Navigating the Landscape: Sustainability Reporting in Indonesia

Introduction

In 2017, Indonesia took a significant step towards fostering a harmonious balance between economic, social, and environmental aspects of its national economy with the introduction of OJK (Indonesia Financial Service Authority) regulation no. 51/2017 on Sustainability Reporting. While the regulation has been hailed as a milestone, its reception has been mixed. Some view it as a commendable effort by the Indonesian government, while others see it as a new challenge, given the lack of comprehensive guidance and best practices.

The Scope: Beyond Financial Institutions

The regulation, applicable to financial service institutions, issuers, and public companies, marks a groundbreaking shift in the reporting landscape. Contrary to some misconceptions, it extends beyond financial institutions and issuers to include a full sustainability reporting requirement for listed public companies.

Implementation Challenges

Following its announcement, the OJK mandated the first 40 of 114 banks, both national and multinational, to submit their Sustainability Finance Action Plans (RAKB) by March 2018, with the remaining institutions to follow suit by early January 2019. However, the path to compliance has not been without challenges. With limited references available, companies found themselves navigating uncharted territory, raising questions about the feasibility and efficacy of the regulation.

Five-Year Plans: Shaping the Future

The RAKB, designed to outline an institution's short and middle-range plans (up to five years), serves as a crucial guide for annual reports. While initially tailored specifically for financial institutions, issuers, and public companies are required to incorporate sustainability reporting as a separate segment in their annual reports, ensuring a holistic approach to corporate transparency.

Industry Disparities: A Call for Alignment

Interestingly, the timeline set by OJK for sustainability reporting does not coincide with specific industry mandatory reports, such as those required for environmental and mining sectors. This misalignment may pose challenges, but it also presents an opportunity for a more synchronized and comprehensive reporting framework in the future.

Changing Perspectives: A Call for Action

Despite the initial challenges, the Ernst & Young findings in 2017 revealed that only 32% of the IDX Top 100 reported on their sustainability performance. Rather than discouraging the sustainability movement, this statistic emphasizes the need for education and awareness. Many top executives still lack a deep understanding of sustainability, its nuances, and the significant value that reporting can bring to their organizations.

Benefits of Sustainability Reporting

According to KPMG International's 2005 survey, sustainability reporting offers a myriad of benefits, including:

a) Evaluating the organization’s performance on sustainable development.

b) Highlighting relationships and influences among organizations.

c) Comparing performance with other companies.

d) Reducing risk in managing social and environmental aspects.

e) Cutting costs and increasing profits through improved management mechanisms.

f) Boosting stock market capitalization through ethical investments.

A Soft Touch: Encouraging Compliance

The regulation opts for administrative sanctions rather than stringent enforcement, emphasizing the importance of ensuring that top executives are well-informed about the initiative. Rather than viewing it as a mere cost, companies should champion the cause through creative, relentless, and extensive campaigns. Educating the public and stakeholders is crucial, as the reception towards sustainability, from observations, remains inadequately positive.

Conclusion

Sustainability reporting in Indonesia marks a pivotal moment in the nation's commitment to holistic economic, social, and environmental progress. While challenges persist, the potential benefits for organizations and the nation as a whole are substantial. Navigating this uncharted territory requires collaboration, education, and a collective effort to build a sustainable future for Indonesia.