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Indonesia ESG potentials and challenges companies face to transition to net-zero
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(Image Source: HSBC Library)
T
he United Nations Climate Change Conference (COP26) in 2021 marked an important milestone for countries worldwide to not only lower their carbon emission but also in how to accelerate steps for reducing greenhouse gas emissions.
On its part, Indonesia has set a nationally determined contribution (NDC) to lower its emission by 31 percent by 2030. The carbon emissions could be further reduced to 41 percent with assistance from advanced countries.
Businesses are facing ever-rising scrutiny for sustainability practices from governments, regulators, investors and customers.
We had the opportunity to sit down with HSBC’s Commercial Banking South and Southeast Asia head Amanda Murphy to discuss some of the challenges and, more importantly, the potential of sustainable business in Indonesia. Following are the edited excerpts:
Q: Could you give us a broad overview of the drive toward sustainability amid the climate crisis?
AM: We believe very strongly that climate change will be the defining piece of the century. Many countries are facing rising sea levels, natural disasters and environmental degradation.
Indonesia sits in a geographic region extremely vulnerable to the effects of climate change, you know very well the need for accelerating investments into ESG [environmental, social and corporate governance] – especially with regard to environmental sustainability. We believe there’s an urgency to help accelerate the transition to climate resilience.
Q: Some companies in Indonesia have shown their commitment to transitioning into net-zero. But many more are struggling to cope with the increased demand for sustainable practices. How do you facilitate your customers whose businesses are based in Indonesia?
AM: We’re listening to our customers in Indonesia, trying to understand the issues they’re facing – the problems they face will be different from our customers in the United Kingdom, the United States or other countries, and then help build their transition plans.
The timeline is for our customers to achieve net-zero by 2050 or sooner, not net-zero by 2022.
And what I see is a strong commitment from companies to reduce emissions. Across Southeast Asia, we see strong growth in sustainable finance deals across the region.
One of the findings in our HSBC Navigator: SEA in Focus is that one in five businesses we spoke to intend to invest more than 10 percent of their operating profits into increasing the sustainability of their operations
Q: What do you see as the major challenge for businesses to implement sustainability practices?
AM: The main barrier to their Southeast Asian operations becoming more sustainable is the ability to hire employees with sustainability expertise. This is common across the region, including in Indonesia.
As an international bank, we can share our expertise and lessons learned on ESG and carbon reduction with our customers.
We’ve been mobilizing finances through innovative sustainable finance solutions to support our customers’ transitions to net-zero, accelerating innovation to help scale up climate change solutions, and building partnerships to ensure investment is channeled toward truly sustainable projects, all in the context of helping customers to manage their transition risk.
Q: In the case of Indonesia, what sectors do you see as having the most potential for ESG investment?
AM: The obvious ones would be energy such as geothermal and other renewables, agriculture and aquaculture for the sustainability of our food supply, forestry, plantation, as well as green manufacturing.
More importantly, though, is not the sectors, but how we can improve the supply chain to be more sustainable. Supply chains account for 80 percent of the planet’s carbon emissions – creating sustainable production networks is one of the most important levers for banks and businesses on the net-zero transition.
HSBC wants to encourage companies throughout the supply chain to focus on sustainability, as we’ve seen how this sparks innovation and generates value.
For more information on our sustainable finance products and solutions, visit: https://www.business.hsbc.co.id/en-gb/campaigns/sustainable-finance
