THE ROLE OF ESG IN IMPROVING EARNINGS QUALITY: A SYSTEMATIC REVIEW OF FINANCIAL PERFORMANCE AND SUSTAINABILITY REPORTING

Abstract

Earnings quality is a fundamental element of financial reporting that reflects a company’s earnings information free from opportunistic manipulation. As regulatory pressure and stakeholder demand increase, the Environmental, Social, and Governance (ESG) framework has become a strategic tool that helps shape the integrity of financial information. This study aims to examine the role of ESG in improving a company’s earnings quality through a Systematic Literature Review (SLR) approach using the PRISMA protocol. Out of 309 identified articles, 10 final articles were selected based on strict inclusion criteria from the Scopus, Web of Science, and Google Scholar databases for the 2021–2025 period. The synthesis results indicate that consistent ESG implementation curbs earnings management practices and improves the quality of financial reporting. The governance dimension proved to be the most dominant compared to the environmental and social dimensions because it directly limits management’s discretion. Consistent sustainability reporting narrows the information asymmetry between management and investors, thereby organically fostering earnings integrity. These findings are relevant for public companies in Indonesia as well as regulators in strengthening more substantive and standardized sustainability disclosure policies.