Compliance Over Capability: Digital Transformation, Resource Allocation Efficiency, and ESG Disclosure in Indonesia's Financial Sector
Abstract
Indonesian financial-sector issuers have rapidly increased ESG reporting compliance, yet whether this reflects genuine digital capability or mere adaptation to regulatory pressure remains unclear. Evidence linking digital transformation, resource allocation, and ESG outcomes is concentrated in voluntary-disclosure settings in developed and transitional markets, leaving the relationship largely untested under mandatory, standardized disclosure. This study tests whether digital transformation improves ESG disclosure among Indonesian financial firms, directly and through resource allocation efficiency (RAE) as a mediator. Using panel data from 30 firms over 2020-2024 (150 firm-year observations), digital transformation is measured via a codebook-based Digital Transformation Score from annual-report content analysis, RAE via Richardson's (2006) investment model, and ESG via a 26-indicator disclosure index from POJK No. 51/POJK.03/2017. Hypotheses are tested with two-way fixed-effects regression, cluster-robust errors, and Baron and Kenny/Sobel mediation tests. Contrary to expectations, digital transformation does not significantly improve ESG disclosure or resource allocation efficiency, resource allocation efficiency does not significantly improve ESG disclosure, and no mediated pathway is detected, holding across five robustness checks. Instead, ESG disclosure rises uniformly across firms over time, consistent with regulatory rather than firm-level drivers. ESG performance in Indonesian finance thus appears compliance-driven, not capability-driven, a boundary condition for resource-allocation-mediated models built in voluntary-disclosure markets. For regulators, raising compliance alone does not ensure sustainability quality; digital and ESG policy agendas should be integrated. For industry, digital investment should shift toward ESG-relevant decision-making, not customer-facing services alone.