VOTES
Strengthening Sustainability Report Supervision: A Key to Indonesia’s Green Economic Transformation in the Downstream Chemical Industry
VOTES

Strengthening Sustainability Report Supervision: A Key to Indonesia’s Green Economic Transformation in the Downstream Chemical Industry

Authors Fortina Maulida, Primadiani Nurhanidar

Reviewers: Farid Al-Firdaus, Dwi Martutiningrum, Dinda Ganisawati Javada

As Indonesia strives to achieve its Vision 2045, the balance between economic growth and environmental sustainability becomes increasingly critical. The downstream chemical industry, a significant contributor to the nation’s economic development, poses substantial environmental challenges. In this context, sustainability reporting emerges as a vital tool for ensuring that the industry not only meets its economic objectives but also adheres to environmental and social responsibilities. It serves as the foundation for informed decision-making and policy development, enabling Indonesia to pursue a path of green economic transformation that aligns with global standards and the nation’s long-term goals.

Environmental and Sustainability Report Challenges

The Indonesian government has set an ambitious economic growth target of 5.3% for 2024, an increase from the 5.1% projected for 2023. Investment in the downstream chemical industry sector rose by 38.04% to IDR 68.3 trillion, from IDR 49.5 trillion in 2022. However, this growth has contributed to climate challenges, with global average temperature anomalies rising by 82% from 2010 to 2022. Without a shift from business-as-usual practices, the World Bank warns that Indonesia’s GDP could decline by 1.24% by 2030 and up to 6.97% by 2060, exacerbating poverty and lowering the quality of life for many Indonesians. This condition underlines the urgent need for green economic transformation, one of which is through policy.

Figure 1. Environmental Issues in Carbon Emissions

Source: Kemenperin, 2022

Based on OJK regulations no. 51/POJK.03/2017, as part of the Phase I Sustainable Finance Roadmap, every financial institution, issuers, and public companies have to submit sustainability report on their environmental and social responsibilities based on SEOJK 16/2021. Indonesia’s companies should make sustainability reports in accordance with the Global Reporting Initiative (GRI) standards. Sustainability report has been mandatory for financial institutions since 2019 and listed companies since 2020. The Katadata Corporate Sustainability Index (KCSI) 2023 measures 18 companies dependent on ESG (Environmental, Social and Governance) aspects that issued sustainability reports in 2022 as of June 2023.

Figure 2. Environment Aspect of Chemical Industry’s Sustainability Report

Source: KCSI Index, 2023

Few companies report on emission efforts with a total score of 46,88. For example, PT Chandra Asri Petrochemical Tbk ranks first in the chemical industries in the environment aspect with a score of 63.52. The company aims to reduce GHG emissions from its operational activities, with only 17.4% reduction expected in 2022 compared to 2021. This data concludes that the implementation of green economic practices in the downstream chemical industry is crucial for environmental sustainability.

Meanwhile, there is a mismatch in Indonesia between the number of listed manufacturing companies including chemical industry companies, those submitting sustainability report data in 2017 until 2021. In 2021, 50 out of 722 IDX-listed companies reported sustainable practices, accounting for 8.2%, indicating that only a few prioritize sustainability reporting.

Figure 3. Manufacture Industry Companies that Publish Sustainability Report

Learning From Successful Countries

Indonesia can look to the experiences of other countries that have successfully implemented green economy initiatives in their chemical industries. The European Union has introduced the Corporate Sustainability Reporting Directive (CSRD) to ensure companies provide detailed sustainability reports.  The sustainability report required by the CSRD must cover the company’s main risks, actions taken to address those risks, and strategies for contributing to sustainability in the short, medium, and long term. Companies that are unable to provide specific information about their sustainable value chains will have a partial exemption three years after the CSRD comes into effect to obtain the information. However, they are required to explain the efforts made to obtain the information.

Meanwhile in ASEAN, Thailand leads sustainability reports with 57% climate disclosure rate, followed by Malaysia and Singapore at 48%. Thailand’s success is attributed to mandated reporting and stakeholder engagement, supported by extensive resources and training from the Stock Exchange of Thailand (SET), which has required sustainability reporting since 2014. SET also provides guidance through its Sustainable Capital Market Development page and workshops. Thailand, Malaysia, and Singapore also have advanced climate disclosure practices. Singapore mandated sustainability reporting in 2017 and introduced mandatory climate reporting in 2022. While in Malaysia, companies have been required to include statements on managing economic, environmental, and social risks in their annual reports since 2016.

Strengthening Sustainability Report Supervision in Chemical Industry

Sustainability report is one of the tools to conduct a green economy risk management approach. A strong monitoring and evaluation framework to assess the chemical industry’s progress is made in achieving sustainability goals, mitigating potential risks, and implementing corrective measures. The government can follow up, evaluate their carbon emissions and other environmental issues efforts, then produce other policies for future improvement.

Indonesia can strengthen sustainability report supervision in the chemical industry, ensuring that companies are held accountable for their performance and driving positive change towards a more sustainable future. Here are the strategies recommendation:

  1. Enhance Verification Processes: Government should implement rigorous verification procedures, including third-party audits and assurance, to validate the accuracy and reliability of reported data. Provide training to government supervisory and company human resources to enhance their expertise and capabilities in assessing and making sustainability reports.
  2. Strengthen Enforcement Mechanisms: Government should establish clear penalties for non-compliance with sustainability reporting requirements to deter companies from providing misleading or incomplete information.
  3. Encourage Stakeholder Engagement: Involve stakeholders, including investors, customers, civil society organizations, media, non-governmental organizations, academics, and others, to ensure that sustainability reports serve as a benchmark for evaluating the company’s dedication to sustainable development awareness.

Conclusion

Environmental challenges require commitment and collaboration between government and industry’s stakeholders. Chemical industry companies need to prioritize sustainability in their business strategies. Companies must take responsibility for their activities and ensure a positive impact on the environment and society amid the climate crisis. Additionally, enhancing oversight of sustainability reporting will lead to more comprehensive reports, supporting transparency, public credibility, and openness to continuous improvement. 

The successful implementation of these initiatives will ensure that Indonesia’s economic growth is both responsible and resilient in the face of global challenges.

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