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The better the sustainability report, the more investment
Indonesian companies should be able to identify and explain how they manage future and potential ecological risks and consequently, prepare a strategic mitigation plan to respond to such climate risks.
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IDX president director Inarno Djajadi (third left) and Kehati Foundation executive director Riki Frindos (third right) during the launch of ESG Sector Leaders IDX KEHATI and ESG Quality 45 IDX KEHATI index at the Indonesia Stock Exchange (IDX) building on Dec. 20, 2021. (Indonesian Stock Exchange (IDX) YouTube channel/-)
W
ith discussion on Environmental, Social and Governance (ESG) gaining traction, it is vital to increase public awareness of the issue. This can be achieved by developing a standardized set of information that investors, companies and stakeholders can use in their decision-making processes.
ESG can play a key role in helping countries, including Indonesia, meet the objectives of the 2015 Paris Agreement and the United Nations (UN) Sustainable Development Goals (SDGs). As an archipelagic state, championing these two world agendas would help Indonesia to respond better to climate challenges.
Indonesia, which holds the Group of 20 (G20) presidency, has already made a policy in the form of Financial Services Authority (OJK) Regulation No. 51/2017 on ESG reporting. The regulation requires Indonesian-listed companies and financial-services companies, such as banks, insurance and multi-finance companies, to submit an ESG report, which is referred to as a sustainability report.
With this sustainability report, investors and stakeholders can access information on how companies manage the relevant sustainability issues. However, the key question is how the regulator can improve the OJK Regulation 51/2017 regarding the information disclosed in this report to make it more impactful.
Sustainability owes its origin to the 1987 World Commission on Environment and Development report “Our Common Future” (the Brundtland Report). The report defines sustainable development as development which enables societies to fulfil their needs without compromising the ability of future generations to make ends meet. This is worth remembering in terms of ESG, the business world and the economy.
ESG paves the way for more sustainable investment that focuses on longer-term goals. Investors see corporations that do not comply with ESG standards as having a riskier profile. In a more risk-averse world due to COVID-19 and the associated financial crisis, ESG reporting has provided another form of risk assessment to investors.
As of yet, there is no globally accepted set of ESG reporting standards, posing difficulties to investors to understand and compare ESG data across companies and jurisdictions. Two models that could be utilized internationally (and by Indonesia) come from the United Kingdom and European Union.
