The Effect of Carbon Tax Application and Green Financial Initiatives on the Profitability of Manufacturing Companies on the Idx

Indonesia has responded to the intensifying climate crisis by introducing environmental policies such as carbon taxation and green finance. These measures aim to reduce carbon emissions while sustaining economic growth. However, concerns have emerged regarding their potential impact on corporate profitability, particularly in the manufacturing sector. The relationship between sustainability policies and financial performance remains inconclusive, warranting further investigation. This study examines the effect of carbon tax implementation and green finance initiatives on the profitability of manufacturing companies listed on the Indonesia Stock Exchange. It also explores the extent to which firms can maintain financial performance amid increasingly stringent environmental regulations. The research is grounded in legitimacy theory, which posits that firms must align their activities with societal expectations to retain legitimacy. In this context, environmental initiatives serve as a means for companies to demonstrate commitment to sustainability and gain stakeholder support. A quantitative approach with an associative method was employed, using purposive sampling to select 131 manufacturing firms over the 2021–2023 period, resulting in 393 observations. Secondary data were obtained from annual and sustainability reports and analyzed using multiple linear regression via EViews The results reveal that carbon tax implementation and green finance have no significant individual or combined effect on Return on Equity. These findings suggest that current environmental policies have not yet provided tangible financial benefits to manufacturing firms. Thus, more adaptive strategies and supportive incentives may be necessary to help businesses remain competitive while advancing sustainability objectives.