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Corporate sustainability in Indonesia: Where to go from here
there is still a gap in knowledge and application regarding ESG best practices from a global and industry standpoint.
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Dancing on air: Dancers perform during the opening of the second day of the Business 20 (B20) Summit in Nusa Dua, Bali on Nov. 14, 2022. B20 preceded the Group of 20 Leaders’ Summit to be held on Nov. 15 and 16. (Antara/Media Center G20 Indonesia/Aditya Pradana Putra)
Building off the momentum from what has been described as successful B20 (business leaders) and G20 summits, host country Indonesia has captured the attention of the world. For all its opportunities and challenges, which are plentiful, Indonesia represents an amazing growth story: a powerful digital economy, and tantalizing investment and business opportunities.
The value of Indonesia’s digital economy was recorded at around US$70 billion in 2021, and is estimated to reach $146 billion in 2025. According to research by Google, Temasek, and Bain & Company in 2021, the investment value of Indonesia's digital economy during Q1 2021 was $4.7 billion, exceeding every quarter from the last four years.
Yet this new wave of growth comes with strings.Today, Indonesia must navigate a world where expectations of strong economic performance come with unprecedented environmental and social pressures. Foreign governments and investors are now applying - and, in some cases, demanding - stringent environmental, social and governance (ESG) measures for both public and private sector, to ensure a systematic and meaningful response to some of our greatest challenges, whether it be rampant inequality or averting a climate disaster.
What brings hope is the rising awareness across markets, advanced or emerging, and organizations, public or private, which has resulted in an increase in both interest and capital flows towards ESG-related initiatives. Based on a PricewaterhouseCoopers report, 79 percent of investors increased ESG investments in the Asia Pacific region in 2020.
All of which has mobilized and accelerated much of what we are seeing and experiencing here in Indonesia, with a multitude of sustainability-related, multi-stakeholder efforts taking place on the ground. At a government level, Indonesia’s leaders have already begun to chart the country’s path towards ambitious decarbonization goals, preparing for meaningful climate action without compromising the inclusive growth of its people. The government has also increased its emission reduction targets to 31.89 percent from its initial target of 29 percent, and aims to reach two million electric cars and 13 million electric motorcycles by 2030.
On the industry side, Indonesian companies are beginning to understand the importance of their role in this journey, although still at nascent stages. We are now seeing more and more companies produce ESG reports and disclose their emissions inventory, signaling the beginning of industry transitions toward more energy efficient operations, as well as accounting for the waste and social impact of their value chains.
However, there is still a gap in knowledge and application regarding ESG best practices from a global and industry standpoint. This affects how companies are identifying and therefore prioritizing the right environmental and social risks and opportunities for a company.
Based on a recent report from Net Zero Tracker 2022, outlining the role of multinational companies (MNCs) in preventing the effects of climate change, it was revealed only 32 out of the largest 100 private MNCs globally have committed and set decarbonization targets. The remaining 68 companies have not set any targets at all.
So, while the world watched Indonesian and global leaders at the B20 and G20 summits publicly declare commitments to climate action and inclusive growth, something else was happening behind closed doors. In private, cordoned-off meeting rooms, in-depth discussions took place between multi-sector stakeholders, defining and finalizing plans for how these very public commitments were to be operationalized, funded and monitored.
It was out of one of these very discussions convening leaders from the Indonesian business community that a new coalition was formed based on the same mission: to support, facilitate and accelerate the private sector’s transition to more sustainable, credible and transparent practices. These were not just sustainability practitioners; it was a diverse group of representatives from a range of sectors with various mandates, all seeking to shift their organizations and, in whatever way possible, contribute to the country’s shift towards the public commitments being made.
Historically, “corporate sustainability” has encompassed environmental or social activities largely separated from a company’s core business. Sustainability came at a price that neither most companies nor their consumers could afford. Today tells a very different story.
Organizations across the world are identifying how and implementing real-life use cases for sustainability as a part of their business model. Retrofitting what has been considered ESG best practice into an established company’s operations is already a challenge in itself; for Indonesian companies, there is also the additional layer of applying standards and expectations that have largely been developed at a global, advanced-market level, to a unique, emerging market such as Indonesia.
This new coalition, supported by the Indonesian Chamber of Commerce and Industry (Kadin) with founding members GoTo Group, Lippo Group and Indika Energy, aims to bridge this gap. The task force will work over the next 12 months to deliver a digital repository – a free, publicly available resource – to support and facilitate the transition of the country’s millions of SMEs toward more sustainable, credible practices.
Although a seemingly small step, this will be a foundational effort for industry, contributing to a growth trajectory in line with Indonesia’s environmental and social goals, all toward becoming the global power its leaders and so many envision and hope for.
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The writer is head of sustainability, GoTo Group. The views expressed are personal
