The 2021 G20 Summit and COP26 underlined Indonesia's increasing commitment to the international development agenda: with climate sustainability as one of the most pressing concerns for the next decade, Indonesia wants to achieve. net zero emissions by 2060 and reiterated its commitment to halt and reverse deforestation. While a company's ESG strategy can provide a broad approach to risk mitigation and value creation, existing barriers to adoption include the balance between ESG and growth goals, a lack of reporting standards, and limited senior support. Indonesia's digital economy will continue to be a key driver of inclusive growth in the coming years: with nearly three-quarters of the population now connected, digital tools can broaden access to healthcare, education and employment.
The Indonesian government has worked proactively to create the conditions and necessary enablers for a smooth transition to ESG and the UN SDGs, in line with the country's development agenda. Indonesia became the 60th member of the UN in 1950, five years after the founding of the charter and five years after Indonesia's declaration of independence. In April 2020, the UN and the Government of Indonesia signed the UN Sustainable Development Cooperation Framework 2021-25, aligned with RPJMN 2020-24 and aimed at progress towards the UN 2030 goals.
During an annual review in mid-2021, Indonesia was downgraded to a lower middle-income status: this underlines the relevance and urgency of the UN's SDGs. The principles of environment, society and governance (ESG) are closely aligned with the UN's SDGs. ESG is increasingly being included. Indonesia's forestry sector on track to become a net sink by 2030 amid slower deforestation and mangrove.
Climate finance and technology transfer from developed countries will be key to helping Indonesia achieve the UN's SDGs, including climate goals.
Digital expansion
Digital Transformation
Indonesian companies were more likely to increase cybersecurity spending than regional peers in 2019-20*
Mitigating threats
The number of cyberattacks in Indonesia almost doubled from 2019 to 2020
Most commonly detected threats in Indonesia, 2019
Draft Law on Cybersecurity and Resilience
Peer-to-peer (P2P) lending and payment providers dominate Indonesia’s fintech market, April 2020
Access and trust
Financial services authority (OJK) regulations to boost the national fintech ecosystem, 2016-18
Since October 2021, domestic air passengers are required to show proof of at least one administered Covid-19 vaccine on the app Health budget rises amid efforts to expand Universal. The Health Care Initiative was launched in 2014 with a target of full coverage in 2019 – not yet achieved before pandemic-related disruption.
Real world impact
Labour evolution
Online registration of jobseekers and individual firms, data 2018 Labor market information system, Sistem Informasi Pasar Kerja,. Indonesia Stock Exchange (IDX) ESG Leaders, 30-component index (as of January 2021) from IDX80 with low ESG risk rating. From March 2021, this replaced the so-called negative investment list of segments closed to foreign ownership.
Listed business lines are open to 100% foreign investment; investors can enjoy tax facilities in the form of tax holidays, tax deductions or investment deductions. Sectors with remarkable growth potential for foreign investment, according to the Ministry of Investment/Indonesia Investment Coordinating Board (BKPM). Omnibus law on job creation aims to improve the ease of doing business and attract investment.
Generally welcomed by the business community: optimism that a more agile labor market and reduced red tape will attract investment and facilitate socio-economic growth.
Sustainable policies
Investment Landscape
Indonesia is the world's largest exporter of palm oil, January 2020-21 Harmonized Tax Law (HPP) introduced a carbon tax in Indonesia, 7 October 2021. In December 2018, the EU banned the import of palm oil for biofuel, arguing that the industry contributes to ASEAN's extensive deforestation. Regulate the carbon trade, which will be limited to the domestic market until national greenhouse gas (GHG) reduction targets are met.
Give Indonesia an edge over neighboring countries in sustainable development and exports, and possibly standardize methods for pricing carbon and explaining its impact. estimated at $2.10 per ton) of carbon dioxide equivalent (CO2e). Indonesia's Chamber of Commerce and Industry (KADIN) argued that a high carbon tax would place an excessive burden on companies still recovering from the pandemic. Given the 2018 EU ban on palm oil imports for biofuels due to deforestation links, there is one.
Sustainable trade
CASE STUDY: Star Energy Geothermal Group's green bond issuance underscores appetite for Indonesian sustainable finance. With installed geothermal capacity of 875 MW spread over three power plants, Star Energy Geothermal Group (SEGG) raised 1.1 billion in October 2020. USD in senior secured green bond financing. Governed by a green bond framework adapted to the International Capital Market Association Green Bond Principles and the ASEAN Green Bond Standards.
Southeast Asian PE funds invested more than 41% of deal value, or USD 6 billion, in sustainable assets in 2018, according to a 2020 Bain & Co survey*. Enhanced portfolio resilience and an increasing focus on ESG create a positive macroeconomic climate for private equity (PE) investment, 2021. In 2021, PE leaders took steps to increase portfolio resilience and reduce the risk of future disruptions.
More and more PE funds in the region are moving towards sustainable portfolios and focusing on ESG investments.
Financing growth
With a contribution of nearly 6% to the national GDP and approximately 320 million annual visitors prior to the pandemic, Indonesia's tourism industry will continue to be a major investment target. Expanding tourism based on sustainability will translate into higher borrowing capacity and higher tax revenues, which can be reinvested to support the long-term development of the sector and local communities. Indonesia's financing needs for 2020-2024 were estimated at Rp6.4trn in 2019 by the Ministry of National Development Planning (BAPPENAS).
Infrastructure remains a key priority for regional development: the ASEAN Connectivity Master Plan 2025 focuses on people mobility and efficient logistics and trade routes. Related sectors are important for economic activity; with the Indonesian public sector historically accounting for half of transport infrastructure financing, transport and telecom accounted for more than a third of that. Indonesia is home to the world's third largest tropical rainforest, after Brazil and the Democratic Republic of the Congo.
Global forests sequestered – or sequestered – about twice as much CO2 as they did in 2001-2019, representing one of the planet's most important carbon sinks. Indonesia reduced annual deforestation by 86% in 2014-19, according to data from KLHK Gas New and Renewable Resources Oil Coal. Catalyst Fund at the conference: This carbon fund aims to mobilize more than $100 million from the public and private sectors for investment in line with the Paris Agreement and the SDGs.
2021 commitments
Climate Sustainability
Global forests sequestered - or captured and stored - about twice as much CO2 as they emitted in 2001-19, representing one of the planet's most important carbon sinks. international treaty to limit global warming to below 2°C, and preferably to 1.5°C, compared to pre-industrial levels. Indonesia reduced annual deforestation by 86% in 2014-19, according to KLHK data Gas New & renewable sources Oil Coal. under 296,500 ha, according to World Resources Institute. President Jokowi, who is committed to combating deforestation and achieving net zero along with socio-economic development, has at COP26 the importance of. developed markets realizing climate-related financial obligations.
30% of global CEOs report being concerned about climate change, compared to 40%. who have taken this into account in strategic risk management activities. 38% of Indonesian CEOs report being concerned about climate change, with 22%. to have taken this into account in the strategic risk management*. Which of the following do you think are the biggest barriers preventing your company from making progress on ESG issues?*.
What do you think of your companies' efforts to promote their ESG credentials in relation to their actions?*. Indonesian responses match the global trend identified by PwC: the results suggest a. moderately negative correlation between exposure to natural hazards and companies. preparedness for climate-related risk. Our external challenges mainly relate to the lack of clear guidance for the industry to integrate ESG best practices – especially within the unique context of this region and balanced with economic growth priorities”.
Adoption gap
Percentage of the eight ESG assessment and information agencies that apply each E-criterion when evaluating corporate sustainability*.
International collaboration towards universal metrics
Overcoming inconsistency
Low consumption of renewable energy in Indonesia has been partly attributed to the dominance of coal in the country. The green premium linked to renewable solutions emphasizes the importance of balancing socio-economic and environmental considerations in the local context.
Sustainable electrification
Measures to support renewable energy, including mechanisms for storage and balancing between supply and demand, and increasing the efficiency of the energy sector and energy-intensive electronics. Improvements that increase the efficiency of engines, design or materials related to transportation, and urban planning and design. Development of electric cars and micro-mobility vehicles, and related infrastructure, such as ride-sharing apps and charging stations.
Efficient construction methods with an emphasis on simplifying construction and reducing waste on site, including modular construction and 3D printing. Food production methods that reduce carbon intensity, including substitution of animal products, and agricultural practices with low greenhouse gas emissions. Development of new fertilizers with a lower ecological footprint and processes that reduce greenhouse gas emissions.
Greener solutions
Reducing emissions from the production of large, heavy products and bulk materials and waste reduction activities. Additional ESG-related benefits include reduced pesticide use, reduced workplace accidents and increased productivity. The Indonesian Sustainable Palm Oil (ISPO) certification was introduced in 2011 by the Ministry of Agriculture Regulation No. 19/Permentan/OT and updated the decree of the Ministry of Agriculture.
The B20 program mandated 20% palm oil in fuel, so-called biodiesel, for vehicles and heavy machinery from the end of 2018. The palm oil industry plans to increase efforts to help small farmers - who account for 6.7 million ha, or 75% of the country's total.
Agri-business opportunity
The Five Case Model is a project planning methodology developed by the UK Government to describe cases of change and supported by the World Bank and the G20.
Smart capital
Concerns remain about the impact on local biodiversity, despite President Jokowi's commitment to protect Borneo's rainforests and endangered animals, as well. Organizations can begin their journey by carefully analyzing which ESG factors will affect their industry and company.
Changes in consumer preferences present opportunities for value creation”
