Globally, ESG is no longer a choice for many companies. In the European Union, the Corporate Sustainability Reporting Directive (CSRD) mandates that companies apply new rules for reports published in 2025.

On Feb. 26, the European Commission adopted a package of proposals aimed at simplifying EU rules and boosting competitiveness. Applying the CSRD only to the largest companies, it focuses on those most likely to have significant impacts on people and the environment.

Similarly, the British government supports the development of international standards for sustainability-related disclosures, recognizing their importance for capital markets. Hence, the United Kingdom also requires large firms to disclose their sustainability efforts.

In March 2024, the United States Securities and Exchange Commission (SEC) finalized rules to enhance and standardize climate-related disclosures. The regulations are designed to provide investors with consistent and reliable information on the financial impacts of climate risks.

Investors are taking notice. Research indicates that investors are increasingly drawn to firms meeting ESG standards, valuing transparency and resilience. This preference drives capital toward businesses that prioritize long-term value over short-term gains.

All these regulatory enhancements are critical as a number of scandals around the globe expose a troubling reality: Companies may have leveraged ESG to attract quick funding, prioritizing short-term gains over long-term sustainability.

In Indonesia, the alleged fraud case involving eFishery, a high-profile aquatech start-up, serves as a stark reminder. Reports indicate the start-up is undergoing an internal investigation, following allegations that the management inflated its revenue amounting to nearly US$600 million in 2024.

If proven true, this case would underscore that without strict accountability, ESG commitments risk losing their credibility.

Effective climate action is undermined when businesses prioritize perception over measurable impact. Misleading claims can weaken investor confidence and divert funds from impactful climate initiatives.

To address this, OJK Regulation No. 51/POJK.03/2017 mandates sustainability reporting for financial institutions, issuers and public companies. The regulation promotes sustainable finance and encourages the development of products and services that consider economic, social and environmental factors. It also fosters healthy competition and helps prevent harmful arbitrage.

Companies have the flexibility to integrate these reports into their annual financial statements or present them as stand-alone documents.

While this approach accommodates diverse operational needs, violations may result in administrative sanctions, such as written warnings. Providing further insights into enforcement practices could help reinforce investor confidence.

Sustainability audits are not yet mandatory, however. The OJK's approach, outlined in Circular No.16/SEOJK.04/2021, covers the format and content of annual reports. This framework provides flexibility, balancing compliance costs with the industry's readiness to adopt sustainability reporting.

Investors in Indonesia are increasingly embracing this shift. The Indonesia Stock Exchange (IDX) has introduced ESG-focused indices ESG Leaders and SRI-KEHATI, highlighting companies at the forefront of sustainability. Research suggests that ESG disclosure can enhance firm value, though the extent of its impact may vary.

Institutional investors who focus on long-term stability analyze these reports carefully for insights into potential risks. On the other hand, retail investors might find dense ESG disclosures challenging. A 2025 survey by Kompas Litbang (research and development) shows that only 18 percent of the general public truly understand the concept of ESG in depth.

As one of the world’s most climate-vulnerable countries, Indonesia cannot afford to let ESG lose its credibility. Investors may become wary of funding ESG businesses. Meanwhile, start-ups genuinely making a difference struggle to differentiate themselves, often overshadowed by companies using sustainability as a buzzword.

However, rebuilding trust in ESG requires more than just regulatory efforts. It calls for fundamental change in how companies approach sustainability. Businesses must adhere to the same transparency and governance requirements for their ESG claims as they do for financial reporting. ESG metrics should be measurable and audited, not left as vague assertions buried in corporate presentations.

Therefore, all stakeholders can actively engage in this journey. It is not only regulators who have a role: Investors and banks also play a part in advancing a new paradigm. By working together, they can foster a more transparent and accountable ESG ecosystem.

Investors must look beyond flashy headlines and advertising spin. Their investment reviews should ensure that ambitious claims are supported by credible, verifiable operational data. This is key to making ESG a true driver of transformation.

Banks play a pivotal role in advancing accountable ESG practices. This requires embedding ESG into risk assessments, financing decisions and corporate governance. They must enhance their risk assessment methodologies for ESG-driven businesses. Due diligence must include a deeper evaluation of governance structures, supply chain and environmental impact.

This holistic approach ensures that their customers are vigorously committed to responsible business practice. By doing so, banks can help ensure that sustainability actions translate into tangible environmental and social progress.

Furthermore, banks can explore alternative financing models that encourage measurable ESG progress. For instance, milestone-based funding or sustainability-linked loans can tie financing terms to specific environmental and social targets. By linking financing to verifiable ESG outcomes, these models will prevent ESG-driven profiteering. Rather, they will introduce a bold, transformative approach that drives real change.

In addition, banks can also enhance their customers’ ESG literacy by offering advisory services and educational resources. This helps businesses, investors and bank customers to better understand ESG. It empowers them to distinguish between bona fide sustainability efforts and greenwashing, leading to more informed decisions.

This could be a defining moment for responsible business in Indonesia. The question is not whether businesses can recover from this scandal; it is whether ESG can regain the trust it might have lost.

The country has a choice, and so do we. Strengthening ESG practices and enforcing accountability can raise the bar for responsible growth. Let’s act now, or else sustainability could become little more than a distant hope.

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The writer is a legal and corporate secretary at Bank DBS Indonesia. The views expressed are personal.