Authors: Maria Carissa & Rabiana Nur Awalia
Reviewers: Farid Al-Firdaus, Dwi Martutiningrum, Dinda Ganisawati Javada
Indonesia’s vision for its “Golden Generation 2045” seeks to position the country as a developed nation with a high quality of life. As part of this goal, Indonesia has committed to implementing Environmental, Social, and Governance (ESG) practices, a global framework prioritizing environmental sustainability, social responsibility, and corporate governance.
Aligned with the environmental pillar of ESG, Indonesia has made efforts in sustainable development and climate action, such as reducing its carbon footprint and promoting renewable energy. The Ministry of Environment and Forestry (MoEF), as the national representative for climate action under the United Nations Framework Convention on Climate Change (UNFCCC), submitted an Enhanced NDC in September 2022, increasing its ambitions for reducing greenhouse gas emissions. For the social pillar, Indonesia has initiated programs targeting poverty reduction, education, healthcare, and social equity. On the governance side, Indonesia has improved its legal and regulatory frameworks to enhance transparency and accountability, working to reduce corruption.
While listed companies in Indonesia have shown progress in ESG practices, driven by investor expectations and global market demands, non-listed companies, particularly Micro, Small, and Medium Enterprises (MSMEs), have faced challenges. MSMEs often struggle with limited financial and regulatory resources to adopt ESG measures, leading to disparities in ESG adoption compared to larger companies. For example, a 2023 report from PwC shows that while ESG disclosure has risen among listed companies, with 88% reporting climate-related risks, full compliance with ESG principles is still lacking across the board. This contrasts with other countries in Asia, such as Japan and Singapore, where ESG practices are more widely adopted.
To address these disparities, Indonesia must strengthen its regulatory frameworks, engage stakeholders, and foster sustainable innovation. Expanding ESG adoption will require targeted capacity-building efforts, financial incentives, and enhanced regulatory clarity.
Comparative Analysis of Global and Indonesian Standards
n comparing global ESG standards, such as the United Nations Principles for Responsible Investment (UNPRI) and the Global Reporting Initiative (GRI), with Indonesia’s Sustainable Finance Roadmap, gaps become evident. Global frameworks emphasize transparency, accountability, and detailed metrics like Key Performance Indicators (KPIs). For instance, the European Union’s regulations, including the Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR), mandate robust ESG reporting from large companies and financial institutions, setting a high standard for transparency. In contrast, Indonesia’s framework, under the Financial Services Authority (OJK) Regulation №51/POJK.03/2017, mandates sustainability reporting primarily for financial institutions and publicly listed companies, with limited guidance on comprehensive ESG factors like human rights due diligence and supply chain policies.
Challenges persist in Indonesia’s alignment with international ESG standards. One issue is the inconsistent definition of “green” investments. For instance, projects like toll roads may have ambiguous environmental impacts, creating confusion in sustainable investment qualifications. Additionally, the lack of detailed KPIs and ESG metrics in OJK guidelines restricts businesses’ ability to measure and report ESG performance accurately. Furthermore, while global standards apply broadly across various industries, Indonesian regulations currently cover only listed companies and financial institutions, limiting ESG adoption among companies with potentially significant environmental and social impacts.
ESG Reporting Regulation in Singapore
Many countries now have regulations or guidance for ESG reporting, and Singapore leads Southeast Asia in this area. The Singapore Exchange (SGX) requires all listed companies to submit yearly sustainability reports covering key ESG factors, policies, targets, and metrics. This approach promotes transparency and aligns businesses with global sustainability standards. These reports help investors assess companies’ long-term sustainability efforts and risks. SGX uses a “comply or explain” approach, motivating companies to incorporate ESG principles into their operations.
A notable aspect of SGX’s ESG reporting framework is its phased implementation across various industry sectors. For instance, in 2024, only the financial, agriculture, and energy sectors will be required to comply, while in 2025, the material and transportation sectors will be added. SGX provides comprehensive guidelines, outlining mandatory information and offering ESG metrics examples that can be applied by both listed and non-listed companies. Additionally, SGX offers a dedicated call center for listed companies, providing continuous support for ESG reporting implementation. This structured approach ensures effective and progressive compliance.
What Should Indonesia Do?
To improve its ESG framework, Indonesia should take several steps. First, the regulatory scope should be expanded to include MSMEs, holding them accountable for ESG risks. Second, OJK regulations could adopt clearer standards, incorporating KPIs and guidelines aligned with global frameworks like the UNPRI and GRI. Clearer definitions of sustainable projects would improve the clarity of ESG investments and attract ESG-conscious investors. Additionally, a more detailed guideline on ESG reporting applicable to all companies, both listed and non-listed, would foster consistency and provide a standard reference for businesses across industries.
Moreover, the Indonesian government should collaborate with relevant ministries, such as the Ministry of Investment, Ministry of Environment, and Ministry of Energy, to oversee industry-specific ESG reporting. Assigning ESG compliance scores across industries would ensure accountability and drive improvements in sustainability practices.
In conclusion, Indonesia’s 2045 vision aligns closely with ESG principles and reflects its commitment to the UN Sustainable Development Goals (SDGs). While progress has been made among listed companies, there is substantial room for improvement among non-listed businesses and MSMEs. By developing a robust regulatory framework that aligns with international standards, Indonesia can strengthen its position on the global stage, attract ESG-conscious investors, and boost transparency and accountability. In doing so, Indonesia will advance its journey toward achieving sustainable development goals, fulfilling the aspirations of its Golden Generation 2045.
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