Does the Company’s Size and Financial Health Affect on Reduces of Carbon Emissions?

. The research aims to obtain evidence regarding the effect of financial health and company affecting carbon disclosure in Indonesia with panel data and fixed effect method. The sample used in this research is non-financial sector companies listed on the Indonesia Stock Exchange in 2019-2020. The final sample selected using the purposive sampling method is 102 companies within two years of observation according to predetermined sample criteria: companies in the non-financial sector. This study finds that company size and financial health affect the reduction in carbon emissions that a company generates from its operations. This study also finds that the profitability and size of Indonesian manufacturing companies impact efforts to reduce carbon emissions which are shown in the disclosure of carbon emission reduction activities. However, the level of debt owned by companies does not have a significant impact on efforts to control carbon emissions. This finding implies that large and financially sound companies tend to maintain and reduce the carbon emissions they generate from their operational activities as a form of their responsibility to their stakeholders in a broad view.


Introduction
Most nations now consider global warming a major political and economic concern.Greenhouse gases are one of the contributing factors that cause global warming.Greenhouse gases can come from many sources, such as transportation that comes from burning fossil fuels, (coal or natural gas) to the use of land and forests.Example of greenhouse gasses is water vapor, Nitrous oxides (N2O), methane (CH4), and CO2 which plays a major role in increasing the temperature in the atmosphere, causing global warming.As the world warms, the climate will shift because of global warming and climate change happened.According to the WMO Report by Sharm-El-Sheikh, there has been an increase in global temperatures of around 1.15 from 1.02 to 1.28 degrees Celsius and is 1.14 degrees Celsius (from 2013 to 2022) above the 1850-1900 baseline of the preindustrial assets estimated by IPCC in the sixth assessment report with a projected carbon emission will increase by 1% to 37.5 billion tons as a new record.
Indonesia itself reached a ranking of 38th in GHG emissions with a low rating.Even so, CCPI experts criticize the lack of ambition and note to the Indonesian government that the Nationally Defined Contribution September 2022 updated is only temporary until 2024.Indonesia is the ninth country for 90% of global coal production also usage targets for forests and land to achieve net carbon absorption by 2030.This is not in accordance with the NDC target, which is 1.5 degrees Celsius, so it is necessary to increase the NDC to make it compatible and according to the World Resource Institute, Indonesia is the fourth country as a producer of GHG emissions in the world, which is 1002.3MtCo2 with carbon emission 2.29 tons per capita.As a response to that, in November 2022, Indonesia committed to achieving Net Zero Emissions.Through its finance minister, this regulation is expected to optimize national oil and gas production in the energy transition era [1].Therefore, the government is preparing regulations related to the implementation of Carbon Capture Storage (CCS) or Carbon Capture Utilization and Storage (CCUS) [2].Indonesia commits to reducing carbon emissions which is part of GHG emissions by 29 percent by 2023 (www.wri.org).In addition to the world's expectations for Indonesia which has an important role as "the lungs of the world" in suppressing the increase in earth's temperature, with the 2nd largest number of forests in the world and the 2nd largest producer of oxygen and a country capable of storing carbon due to a large amount of land cover [3].
The Indonesian government has issued a policy to ratify the Kyoto Protocol as a result of the Studies related to the efforts of companies in Indonesia to reduce GHG emissions, especially carbon emissions, have been carried out since 2014 [5][6][7].From the study it was explained that the disclosure of environmental information such as carbon emissions by companies is a form of responsibility, compliance, and awareness of government regulations.As with the usefulness of accounting number concept, disclosure of carbon emissions in the company's annual report will provide benefits for the company in showing its image to external stakeholders [7].Concern for the environment, in the long run is nothing but a way for companies to avoid exorbitant operational costs, reputational risks, legal proceedings, and fines due to environmental damage caused by company operations.Apart from that, concern for the environment is a way for companies to gain legitimacy [6].
This study aims to find empirical evidence on the contribution of companies in Indonesia in reducing carbon emissions.There are two main variables to be examined, namely Company's Size and Financial Health.This research is important because Indonesia is one of the countries that has stated its commitment to the Conference of Parties (COP) 15 of 2009 to reduce Greenhouse Gas (GHG) emissions in 2020 by 26% (with its own efforts) and by 41% (if it gets international assistance) [8].In addition, because Indonesia is one of the world's largest contributors of carbon emissions (number five), Indonesia has also committed to reducing carbon emissions to keep global temperature rise.By increasing the Enhanced Nationally Determined Contribution (E-NDC) target to 32% or the equivalent of 912 million tons of CO2 in 2030, Indonesia's target of reducing carbon emissions by 29% or the equivalent of 835 million tons of CO2 is expected to be achieved [9].
Using 51 companies listed on the Indonesia Stock Exchange, this study found that the financial health is determined by profitability and company size, both of which have a significant positive effect on carbon emissions.Meanwhile, leverage has no significant effect on disclosure of carbon emissions.So, it can be concluded that company size and company financial health encourage companies to make efforts to reduce carbon emissions.

Literature review and hypothesis development 2.1 Theories
Compliance theory was introduced by Stanley Milgram in 1963.In experimental laboratory studies, procedures were described for studying destructive compliance.Experiments on people's obedience when severe punishment will be given for mistakes made.In Milgram's experimental study, punishment was carried out by means of a shock generator with 30 cascaded switches ranging from Mild Shock to Danger: Severe Shock [10].This theory describes a condition in which individuals tend to comply with predetermined orders or rules due to conformity and consistency with the norms that have been in effect.But on the other hand, compliance with the law is shown by individuals because it is considered an obligation.
Various theories can be the basic assumptions to explain the importance of companies paying attention to the environment.Legitimacy theory explains that the most important aspect of corporate activities is the focus on society's value system [11,12].As the power of a theory to predict phenomena, legitimacy theory predicts that if an organization's value system is in accordance with the value system that exists in the surrounding community, then the organization will do it to survive [4].In addition, stakeholder theory focuses on the relationship between organizations and various stakeholders, internal and external.Stakeholder theory explains that each stakeholder group has different expectations of the company.On the other hand, the expectations of each stakeholder are often on different sides of one another.However, organizations must be able to meet the needs and expectations of these publics [13,14].

Carbon disclosure
Disclosure of company performance is an effort made by management to reduce information asymmetry between internal parties and external parties of the company.Of course, the information provided by the company's management is information that will build a good image of the company, with the goal of getting positive sentiment from market players and other stakeholders.Companies that have a good level of performance tend to expand their disclosures in the hope that the company's market value will also increase.A good company does not only disclose financial information, but companies need to disclose various non-financial information such as environmental and social performance information so that the company is said to have good social responsibility.Companies with better financial performance are more likely to try to reduce emissions from their company's activities.This is because environmental disclosure requires greater corporate resources [15].Financial performance capability includes various company initiatives to contribute to efforts to reduce emissions or in this case carbon emissions such as replacing engines that are more environmentally friendly, or other environmental actions such as planting trees to increase CO2 absorption.So even though disclosure is voluntary, companies with better performance will be more able to do so [16].One way to see financial performance is to look at the company's financial ratios.The two financial ratios chosen to be indicators of a company's financial health are the Profitability Ratio and the Leverage Ratio.
Previous studies have shown that profitability affects the disclosure of carbon emissions [7,17,18].Companies with high profitability will more easily respond to pressure from the community because they have more resources to carry out environmental disclosures including disclosure of carbon emissions compared to companies with low profitability so that the company's legitimacy will be easily obtained by the community.A high level of company profitability will indicate the availability of company funds that are larger, making it easier for companies to carry out environmental disclosures including disclosure of carbon emissions.High profitability indicates the availability of sufficient funds in the company, so that it can be used as a basis for suing the company in disclosing carbon emissions.Companies with good financial conditions will find it easier to make voluntary disclosure reports and are better at fighting outside pressure [17].Companies with large profitability tend to disclose "good news" to the financial market.This good news can be in the form of mandatory disclosure or voluntary disclosure, such as disclosure of carbon emissions [19].Meanwhile, companies with low profitability prefer to focus on productive things such as increasing efficiency and company profits compared to making social and environmental disclosures because they can add to the company's operating expenses [18].

H1: Profitability has a positive effects carbon emission disclosure.
A high level of leverage indicates that the funding used by the company in its operational activities uses third party funds, which is greater than its own capital.This condition indicates that the company's obligations to large creditors will be followed by obligations to pay interest and loan principal on time.Previous studies have found that leverage has a negative effect on disclosure of carbon emissions [18,20].The logic is that a high level of company leverage indicates a company's dependence on debt which is also getting bigger, thus creating a risk to the company's business continuity, for the risk of default.High leverage is bad news for creditors and investors, so companies are trying to compensate by increasing disclosure of carbon emissions.This is intended to improve the company's image in the eyes of the public and reduce company risk.
From the perspective of stakeholder theory, an increase in corporate leverage indicates a higher corporate responsibility towards creditors and will force companies to use whatever resources are available to repay their debts.Disclosure of carbon emissions is a disclosure that has a large cost because the activities carried out are costly and can be a burden for companies [17].Previous studies have found that highly leveraged companies have little funds to be proactive on carbon emission issues [20].
The carbon emissions produced by bad companies will make the company's risk even greater.Therefore, companies will be careful in using their funds to make disclosures because voluntary disclosures including disclosure of carbon emissions will add costs to the company.The company's poor financial condition in carrying out environmental disclosures will cause concern from stakeholders, such as customers, suppliers and especially debt holders [17].Making voluntary disclosures such as environmental disclosures will add additional costs to companies [20] so that there is a tendency for companies with high leverage to prefer not to disclose to save costs besides pressure from creditors being the reason companies prefer to concentrate on paying off all obligations rather than making voluntary disclosures.So, the formulation of the second hypothesis of this study is as follows.
H2: Leverage has a negative effect on carbon emission disclosure.
Company size is a variable used by previous researchers to be a predictor of carbon emissions.The larger the size of a company, the greater the resources it has.The larger the size of the company, the greater the attention it receives from society.Large companies carry out more activities that have more impact on the environment, so companies are under pressure from society to carry out more activities in terms of environmental preservation, one of which is by disclosing carbon emissions [17].Large companies will tend to disclose more carbon emissions to gain legitimacy from society and because they get more political pressure and other social pressures [21,22].Based on stakeholder theory, interactions between large corporations and society tend to be more numerous and have significant economic influence, and large corporate organizations are more visible to the media, policy makers, regulators, and the public.In accordance with the legitimacy theory that large companies will become the focus of society, because the activities carried out by companies have an impact on the environment, efforts are needed to improve their response to the environment, namely by voluntarily giving.Previous research found that company size has a positive effect on efforts to reduce carbon emissions, at p <0.01 [22] and p <0.05 [21].

H3: Company size has a positive effect on carbon emission disclosure.
Figure 1 shows the research model, where the dependent variable for this research is the disclosure of carbon emissions, and the independent variables are profitability, leverage, and company size.

Research method
The subjects of this study are all Indonesian nonfinancial sector Industries operating between 2019 and 2020.Purposive sampling is a sampling approach that specifically selects sample participants based on predetermined criteria to conduct research.This methodology resulted in 51 companies from some types of industries in Indonesia, such as Basic Material, Consumer Cyclicals, Consumer Non-Cyclicals, Energy, Healthcare, Infrastructures, and Properties & Real p y g p y Estate.Observations were made during 2019 and 2020 so that the final sample of the study was 102 companies in the year of observation.The research data was obtained from the Bloomberg database which was subscribed to by BINUS University.Next step is to use the data panel and stata software to examine all the data.Based on that framework (see Figure 1), the econometric model compiled for the study are: Table 1 shows the information about operational variables in this research.In this study, carbon emissions disclosure was measured using several metrics.Based on the CDP's information request form, we created a checklist to gauge the level of carbon disclosure (Carbon Disclosure Project).The five main categories pertinent to climate change and carbon emissions are determined by Choi, Lee, & Psaros [17].There were 18 points found in the five categories.The list of carbon emissions disclosure requirements is as Table 3.

Climate Change Risks and Opportunities
CC-1: Details of the risk associated with regulations and related to climate change, CC-2: Assessments of the business opportunities implications related to climate change

Greenhouse Gas (GHG) Emissions
GHG-1: Details about methodology used to compute GHG emissions GHG-2: Existence of external validation of GHG emission data, including who conducted it and on what grounds GHG-3: Total produced greenhouse gas emissions (measured in tons of CO2-e).GHG-4: Scopes 1 and 2 and/or 3 from direct GHG emissions disclosure GHG-5: GHG emission information based on source.GHG-6: GHG emission information based on level of segment GHG-7: Details about GHG emissions are compared to earlier years.

Energy Consumption (EC)
EC-1: The quantity of energy used EC -2: Compute of the amount of renewable energy used.EC-3: Type, facility, or segmentspecific disclosure.

Reduction and Cost (RC)
RC-1: specifics of a strategy or plan to lower GHG emissions.RC-2: Target level and year for reducing GHG emissions.RC-3: Reduction for emission and cost achieved today RC-4 cost of future emission considered of capital expenditure planning

Accountability of Emission Carbon (AEC)
AEC-1: Indication that the committee's board has responsibility for actions correlated to climate change AEC-2: Description for mechanisms which board reviews the company's progress for climate change To calculate the carbon emission disclosure index, perform these steps: assigning a score on a dichotomous scale for each disclosure item.The highest score is 18, and the lowest is 0. Each item has a value of 1, thus the corporation receives a score of 18 if it reveals all the information in its report.Scores for each business were then added.The entire assets of the company, translated into natural logarithms, are used to calculate the size of the company.Using return on asset (ROA) profitability is assessed, while total debt divided by total equity serves as a proxy for leverage.

Results and analysis
To process the research data, we use panel regression.This study uses the Fixed Effect Model (FEM) and Random Effect Model (REM) panel data testing techniques with the Generalized Least Squared (GLS) approach to estimate the model.Therefore, the data in this study must be tested for normality prior to panel regression testing.The normality test used the Shapiro-Wilk test because the sample used in this study was quite large, namely 102 companies for two years of observation.The Shapiro-Wilk test is unreliable when applied to a small number of samples.This test is valid on a sample size of 3 to 2000 [22].Prob>z on the Shapiro-Wilk test shows a value of 0.485 where this value is> 0.05, then the data is declared normally distributed.The data is good and can be continued with panel regression testing.----Coefficients ----  4 shows that the test results using the fixed effect model and Table 5 Panel B shows the test results using the random effect model.When using the Hausman test (Table 6) in panel C, it is written that the probability of Chi-square is 0.0002 (a value below 0.005), so we need to reject the null hypothesis (random effect model) in the equation above and choosing fixed effect model.Table 7 illustrates descriptive statistics using the panel data method.From the panel above we can see information on the values of each operational variable.First, in terms of CED, it has a minimum value of 0.0055, which belongs to PT Darma Hendwa Tbk in 2019 and PT Mitrabahtera Segara Sejati Tbk in 2020 with initial data of 1 item from carbon emission disclosure out of 18 items while the maximum value is 0.83333 from PT ABM Investama Tbk in 2020 or with initial data 15 items are fulfilled out of 18 carbon emission disclosure items and with an average of 0.35 and a standard deviation of 0.149.From this data we can conclude, the average disclosure of companies that carry out carbon emissions is still very minimal.One of the factors is the lack of environmental awareness from companies and the public, as well as the lack of government's role in making regulations for companies in carrying out carbon emission disclosures.
In terms of Profitability (ROA), it has a minimum value of -0.45 which belongs to PT Waskita Beton Precast Tbk in 2020 while the maximum value is 0.558 from PT Unilever in 2019 and an average of 0.04 and a standard deviation of 0.102.So, it means that PT Unilever has the highest profitability in 2019, so we can conclude that PT Unilever is able to process its assets well in generating profit, while PT Waskita Beton Precast Tbk has the lowest profit in 2020 and we can conclude that PT Waskita Beton Precast Tbk less able to manage their assets in generating profit.
In terms of leverage (DER), it has a minimum value of 0.08, which belongs to PT Arkha Jayanti Persada Tbk in 2020 while the maximum value is 24 8 illustrates the Fixed Effect Model with robust analysis and is added to the fixed effect model (to overcome the problems of heteroscedasticity and autocorrelation).From these data, the R-Square within is 52.54% so we can conclude that the three independent variables can explain the dependent variable for 52.54%, while the remaining 47.46% is explained by another variables that isn't included in our research.Then, with the fixed effect model, we can see that Profitability (ROA) and Company size (SIZE) have a positive relationship or move in the same direction with Carbon disclosure as the dependent variable.ROA's coefficients result the highest value (0.49) which means ROA is the most powerful variable in explaining carbon emission disclosure.Meanwhile, leverage (DER) has a negative relationship or moves in the opposite direction to carbon disclosure.The results of the significance or influence between the independent and dependent variables represent that there are two variables that have a large at the significant effect on carbon disclosure.First, profitability proxies by ROA (with a probability value of 0.0000) and Company size proxied by LnSize (with a probability value of 0.0000) have a significance DER does not have a significant effect on carbon emission disclosure as the dependent variable with a probability level of 95% and 90%).
The t test shows that financial health is represented by the profitability ratio and proxied by the ratio of return on assets and has a significant and positive effect on disclosure of carbon emissions.These results are in accordance with research conducted in previous studies which found that profitability has a positive and significant effect on carbon disclosure emissions [7,[17][18][19].Meanwhile, in environmental studies, empirical evidence was found that environmental disclosure (including efforts to reduce carbon emissions) has a positive effect on financial performance as represented by company ROA as a proxy for company profitability [23].The higher the profit owned by the company, the company has an advantage in attracting influence and attention from various parties.To gain legitimacy, companies will tend to comply with regulations, one of which is regulations related to environmental disclosure, so that according to compliance theory and regulatory theory, companies that are subject to the law will tend to make a lot of environmental disclosures, especially carbon emissions.Large companies try to maintain their cost of equity as a form of protection for their shareholders [24].Therefore, the disclosure of carbon emission reduction activities which has become a concern of the world community today is an important action for large companies.Because the more companies produce their products and services from environmentally friendly activities (by not producing excess carbon emissions) the less risky the investment in these companies.
For leverage, the T-test shows that financial health as represented by leverage, which proxied by debt-toequity ratio does not have a significant effect on carbon emission disclosure, even though it has a negative relationship to carbon disclosure.This is supported by research conducted previous study which states that leverage does not have a significant effect on carbon emission disclosure [7,17,18,20].
Meanwhile, company size, T-test results show that company size which proxied by Natural logarithm of total assets has a significant effect on carbon emission disclosure positively.These results support research which found that company size has a positive and significant influence on carbon emission disclosure [21,25].The bigger the company, the greater the desire to gain legitimacy from the community, one of which is by complying with applicable rules.This is in accordance with the Theory of Complaint and Theory of Regulation, where companies comply with existing regulations and ultimately encourage carbon disclosure and existing regulations can maintain good financial report performance.

Conclusion
This study found that company size and financial health affect the reduction of carbon emissions that companies generate from their operations.The results of this study found that the profitability of Indonesian manufacturing companies has an impact on efforts to reduce carbon emissions as shown in the disclosure of carbon emission reduction activities.As a result, businesses that are more successful in generating profits from their activities will help reduce carbon emissions.In addition, this study found that CED is highly influenced by company size.However, the level of debt owned by companies does not have a significant impact on efforts to contain carbon emissions.
At Indonesian manufacturing companies, disclosure of carbon emissions is significantly impacted by profitability.As a result, businesses that are more successful at making a profit from their activities will help to enhance the disclosure of carbon emissions.Carbon emissions declaration at manufacturing enterprises in Indonesia is greatly impacted by media exposure.This demonstrates how firms may be persuaded to publicize their environmental initiatives to gain the support of their stakeholders.
This study has limitations from the small sample size because it uses the criteria of companies that publish sustainability reports.Many of the companies that do not issue sustainability reports make it difficult for us as researchers to find samples and we conducted research only by looking at financial reports and sustainability reports for only 2 years.Suggestions for further research are based on the results of the research and the limitations of the research above are adding financial sectors or comparing companies in Indonesia so we can know the effect of the independent variables on dependent variables in financial sectors, as well as selecting other proxies or variables that can be done and we suggest looking at reports 4-5 years to produce even better research and can explain the dependent variables more comprehensively.The existence of this research is also expected to provide encouragement for companies in Indonesia to have awareness in carrying out environmental disclosure, one of which is carbon emission disclosure which is currently an important issue in maintaining environmental sustainability.

Table 2 .
Research data source.

Table 4 .
Fixed effect model.

Table 5 .
Panel B: Random effect model.
.8 from PT Bumi Resources Tbk in 2020 and an average of 2.03 and a standard deviation of 2.71.In conclusion, PT Bumi Resources Tbk has the highest value in leverage which proxied by DER and this means PT Bumi Resources Tbk has a high financial risk level, while the low financial risk level is owned by PT Arkha Jayanti Persada with the lowest value of DER.Finally, company size, has a minimum value of 24.15, which belongs to PT Vale Indonesia Tbk in 2019 with initial data of 30,897,585,888 while the maximum value is 40.45 from PT Japfa Comfeed Indonesia Tbk in 2019 or with initial data of 370,474,091,395,000,000 and an average of 31.08 and a standard deviation 2.26.The largest company size proxied by Ln Total Asset is PT Japfa Comfeed Indonesia Tbk and the smallest company size is PT Vale Indonesia Tbk.

Table 8 .
Fixed effect model and robust.