FROM REPORTING TO REALITY: INDONESIA'S SUSTAINABILITY EFFORTS TOWARDS NET ZERO
WHY SUSTAINABILITY REPORTING MATTERS
Indonesia, with a clear vision to reduce Greenhouse Gas (GHG) emissions by 31.89 percent unconditionally and 43.2 percent conditionally (with international aid) against the 2030 Business-as-Usual scenario and achieve net-zero emission by 2060, is intensifying its efforts to meet the Nationally Determined Contributions (NDC) target. This includes a strategic focus on accelerating innovative decarbonisation efforts from regulators and companies to individuals, with sustainability reporting playing a pivotal role in this journey.
EVOLUTION OF SUSTAINABILITY REPORTING POLICIES IN INDONESIA AND CURRENT REQUIREMENTS
The landscape of sustainability reporting in Indonesia has transformed significantly over the years. Initially, non-financial performance discussions were integrated into annual reports as mandated by Law No. 40/2007 on Limited Liability Companies, covering areas such as CSR and labour practices. By 2006/2007, select public companies in the mining and manufacturing sectors had begun publishing standalone sustainability reports. A significant moment came in 2017 when the Financial Services Authority (OJK) issued Regulation No. 60/POJK.04/2017 (POJK 60) on the Issuance and Terms of Green Bonds and Regulation No. 51/POJK.03/2017 (POJK 51) on the Implementation of Sustainable Finance for Financial Services Institutions, Issuers, and Public Companies, making it compulsory for companies to publish their sustainability reports for communication and accountability, and promoting sustainable financing practices in Indonesia. This regulation requires companies to publish their reports on their websites and submit them to the OJK by April 30 of the following year. In 2021, the OJK further clarified these requirements with Circular Letter No. 16/SEOJK.04/2021 (SEOJK 16), providing additional guidance for non-financial sectors to prepare their sustainability reports, which can be expanded as needed and aligned with international standards. Key trends include the increasing convergence among sustainability standard-setters, a heightened regulatory focus on mandatory climate-related financial disclosures, and sustainability reporting in private markets. While the volume of ESG disclosures has grown, the focus in the future will be on improving the quality of these reports. Sustainability reporting in Indonesia represents a significant commitment to comprehensive economic, social, and environmental progress. Despite the challenges, the potential benefits for organizations and the nation are immense, necessitating collaboration, education, and concerted efforts to shape a sustainable future for Indonesia.
REPORTING REQUIREMENTS AND FRAMEWORK
The Sustainability Report framework under POJK 51 and SEOJK 16 is adopted from several international standards, such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD). The detailed requirements under SEOJK 16 cover sustainability governance and performance, including:
Economic performance: production quantity, revenue, profit, eco-friendly products, and involvement of local parties.
Environmental performance: energy usage, emissions, waste management, and biodiversity.
Social performance: positive and negative impacts of sustainable financing implementation to surrounding communities
The mandatory requirement to publish sustainability reports makes POJK51 and SEOJK16 primary references for most companies issuing their first sustainability reports. Many companies cross-reference global standards to enhance the quality of information and data presented. In Indonesia, the most widely used global frameworks include the Sustainable Development Goals (SDGs), GRI, and the Sustainability Accounting Standards Board (SASB).
CONSEQUENCES FOR NON-COMPLIANCE
Failure to comply with certain requirements under POJK51 will expose entities to administrative sanctions, such as verbal or written warnings. However, it is unclear at this stage whether OJK will impose any sanctions if, for example, companies do not entirely or partially meet their sustainable targets. As more companies are subject to their reporting in the coming years, we will see how strictly OJK enforces this rule then.
ENCOURAGEMENT FOR NON-LISTED COMPANIES
To encourage non-listed companies to adopt sustainability reporting, various guidelines have been developed by non-governmental organizations, such as the Sustainability Report for the Agricultural Sector by PISAgro based on POJK51, and the Integrated Sustainability Reporting Guidelines for the Philanthropy/NPO Sector by Filantropi Indonesia. However, there are currently no mandatory regulations for non-listed companies, so the preparation of sustainability reports depends on the needs and awareness of each company.
FUTURE OF SUSTAINABILITY REPORTING IN INDONESIA
Starting in 2006, when sustainability reporting was still voluntary, only five reports were published. By 2016, a year before the implementation of POJK 51, the number had increased to 103. After the issuance of POJK 51, all public companies listed on the Indonesia Stock Exchange (IDX) were required to publish their first sustainability reports by 2021. However, the pandemic led to some leniency regarding this obligation. In 2022, 77% of public companies (a total of 627) published sustainability reports for the 2021 reporting period, marking a significant increase over a decade. Of these reports, 70% were integrated into annual reports, while 30% were standalone. Additionally, 32% of the reports submitted to OJK included third-party assurance.
With growing awareness among companies, investors, and stakeholders about the importance of ESG disclosures through sustainability reports, these reports are becoming essential indicators of corporate resilience, not just government mandates. This trend is expected to continue increasing in the coming years.
IMPROVING THE ADOPTION OF SUSTAINABILITY REPORTING
To improve the adoption rate of sustainability reporting, regulations could be strengthened, such as by imposing stricter monetary sanctions to deter companies from non-compliance of POJK 51 or offering tax amnesty for companies that implement sustainability reporting. For companies, the benefits of sustainability reports can drive internal systems to adopt the best business strategies, enhancing their competitive edge in the market.
CHALLENGES AND SOLUTIONS FOR COMPANIES IN SUSTAINABILITY REPORTING
Companies face several challenges in sustainability reporting. First, a lack of transparency and commitment to good corporate governance can hinder reporting. Boards of Directors and Management are obligated to oversee sustainability strategy, progress and corporate governance, while there is often a lack of leadership that leads to companies facing events that can tarnish their public image. In addition, companies often struggle to understand the various frameworks of reporting. This can be addressed by improving the knowledge of personnel involved in sustainability reporting, including management, through trainings on reporting frameworks and other sustainability-related topics.
THE IMPORTANCE OF SUSTAINABILITY REPORT ASSURANCE
Despite the massive trend in Sustainability reporting, most companies still have limited knowledge of how to report and often, the Sustainability Report lacks credible information. Credible information on ESG progress (shown through a comprehensive Sustainability Report) will highlight lower financial risk for the company, thus leading to a more stable long-term return for investors. In this case, companies must enhance the accountability and reliability of the information communicated in the report. As an independent body, Bureau Veritas provides an objective view of Sustainability reporting and reassures stakeholders that the information reported is correct and bias-free. We constantly align our internal procedures with existing local and international standards, including POJK 51, AA1000 and ISAE3000 Assurance Standards as well as GRI framework. Notably, at Bureau Veritas Indonesia, we are an official licensed provider for AA1000 assurance since 2023 and a Komite Akreditasi Nasional (KAN) Accredited Validation & Verification Body for Greenhouse Gas since 2024. With our team of experts, we believe we can help companies by delivering robust assurance, providing insights into achieving their sustainability goals, and contributing to decarbonisation efforts.
Sustainability Manager
Bureau Veritas Indonesia
With ESG disclosures growing steadily in Indonesia, the focus now is to improve the quality of these reports and align to global standards such as the Sustainable Development Goals (SDGs) and the Sustainability Accounting Standards Board (SASB).