Mar 24, 2025 11:31:42 am
Manhajul Islam, S. Ak - BATS Consulting
The adoption of Environmental, Social, and Governance (ESG) principles has become an increasingly significant trend in global capital markets. As a growing capital market in Southeast Asia, Indonesia has begun to actively integrate ESG principles into various business and investment activities. The Indonesia Stock Exchange (IDX) and the Financial Services Authority (OJK) are taking proactive steps to encourage ESG adoption in order to create a more responsible and sustainable investment environment.
Here are five major drivers accelerating ESG integration in Indonesia’s capital market:
1. National Policy: RPJPN 2025–2045 and Indonesia Emas 2045
Indonesia’s Long-Term National Development Plan (RPJPN) 2025–2045 forms a crucial foundation for ESG adoption in the capital market. Regulated under Law No. 59 of 2024, the RPJPN sets a strategic direction toward "Indonesia Emas 2045" (Golden Indonesia 2045), aiming to position the country as a developed nation with a robust green economy, equitable social welfare, and environmental sustainability.
One of the plan’s ambitious targets includes reducing greenhouse gas (GHG) emissions by up to 93.5% by 2045 compared to the 2010 baseline. This policy sends a strong signal to listed companies to seriously incorporate ESG aspects into their business operations.
2. OJK Regulations and Sustainable Finance
OJK Regulation No. 51/POJK.03/2017 on Sustainable Finance mandates public companies and financial service institutions (FSIs) to regularly publish sustainability reports. This regulation aims to encourage environmentally and socially responsible business practices.
Key points of the regulation include:
Sustainability Reporting: FSIs, issuers, and public companies are required to prepare and submit sustainability reports covering their ESG performance.
Implementation Timeline: Companies must submit these reports to OJK no later than April 30th of the following year.
Objective: To enhance transparency in managing sustainability-related risks and opportunities, and to support the achievement of Sustainable Development Goals (SDGs).
Sustainable Finance Approach: Encourages integration of sustainability aspects into corporate strategies, including risk management, investments, and daily operations.
Reporting and Evaluation: Reports are evaluated by OJK and other stakeholders to ensure regulatory compliance and to provide necessary feedback.
In addition, OJK Circular Letter No. 16/SEOJK.04/2021 on Annual Report Guidelines for Issuers emphasizes the importance of detailed ESG disclosure in annual reports. This letter provides more specific guidance for issuers to prepare transparent and informative reports, covering financial statements, operational analysis, corporate governance, and ESG-related information. It reinforces the push toward sustainable finance and ESG reporting, highlighting corporate commitments to climate change, social responsibility, and good governance.
3. International Commitments: Ratification of the Paris Agreement
Indonesia ratified the Paris Agreement through Law No. 16 of 2016, underscoring its strong commitment to global climate action. With a national target to keep global temperature rise below 2°C and achieve net-zero emissions by 2060, the country continues to encourage credible ESG reporting among domestic companies.
According to UNDP Indonesia (2024), ESG implementation is one of the primary strategies to meet the Paris Agreement targets, particularly through the transition to a low-carbon and sustainable economy. Listed companies, especially those in high-impact industries, are expected to report their sustainability performance, including contributions to GHG emissions reduction, climate change mitigation, and alignment with Paris Agreement targets. ESG reporting covers initiatives such as eco-friendly practices, energy efficiency, and emission reduction targets.
4. Investor Pressure and Global Market Demands
Pressure from global investors is a critical force driving ESG implementation in Indonesia. According to Morgan Stanley (2023), ESG-focused investment assets have grown significantly, indirectly pushing Indonesian companies to adopt better ESG practices.
Companies that fail to meet international ESG standards risk losing access to global funding. Therefore, ESG integration has become essential for companies aiming to maintain their competitiveness in the global market.
5. Public Awareness and Consumer Preferences
Public awareness of sustainability and corporate social responsibility has grown substantially. A 2023 Nielsen Indonesia survey found that over 70% of local consumers prefer to purchase products from companies with strong environmental and social practices.
This shift puts additional pressure on companies to improve their ESG performance, as corporate reputation and consumer trust are now closely linked to ESG outcomes. With this growing awareness, companies are expected to enhance their sustainability strategies to retain consumer loyalty.
Conclusion
ESG implementation in Indonesia’s capital market is no longer optional—it is a pressing need driven by multiple strong forces, including national policy, OJK regulations, international commitments, global investor demands, and heightened public awareness.
Integrating ESG is expected not only to strengthen corporate competitiveness on a global scale but also to ensure that Indonesia’s economic development is aligned with sustainability principles for the well-being of future generations.