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For many people, the acronym ESG, which stands for Environmental, Social, and Governance, may still not be widely comprehended. However, ESG is experiencing a surge in popularity and is rapidly becoming an indispensable aspect of multinational companies’ business practices, particularly those that have gone public.
ESG functions as a powerful tool for evaluating and monitoring a company’s performance concerning its environmental impact, social responsibility, and governance practices. Moreover, it serves as a driving force for companies to embrace sustainable operations. Currently, ESG is considered an essential element for companies when formulating their business plans and strategies.
From a global perspective, there is an escalating demand from the international economic community to adopt ESG as a framework supporting the realization of a green economy. A green economy is a developmental concept that lays emphasis on environmental sustainability, addresses social concerns, and advocates sound corporate governance.
Aligned with global economic advancements, the Indonesian government has been diligently working to incentivize companies to heighten their awareness and implement ESG as a pivotal aspect that underpins their business practices while aiding in the adaptation to climate change towards a low-carbon economy.
The Financial Services Authority (OJK), as the regulator of the financial sector, is diligently working to raise awareness among companies in the financial industry, particularly public companies, about the importance of incorporating ESG (Environmental, Social, and Governance) principles into their business operations. This crucial endeavor commenced with the development of the Sustainable Finance Roadmap Phase I (2015-2019), which served as the initial step for OJK to augment the awareness and capacity of the Financial Services Industry (FSI) in implementing ESG aspects.
To further fortify the integration of ESG practices into the business operations of public companies, OJK mandated these companies to report ESG information as outlined in OJK Regulation No. 51/POJK.03/2017 on Sustainability Reporting for Issuers or Public Companies.
Under this regulation, financial industry players are required to prepare reports on the implementation of ESG principles in their business plans and make these reports accessible to the public.
This initiative has elicited positive responses, leading to the emergence of several Sustainable Finance Initiatives in Indonesia. Notably, various banks have made these commitments to promote inclusive sustainable financial practices in the financial services sector.
Moreover, OJK is intensifying its efforts to implement ESG aspects in the business practices of public companies in alignment with the Sustainable Development Goals (SDGs) through the Sustainable Finance Roadmap Phase II (2021-2025).
The Indonesian government’s dedication to making ESG an integral part of business practices extends beyond national borders. Indonesia showcased its commitment on the international stage during its Presidency of the G20 in 2022. The government, through the Ministry of Finance, launched the Environmental, Social, and Governance (ESG) Framework and Manual, providing support and facilities for infrastructure financing in Indonesia.
By embedding ESG principles into corporate business practices, all stakeholders in the economic sector aspire to witness how business growth can harmonize with the sustainable management of environmental, social, and governance aspects. (ALV)
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