The Pathway To Sustainable Business Performance: Evidence From Indonesian SMEs

Abstract

This study aims to examine the mediating role of green innovation in the relationship between environmental sustainability, sustainability performance, and financial performance of Micro, Small, and Medium Enterprises (MSMEs) in Jakarta, Indonesia. Using a quantitative approach and Partial Least Squares Structural Equation Modeling (PLS-SEM), the findings indicate that environmental sustainability significantly influences green innovation, which subsequently enhances sustainability performance and financial performance. These results support the Resource-Based View (RBV) framework, which posits that environmental sustainability can generate intangible resources such as organizational knowledge and capabilities that drive green innovation as a competitive advantage. Additionally, the outcomes reinforce the Triple Bottom Line (TBL) framework, emphasizing the importance of integrating social, environmental, and economic aspects to achieve holistic organizational sustainability. Specifically, green innovation acts as a vital mediator that strengthens the positive relationship between environmental sustainability and both sustainability and financial performance. The sample consists of 198 MSMEs in Jakarta, selected through stratified and simple random sampling techniques. The findings suggest that adopting green innovation strategies is essential for fostering comprehensive sustainability transparency and improving the financial performance of MSMEs in Indonesia.