Corporate Social Responsibility (CSR) is a business practice wherein companies address environmental and social issues by incorporating practices, programs, or strategies into their operations. CSR is usually perceived as a voluntary act companies add to their strategies, yet this has increasingly become an integral practice.
Indonesia is one of the first countries that made CSR mandatory through three laws. The State-Owned Enterprises Law, Law No. 19/2003, requires that state-owned enterprises engage with and support small to medium enterprises, cooperatives, and the general public. The Investment Law, Law No. 25/2007, states that foreign investors must participate in social responsibility or face sanctions. Lastly, the Limited Liability Company Law, Law No. 40/2007, ensures companies in the natural resources or in a related sector participate in environmental social responsibility. CSR is not an unfamiliar practice in Indonesia.
To fully ensure companies fulfill obligations and participate in sustainable development, Indonesia has also required companies to disclose their environmental, social, and governance (ESG) performance. In 2019, banks were first mandated to submit sustainability reports, with listed companies following suit in 2020 yet pushed back to 2021 due to the pandemic. Guidelines for sustainability reporting were developed by the Indonesia Financial Services Authority or Otoritas Jasa Keuangan (OJK). Through sustainability reporting, companies in Indonesia are able to connect with stakeholders and determine strategies and improvements that can further steer the company and the country itself towards its sustainability goals.
The OJK is the primary governing body for sustainability reporting in Indonesia. In Regulation No. 51/ 2017 or the Implementation of Sustainable Finance For Financial Services Institutions, Issuer Companies, and Public Companies, sustainability reporting is made into an obligation for financial institutions, issuers, and publicly listed companies. Supporting the OJK Regulation is the OJK Circular Letter No. 16/2021, which guides companies on how to execute sustainability reporting.
The OJK Regulation No. 51/ 2017 mandates financial service institutions, issuers, and publicly listed companies to submit an annual sustainability report no later than the 30th of April of the succeeding year.
Sustainability reports in Indonesia first begin with a description of the company’s sustainability strategies. This is then followed by a summary of their sustainability performance in the economic, social, and environmental aspects. This can include energy and water conservation, emission reductions, revenues, collaborative efforts with stakeholders concerning sustainable finance processes, and the impact of sustainable finance plans on people and the environment.
After the two summaries are a brief description of the company and its board of directors. Within its description of the company’s board of directors, the report must disclose company policies dedicated to responding to the challenges in fulfilling sustainability strategies. On sustainable finance, the report also must explain strategies on how to achieve targets and the application of sustainable finance in the company. This can include achievements, challenges, and factors that may affect the company’s sustainability.
Sustainability governance is also disclosed in the report, elaborating on job descriptions and tasks of the board of directors and employees responsible for sustainable finance within the company. Sustainability governance reporting also includes strategies to further develop skills and competencies, company procedures on risk management, and stakeholder engagement and involvement.
Sustainability reports in Indonesia also require the disclosure of sustainability criteria. This includes descriptions on sustainable culture development within the company, a report on the company’s economic, social, and environmental performance, and the company’s performance in developing a sustainable finance product or service. For its economic and social performance reports, data spans the past 3 years.
In reporting the sustainable finance product or service development, companies explain the impact of their product or service on its customers and strategies which address negative impacts.
Sustainability reports may also include written verification of the presented information from independent parties and feedback from readers. The report also contains the company’s responses to feedback received from the previous sustainability report.
When it comes to utilizing sustainability reporting frameworks and standards, the OJK does not have a set international standard companies must follow in their reports. Instead, companies can utilize international frameworks or standards alongside the minimum reporting requirements if necessary and desirable by the company in order to properly communicate with stakeholders.
Non-compliance to the regulation shall lead to administrative sanctions and a written warning.
CSR continues to progress in Indonesia with the implementation of sustainability reporting for financial service institutions, issuers, and publicly listed companies. With its sustainability reporting guidelines, companies are now able to communicate with their stakeholders and practice transparency and accountability.
There is still potential for the adoption and implementation of international standards to further standardize reports as this has already been practiced independently by listed companies. In addition, ESG disclosure can be further implemented and monitored by non-listed companies, given that laws for CSR are already in place. Nevertheless, Indonesia’s CSR and sustainability reporting policies steer the nation towards accelerated progress.
At Keslio, we are deeply passionate about sustainability, equipping us with the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios. To learn more about how Keslio can assist your organization on its sustainability journey, please don't hesitate to get in touch with us.
