A good regression model is to

have normal or nearly normal distribution. In this research, to detect whether

normally distributed data or not, it can be done with using graph analysis namely

histogram graph Normal Probability Plot (P-P Plot) and statistical analysis

namely kolmogorov-smirnov test.

Figure 4.10

Source: Processed from secondary data (SPSS VER 21.0)

76

Figure 4.11

Source: Processed from secondary data (SPSS ver 21.0)

According to the result of normality test using graph analysis namely

histogram graph showing a form of bell in histogram graph and Normal

Probability Plot (P-P Plot) showing dots distribution along diagonal line, indicate

that regression model has meet the normality assumption. However, graph

analysis can emerge different interpretation among reader, so that statistical

analysis test is needed to ensure the interpretation mistake for reading the graph.

Table below will show the result of statistical analysis namely kolmogorov-

smirnov test:

77

One-Sample Kolmogorov-Smirnov Test

Unstandardiz

ed Residual

N 30

Normal Parametersa,b

Mean .0000000

Std.

Deviation

.08031428

Most Extreme

Differences

Absolute .132

Positive .068

Negative -.132

Kolmogorov-Smirnov Z .726

Asymp. Sig. (2-tailed) .668

a. Test distribution is Normal.

b. Calculated from data.


The result of Kolmogorov-Smirnov test on table also shows that the value

of Kolmogorov-Smirnov 0.726 with the level of significant probability 0.668, the

value of p > 0.05. So the residual data is distributed normally. Therefore,

regression model used in this research has met the normality test assumption.

2. Multicollinearity Test

The aim from multicolinearity test is to test whether the regression model

found a correlation among the independent variables. A good regression model

should there is no correlation among independent variables. In this research, to

detect the presence or absence of multicolinearity can be done by calculating

value of variance inflation factor (VIF) of each independent variable.

Coefficientsa

Model Unstandardized Coefficients

Standardized Coefficients

t Sig. Collinearity Statistics

B Std. Error

Beta Tolerance VIF

1

(Constant) 1.109 .165 6.710 .000

BOC -.007 .010 -.131 -.762 .453 .920 1.087

AC -.589 .263 -.388 -2.239 .034 .911 1.098

SIC .022 .018 .212 1.207 .238 .886 1.128

a. Dependent Variable: SR

78

Based on table above, the result shows that there is no value of variance

inflation factor (VIF) of each independent variable, which is less than 0.1 or more

than 10. So, it can be concluded that there is no multicolinearity.

3. Heteroscedasticity Test

The aim from heteroscedastisity test is to test whether the regression

model occur the variance inequality of the residual from one observation to

another observation. A good regression model is homocedastisity or there is no

heteroscedastisity. In this research, heteroscedastisity test can be viewed with

using the chart Scatterplot between the predicted value of dependent variable

(ZPRED) and residual (SRESID).

Figure 4.12


79

From result of figure (4.12), shows that there is no clear pattern, as well as

the dots spread above and below zero (0) on the Y axis. So, it can be concluded

that there is no heteroscedastisity (homocedasticity).

4. Autocorrelation

Autocorrelation test aims to test whether a regression model there is a

correlation between data in variable. A good regression model is a regression that

is free from autocorrelation. In this research, autocorrelation test use the Durbin

Watson.

Model Summaryb

Model R R Square Adjusted R

Square

Std. Error of

the Estimate

Durbin-

Watson

1 .636a .404 .335 .08482 1.920

a. Predictors: (Constant), BOC, SIC, AC

b. Dependent Variable: SR


From the nominal in the table of Durbin Watson, the nominal is 1.920. To

get a conclusion from the test, it needs to compare the displayed statistic with

lower and upper bounds in a table. With value of n = 30, k = 3, so the value of dL

and dU can be seen from the table of Durbin Watson. The value of dL = 1.214 and

value of dU = 1.650 and value of d = 1.920

Positive Autocorrelation Detection:

1.920 < 1.214 there is positive autocorrelation (incorrect)

1.920 > 1.650 there is no positive autocorrelation (correct)

1.214 < 1.920 < 1.650the test does not convince or inconclusive

(incorrect)

80

Negative Autocorrelation Detection:

The results show that it can be concluded for the regression analysis that

there is no positive autocorrelation and there are no negative autocorrelation, and

it can be concluded that there is absolutely no autocorrelation.

4.2.3 Multiple Regression Analysis

Multiple regression analysis used to test the effect of two or more

independent variables toward the dependent variable. In this research,

Independent variables is Good Corporate Governance components which

elaborate into size of Board of Commissioners (BOC), size of Independent

Commissioner (IC) and size of Audit Committee (AC), and Dependent Quality

Sustainable Report Disclosure which correlate with GRI G3index

Coefficientsa

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig. Collinearity

Statistics

B Std.

Error

Beta Tolerance VIF

1

(Constant) 1.163 .119 9.792 .000

BOC -.016 .008 -.335 -2.145 .042 .940 1.064

SIC -.484 .180 -.414 -2.685 .012 .964 1.037

AC .015 .013 .189 1.197 .242 .916 1.092

a. Dependent Variable: SR


The result of multiple regression analysis has been explained in table. The

result of multiple regression analysis with using significance 5% obtained the

following equation:

2.080 < 1.214there is negative autocorrelation (incorrect)

2.080 > 1.650there is no negative autocorrelation (correct)

1.214 < 2.080 < 1.650the test does not convince or inconclusive

(incorrect)

81

Y = 1.163 -0.016X1 -0.484X2 +0.015X3 +ε

From the multiple linear regression equation above, it can be explained for each

variable as follows:

1. Constant at 1.163 units stated that if there is no influence or change into size

of Board of Commissioners (BOC), size of Independent Commissioner (IC)

and size of Audit Committee (AC), then the value of firm value will be 1.163.

2. Regression coefficient of Board of Commissioners (BOC) marked negative at

-0.016. It shows that the influence of Board of Commissioners (BOC) on the

quality of Sustainability Report Disclosure is negative, which means that if the

value or number of Board of Commissioners (BOC) is increased by one point,

then GRI index will decrease by -0.016 or on the contrary, with assumption

variables X2 and X3, remain or unchanged.

3. Regression coefficient of size of Independent Commissioner (IC) marked

negative at -0.484. It shows that the influence of size of Independent

Commissioner (IC) on the quality of Sustainability Report Disclosure is

negative, which means that if the value or number of Independent

Commissioner (IC) is increased by one point, then GRI index will increase by

-0.484 or on the contrary, with assumption variables X1 and X3, remain or

unchanged.

4. Regression coefficient of size of Audit Committee (AC) marked positive at

0.015. It shows that the influence of size of Audit Committee (AC) on the

quality of Sustainability Report Disclosure is positive, which means that if the

value or number of Audit Committee (AC) is increased by one point, then

GRI index will increase by 0.015 or on the contrary, with assumption variables

X1 and X2, remain or unchanged.

82

a. Simultaneous Regression Analysis (Test - F)

Test of F statistic is basically indicates whether independent variables

altogether can influence the dependent variable. In this research, F test

done by seeing probability value.

ANOVAa

Model Sum of Squares

df Mean Square

F Sig.

1

Regression .135 3 .045 3.541 .028b

Residual .330 26 .013

Total .465 29

a. Dependent Variable: SR b. Predictors: (Constant), SIC, BOC, AC Source: Processed from secondary data (SPSS ver 21.0)

Based on table above, the result of F test shows that value of F is

3.541 and probability value is 0,028 < 0,05 (sig. (F) < 0.05). This result

indicates that the variable of GRI G3 Index is simultaneously influenced

by size of Board of Commissioners (BOC), size of Independent

Commissioner (IC) and size of Audit Committee (AC)

b. Partial Regression Testing (T-test)

Test of t statistic performed to determine the effect of one independent

variable towards the dependent variable. In this research, t test done by

seeing probability value.

Coefficientsa

Model Unstandardized Coefficients

Standardized Coefficients

t Sig. Collinearity Statistics

B Std. Error

Beta Tolerance VIF

1

(Constant) 1.163 .119 9.792 .000

BOC -.016 .008 -.335 -2.145 .042 .940 1.064

SIC -.484 .180 -.414 -2.685 .012 .964 1.037

AC .015 .013 .189 1.197 .242 .916 1.092

a. Dependent Variable: SR Source: Processed from secondary data (SPSS ver 21.0)

83

Based on table above, the result of t test can be concluded

based on probability value (value Significance < error rate (α=0.05) = Ho

is rejected), which will be explained as below:

1) Size of Board of Commissioners (BOC)

Based on table above, the result of t tests toward variable of Board of

Commissioners (BOC) (measured by the number of Board of

Commissioners) shows that probability value is 0.042 (p < 0.05). It

means that Board of Commissioners has influence to the GRI G3

disclosure. Thus, the first hypothesis (H1), which states that size of

board of commissioners has influence to quality of sustainability

report, is accepted.

2) Size of Independent Commissioner (IC)

Based on table above, the result of t tests toward variable of

Independent Commissioner (IC) (measured by the ratio or percentage

(%) between the numbers of the Independent Commissioner members

as compared to the total number of members of the Board of

Commissioners) shows that probability value is 0.012 (p < 0.05). It

means that Size of Independent Commissioner has influence to the

GRI G3 disclosure. Thus, the second hypothesis (H2), which states

that size of Independent Commissioner has influence to quality of

sustainability report, is accepted.

84

3) Size of Audit Committee (AC)

Based on table above, the result of t tests toward variable of Size of

Audit Committee (AC) (measured by the number of Audit Committee)

shows that probability value is 0.242 (p < 0.05). It means that Size of

Audit Committee does not have influence to the GRI G3 disclosure.

Thus, the third hypothesis (H3), which states that size of Audit

Committee has influence to quality of sustainability report, is not

accepted.

4.2.4 Coefficient Determination Test (R2)

Determination Coefficient Testing done to determine the magnitude

contribution of independent variables toward the dependent variable with sees the

value of R2.

Model Summaryb

Mode

l

R R Square Adjusted R

Square

Std. Error of

the Estimate

Durbin-

Watson

1 .636a .404 .335 .08482 1.920

a. Predictors: (Constant), BOC, SIC, AC

b. Dependent Variable: SR


Based on table above, the result shows that the correlation coefficient (R²)

for 0.636, which means that the correlation between the dependent variable with

the independent variables are strong based on the value of R is above 0.5.

Adjusted R Square value or coefficient of determination is 0.335 or 33.5%. It

means that magnitude contribution of independent variables toward the dependent

variable is 33.5%, while 66.5% firm value can be explained by other variable that

is not included in this regression analysis.

85

4.3. Interpretation

Based on multiple regression analysis as described in the previous section,

the interpretation of the results is presented in three sections. The first section

discusses the influence of Board of Commissioners to the quality of Sustainability

Report Disclosure (H1). The second section discusses the influence of Board of

Independent Commissioners to the quality of Sustainability Report Disclosure

(H2). The third section discusses the influence of Audit Committee to the quality

of Sustainability Report Disclosure (H3). The explanation is as follow:

1. The influence of Board of Commissioners to the quality of Sustainability

Report Disclosure

The results using multiple regression analysis obtain results that Board of

Commissioners has influence of the quality of Sustainability Report Disclosure. It

can be seen from the calculated value by hypothesis testing where the significant

level of Board of Commissioners is 0.042 at significant level 5% which means

value 0.042 < 0.05. Thus, this research can be accepted by hypothesis (H1), which

states that Board of Commissioners influence of the quality of Sustainability

Report Disclosure.

Regression coefficient value is -0.016, which means that there is negative

relationship between Board of Commissioners to the quality of Sustainability

Report Disclosure. If the number of Board of Commissioners is increased, quality

of Sustainability Report Disclosure will decrease.

2. The influence of Board of Independent Commissioners to the quality of

Sustainability Report Disclosure

The results using multiple regression analysis obtain results that Board

of Independent Commissioners has influence to the quality of Sustainability

86

Report Disclosure. It can be seen from the calculated value by hypothesis

testing where the significant level of Board of Independent Commissioners is

0.012 at significant level 5% which means value 0.012 < 0.05. Thus, this

research can be accepted by hypothesis (H2), which states that Board of

Independent Commissioners influence of the quality of Sustainability Report

Disclosure.

Regression coefficient value is -0.484, which means that there is

negative relationship between Board of Independent Commissioners to the

quality of Sustainability Report Disclosure. If the number of Board of

Independent Commissioners is increased, quality of Sustainability Report

Disclosure will decrease.

3. The influence of Audit Committee to the quality of Sustainability Report

Disclosure

The results using multiple regression analysis obtain results that Audit

Committee does not influence to the quality of Sustainability Report

Disclosure. It can be seen from the calculated value by hypothesis testing

where the significant level of Audit Committee is 0.242 at significant level 5%

which means value 0.242 > 0.05. Thus, this research cannot be accepted by

hypothesis (H3), which states that Audit Committee influence of the quality of

Sustainability Report Disclosure.

Regression coefficient value is 0.15, which means that there is positive

relationship between Audit Committee to the quality of Sustainability Report

Disclosure. If the number of Audit Committee is increased, quality of

Sustainability Report Disclosure will decrease.

87

CHAPTER V

CONCLUSION

5.1 Conclusion

In the concept of corporate governance, companies are required to comply

with the principles that will build good corporate governance, as: Transparency,

Accountability, responsibility, independence and Fairness. Thus, before the

companies practicing the Sustainability Report, internal management of the

company must be managed well or meet the principles of good corporate

governance relating to the terms of Transparency, Accountability and

Responsibility.

With these principles of the company's obligation, it force the company

disclose the report accurately, on timely, and transparently to all information

about the company's performance, ownership, and stakeholders. With the

realization of GCG, it is expected to bring the company's business development

towards sustainable so it will be easier for companies to disclose the Sustainability

Report with good quality.

This research examines the influence of size of Board of Committee,

Proportion of Independent Commissioners and Size of Audit Committee, towards

quality sustainability reporting disclosure. This analysis are performed by using

the multiple regression analysis method with the program ‘Statistical Package for

Social Science’ (SPSS) Ver.21.0. Data samples consist of 30 sustainability report

companies listed in the Indonesia Stock Exchange during the period 2009 - 2014.

88

From the test results and discussions in the previous chapter can be

concluded as follows:

1. To clarify whether Indonesian companies disclose the sustainability reports

with following GRI G3 index or not. Based on this research finding, GRI G3

guideline is the most complete indicators in comparison to GRI G1 and GRI

G2. In year 2009 until 2012, it became a trend for Indonesian companies to

disclose their sustainability reports in line with GRI G3 guidelines. Continue

with GRI G4 for the new version as a standard for disclosure the sustainability

report in 2013. But just some of few companies use the G4 as a standard of

disclosure. This research found 8 companies that disclose sustainability

reports by following the guidance of GRI G3 Guideline in the years 2009 until

2014, and become 5 companies which disclose the sustainability report in

accurate and complete from 2009-2014. So, the totals of sustainability report

are 30 reports which taken from 5 companies during 2009 until 2014. The 30

sustainability reports follow the GRI G3 indicators.

2. Based on the multiple regression result, Board of Commissioners and Board of

Independent Commissioners have influence to the quality of sustainability

report disclosure. But Audit Committee has not influence to the quality of

sustainability report disclosure as can be seen from the result of SPSS. This

implies that companies necessarily need concern about the size of Board of

Commissioners and size of Board of Independent Commissioners, as the

components that influencing the dependent variable that connecting to the

quality of sustainability report disclosure, and more concern to the audit

activities for Audit Committee to keep controlling the Board of

89

Commissioners and Independent Commissioner activity in the company,

although it is not give the influence to the sustainability report disclosure

directly.

3. Based on the multiple regression result, Board of Commissioners and Board of

Independent Commissioners have negative influence. It implies that company

should increase the quality and performance of the audit committee, the most

active of Audit Committee the more likely audit committee can reach

solutions of the quality of sustainability report disclosure.

4. Based on the multiple regression result, the audit committee has positive

influence. It implies that company should increase the size and performance of

the audit committee, the most active of audit committee the more likely audit

committee can reach solutions of the quality of sustainability report disclosure.

5.2 Recommendation

Of the conclusions and limitations in this study, the advices that can be

given to improve the Research on the influence of Good Corporate Governance

(GCG) implementation toward quality Sustainability Reporting (SR) disclosure in

the future research are:

1. Future studies should extend the observation period to better describe the

condition of Sustainability Report disclosure in Indonesia.

2. The government could consider introducing special regulations about the

mandatory disclose the sustainability reports regard to GRI index and concern

in each indicators of every point of the GRI index to all listed companies in

Indonesia to make the better quality of Sustainability Report disclosure.

90

3. Low Adjusted R2 of the models tested in this study suggests that other

variables that are not used in this study has a greater influence on the

disclosure of Sustainability Report, so for the future studies it should consider

using other variables also outside of the variables used in the study this.

4. The next research on that tropic should investigate the items of sustainability

reporting conducted based on GRI-G4-Guidelines with those conducted under

ISO 210000 guidelines in order to visualize the comparability of the different

guidelines and their impact on the profitability

91

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2011. CORPORATE

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Christina James-Overheu, 2010. Corporate Governance, Sustainability and the

Assessment of Default Risk School of Accounting, Economics and

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Komite Nasional Kebijakan Governace (KNKG). 2006. Pedoman Umum Good

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Lang, Mark H. and Lundholm, Russell J., (2000), “Voluntary disclosure and

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92

Waryanto. 2010. “Pengaruh Karakteristik Perusahaan terhadap Luas

Pengungkapan CSR di Indonesia”. Universitas Dipenogoro.

93

APPENDIX

Table GRI G3 Index

LIST OF GRI G3 INDICATORS FOR MEASURING SUSTAINABILITY

REPORT

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

I.

HR

HR1

HR2

HR3

HR4

HR5

HR6

Social Performance:

Human Rights

Percentage and total number

of significant investment

agreements that include

human rights clauses or that

have undergone human

rights screening.

Percentage of significant

suppliers and contractors

that have undergone

screening on human rights

and actions taken.

Total hours ofemployee

training on policies and

procedures concerning

aspects of human rights that

are relevant to operations,

including the percentage of

employee trained.

Total number of incidents of

discrimination and actions

taken.

Operations identified in

which the right to exercise

freedom of association and

collective bargaining may

be at significant risk, and

actions taken to support

these rights.

Operations identified as

having significant risk for

incidents of child labor, and

measures taken to

94

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

HR7

HR8

HR9

S

S01

S02

S03

S04

contribute to the elimination

of child labor

Operations identified as

having significant risk for

incidents of forced or

compulsory labor and

measures to contribute to

the elimination of forced or

compulsory labor

Percentage of security

personnel trained in the

organization’s policies or

procedures concerning

aspects of human rights that

are relevant to operations.


violations involving rights

of indigenous people and

actions taken.

Society

Nature, scope, and

effectiveness of any

programs and practices that

assess and manage the

impacts of operations on

communities, including

entering, operating, and

exiting.

Percentage and total number

of business units analyzed

for risks related to

corruption.

Percentage of employees

trained in organization’s

anti-corruption policies and

procedures.

Actions taken in response to

incidents of

95

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

S05

S06

S07

S08

LA

LA1

LA2

LA3

LA4

corruption.

Public policy positions and

participation in public

policy development and

lobbying

Total value of financial and

in-kind contributions to

political parties, politicians,

and related institutions by

country.

Total number of legal

actions for anti competitive

behavior, anti-trust, and

monopoly practices and

their outcomes.

Monetary value of

significant fines and total

number of non-monetary

sanctions for non

compliance with laws and

regulations

Labor

Total workforce by

employment type,

employment contract, and

region.

Total number and rate of

employee turnover by age

group, gender, and region.

Benefits provided to full-

time employees that are not

provided to temporary or

part-time employees, by

major operations.


covered by collective

96

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

LA5

LA6

LA7

LA8

LA9

LA10

LA11

bargaining agreements.

Minimum notice period(s)

regarding significant

operational changes,

including whether it is

specified in collective

agreements.

Percentage of total

workforce represented in

formal joint management –

worker health and safety

committees that help

monitor and advise on

occupational health and

safety programs

Rates of injury,

occupational diseases, lost

days, and absenteeism, and

number of work-related

fatalities by region.

Education, training,

counseling, prevention, and

risk-control programs in

place to assist workforce

members, their families, or

community members

regarding serious diseases.

Health and safety topics

covered in formal

agreements with trade

unions

Average hours of training

per year per employee by

employee category

Programs for skills

management and life long

learning that support the

continued employability of

employees and assist them

in managing career endings.

97

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

LA12

LA13

LA14

PR

PR1

PR2

PR3

PR4


receiving regular

performance and career

development reviews

Composition of governance

bodies and breakdown of

employees per category

according to gender, age

group, minority group

membership, and other

indicators of diversity.

Ratio of basic salary of men

to women by employee

category.

Product Responsibility

Life cycle stages in which

health and safety impacts of

products and services are

assessed for improvement,

and percentage of

significant products and

services categories subject

to such procedure


non-compliance with

regulations and voluntary

codes concerning health and

safety impacts of products

and services during their life

cycle, by type of outcomes.

Type of product and service

information required by

procedures, and percentage

of significant products and

services subject to such

information requirements.


98

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

PR5

PR6

PR7

PR8

PR9

EC

EC1

non-compliance with


codes concerning product

and service information and

labeling, by type of

outcomes

Practices related to

customer satisfaction,

including results of surveys

measuring customer

satisfaction.

Programs for adherence to

laws, standards, and

voluntary codes related to

marketing communications,

including advertising,

promotion, and sponsorship


non-compliance with


codes concerning marketing

communications, including

advertising, promotion, and

sponsorship by type of

outcomes

Total number of

substantiated complaints

regarding breaches of

customer privacy and losses

of customer data.

Monetary value of

significant fines for

noncompliance with laws

and regulations concerning

the provision and use of

products and services

Economic:

Direct economic value

generated and distributed,

including revenues,

operating costs, employee

99

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

EC2

EC3

EC4

EC5

EC6

EC7

EC8

compensation, donations

and other community

investments, retained

earnings, and payments to

capital providers and

governments.

Financial implications and

other risks and opportunities

for the organization’s

activities due to climate

change.

Coverage of the

organization’s defined

benefit plan obligations.

Significant financial

assistance received from

government.

Range of ratios of standard

entry level wage compared

to local minimum wage at

significant locations of

operation.

Policy, practices, and

proportion of spending on

locally-based suppliers at

significant locations of

operation.

Procedures for local hiring

and proportion of senior

management hired from the

local community at

locations of significant

operation.

Development and impact of

infrastructure investments

and services provided

primarily for public benefit

through commercial, in-

kind, or pro bono

engagement.

100

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

EC9

EN

EN1

EN2

EN3

EN4

EN5

EN6

EN7

EN8

EN9

EN10

EN11

Understanding and

describing significant

indirect economic impacts,

including the extent of

impacts.

Environmental:

Materials used by weight or

volume.

Percentage of materials used

that are recycled input

materials.

Direct energy consumption

by primary energy source.

Indirect energy consumption

by primary source.

Energy saved due to

conservation and efficiency

improvements.

Initiatives to provide energy

efficient or renewable

energy based products and

services, and reductions in

energy requirements as a

result of these initiatives.

Initiatives to reduce indirect

energy consumption and

reductions achieved.

Total water withdrawal by

source.

Water sources significantly

affected by withdrawal of

water.

Percentage and total volume

of water recycled and

reused.

Location and size of land

101

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

EN12

EN13

EN14

EN15

EN16

EN17

EN18

EN19

EN20

owned, leased, managed in,

or adjacent to, protected

areas and areas of high

biodiversity value outside

protected areas.

Description of significant

impacts of activities,

products, and services on

biodiversity in protected

areas and areas of high

biodiversity value outside

protected areas.

Habitats protected or

restored.

Strategies, current actions,

and future plans for

managing impacts on

biodiversity.

Number of IUCN Red List

species and national

conservation list species

with habitats in areas

affected by operations, by

level of extinction risk.

Total direct and indirect

greenhouse gas emissions

by weight.

Other relevant indirect


by weight.

Initiatives to reduce


and reductions achieved

Emissions of ozone-

depleting substances by

weight.

NOx, SOx, and other

significant air emissions by

type and weight.

102

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

EN21

EN22

EN23

EN24

EN25

EN26

EN27

EN28

EN29

Total water discharge by

quality and destination

Total weight of waste by

type and disposal

method.

Total number and volume of

significant spills.

Weight of transported,

imported, exported, or

treated waste deemed

hazardous under the terms

of the Basel Convention

Annex I, II, III, and VIII,

and percentage of

transported waste shipped

internationally.

Identity, size, protected

status, and biodiversity

value of water bodies and

related habitats significantly

affected by the reporting

organization’s discharges of

water and runoff.

Initiatives to mitigate

environmental impacts of

products and services, and

extent of impact mitigation.

Percentage of products sold

and their packaging

materials that are reclaimed

by category.

Monetary value of

significant fines and total

number of non-monetary

sanctions for non

compliance with

environmental laws and

regulations.

Significant environmental

103

Indicators SR

2009

SR

2010

SR

2011

SR

2012

SR

2013

SR

2014

EN30

impacts of transporting

products and other goods

and materials used for the

organization’s operations,

and transporting members

of the workforce.

Total environmental

protection expenditures and

investments by type.

(Total Items : 77 )

Total:

Note:

Score one (1) = disclousure

Score zero (0) = not

disclosure

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