Leveraging Digital Transformation for Sustainability Reporting among Indonesian SMEs: Opportunities, Challenges, and Policy Implications

Abstract

Sustainability reporting has become increasingly important for Small and Medium-sized Enterprises (SMEs) as stakeholders demand greater transparency and accountability regarding environmental and social performance. However, many Indonesian SMEs continue to face challenges in implementing sustainability reporting due to limited financial capability, digital readiness, and organizational resources. This study aims to examine the effects of Green Finance, Digitalization, Financial Literacy, and Social Capital on Sustainability Reporting, while investigating the mediating role of Pro-environmental Behavior. A quantitative research approach was employed using a survey of 188 formal SMEs operating in Indonesia. Data were collected through a structured questionnaire and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The findings reveal that Green Finance, Digitalization, Financial Literacy, and Pro-environmental Behavior have positive and significant direct effects on Sustainability Reporting, whereas Social Capital does not significantly influence Sustainability Reporting. Furthermore, Green Finance and Financial Literacy positively and significantly influence Pro-environmental Behavior, while Digitalization and Social Capital do not exhibit significant effects on Pro-environmental Behavior. The mediation analysis confirms that Pro-environmental Behavior significantly mediates the relationships between Green Finance and Sustainability Reporting as well as between Financial Literacy and Sustainability Reporting, whereas the indirect effects of Digitalization and Social Capital are not statistically significant. These findings suggest that improving financial capability, expanding access to green finance, and accelerating digital transformation while simultaneously strengthening financial literacy and access to green finance are essential strategies for improving sustainability reporting. This study contributes to the sustainability reporting literature by demonstrating the complementary roles of organizational resources and Pro-environmental Behavior in strengthening sustainability reporting and provides practical implications for policymakers seeking to accelerate sustainable SME development in Indonesia.

Keywords: Sustainability Reporting; Green Finance; Digitalization; Financial Literacy; Pro-environmental Behavior; Indonesian SMEs