Driving Sustainability Performance in Manufacturing: The Mediating Effect of Eco Innovation on Green Manufacturing in East Java

Abstract

As a vital contributor to Indonesia’s GDP, the manufacturing industry plays a strategic economic role but also stands as a leading cause of environmental degradation, notably through carbon emissions, energy intensity, and industrial waste. In response, green manufacturing has gained global traction as a strategic approach to align industrial growth with ecological responsibility. However, existing literature remains divided on whether green manufacturing alone suffices to enhance sustainability performance, particularly in emerging economies with varying regulatory enforcement and innovation capabilities. However, existing literature remains divided on whether green manufacturing alone suffices to enhance sustainability performance, particularly in emerging economies with varying regulatory enforcement and innovation capabilities. A key issue lies in understanding whether eco-innovation is merely a byproduct of green manufacturing practices or if it plays a more strategic role as an enabling mechanism that allows firms to translate green initiatives into tangible improvements in sustainability performance. Despite its relevance, empirical investigations on this relationship remain limited, especially in the Indonesian manufacturing context, such as in East Java, a region undergoing rapid industrialization while facing persistent environmental and productivity challenges. This study aims to investigate the impact of green manufacturing on firms’ sustainability performance, emphasizing the mediating role of eco-innovation. Drawing on quantitative data from manufacturing firms listed in the PROPER environmental rating program, this study employs Structural Equation Modeling with PLS (SEM-PLS) to test the proposed relationships. The results confirm that eco-innovation significantly mediates the relationship, reinforcing the idea that green manufacturing alone is not sufficient—its effectiveness depends on the firm’s ability to innovate sustainably across processes, products, and business models. The findings contribute to the ongoing scholarly debate by affirming that eco-innovation is not a passive outcome but an active mediator that amplifies the benefits of green manufacturing. This study provides both theoretical insights and practical recommendations for policymakers and industry leaders to strategically integrate innovation into green manufacturing efforts to achieve long-term environmental and operational resilience.