Indonesia’s New Capital City and Indigenous People: Reconciling Investments with Environment, Social, and Governance Principles in Indonesia 2023
By: Setyawati Fitrianggraeni, Keshia Bucha, Irvena A. Dewanto
In line with Indonesia’s aspiration to relocate its capital city to the East Kalimantan province, currently, the development of infrastructure for the new capital city has commenced. Upholding the concept of a green, sustainable city, the new capital is set out to appropriate 75% of its area for green, open spaces. Residential, institutional, and commercial buildings are aimed to be constructed using environmentally friendly methods. Through the green and sustainable city concept and infrastructure, Indonesia aims to implement the Environment, Social, and Governance (“ESG”) principle in the development of the Nusantara Capital City (“IKN”).
The construction of the new capital city, however, requires a substantial amount of cost, which is estimated to reach $35 billion. The government has contributed as much as 20% of the funding, whereas the remaining 80% is aimed to be obtained from foreign investors. The five prioritized industries for the development of IKN are natural resource-based industries, basic industries, medium-high technology industries, sustainable consumer goods industries, and innovation and research-based industries.
The construction of IKN, however, does not come without several potential problems. The construction of IKN has several implications for the rights and involvement of indigenous communities, in particular potential land disputes that may arise. The measures to address such potential issues must also be guided by the ESG principles.
Mitigation Measures on Potential Issues of Land Disputes against Indigenous People in IKN
The sustainability and ethical impact of an investment in a company is measured by a set of criteria widely known as Environmental, Social, and Governance (ESG). The environmental aspect concerns the examination of a firm’s impact on the environment. Some of the environmental risks considered include declining biodiversity, pollution, resource scarcity, and potential climate change impact, namely increased frequency and severity of floods, hurricanes, and forest fires. The social aspect pertains to the firm’s impact on its stakeholders namely, consumers, employees, suppliers, contractors, and the local and broader communities. The social risks may include potential violation of the rights of others, gender or ethnicity-based discrimination during the hiring or promotion of employees, and investments in sectors or projects that may be regarded as objectionable to certain segments of society. Finally, the governance aspect concerns a firm’s self-governance and integrity in running its business. This includes the policies and controls the firm implements, which may affect various stakeholders.
The application of ESG is important in the development of IKN, because (i) it may attract more investors to finance the development of IKN so that the utilization of the state budget can be reduced; (ii) The application of ESG in constructing IKN will improve people’s welfare, as ESG prioritizes environmentally friendly principles, social management, and good governance.
In implementing the ESG principle in the development of the new capital city’s infrastructure, attention must be paid to a number of factors. According to Article 22 Letter 23 of the Government Regulation in Lieu of Law of the Republic of Indonesia Number 2 of 2022 concerning Job Creation (“GRLL 2/2022”) which amends Article 63 of Law Number 32 of 2009 concerning Environmental Protection and Management (“Law 32/2009”), the Central Government, provincial and district/city regional governments in building infrastructure for the prioritized industries, must pay attention to the rights of Indigenous Peoples. Furthermore, investors in the prioritized industries above must also involve indigenous communities in preparing an Environmental Impact Analysis through public consultation, as regulated by Article 28 paragraphs (1) and (2) and Article 32 letter b of Government Regulation Number 22 of 2021 concerning Implementation of Protection and Environmental Management (“GR 22/2021”).
Moreover, indigenous people’s rights are critical to implementing any ESG principles, since any development projects often have negative and undesirable effects on the interest of indigenous people―who have long occupied the area. Regarding the construction of IKN, data from the Alliance of Indigenous Peoples of the Archipelago (Aliansi Masyarakat Adat Nusantara – “AMAN”) for 2021 shows that there are 21 Indigenous communities living in the new capital city development area, i.e., 19 indigenous communities in Penajam Paser Utara Regency and 2 indigenous community in Kutai Kartanegara Regency. In 2020, there are at least 11 indigenous community areas that will become the core zones for the new capital city development.
The most appropriate means to anticipate the risk of land dispute is to engage indigenous people in a two-way dialogue, to collect any feedback and concerns. The dialogue needs to involve actual representation of indigenous peoples and to ensure Free, Prior, and Informed Consent (FPIC), so that the discussion includes cultural aspects and the fulfillment of rights to land and indigenous territories, considering that some of the locations of IKN are not vacant or a State-Owned Property. There are overlapping land rights with indigenous peoples.
The above dialogue may be led by (i) the IKN Authority as a ministry-level institution that organizes activities for the preparation, construction, and relocation of the capital city, as well as administrators of IKN, in cooperation with (ii) a special team formed by the Ministry of Agrarian Affairs and Spatial Planning/National Land Agency, to identify indigenous peoples and their land rights, as a way to identify the existence and land occupancy of indigenous peoples in IKN.
Apart from that, the rights of indigenous peoples should also be set forth in the form of legislation, both in the Law on Indigenous People (currently a draft discussed by the House of Representative); as well as Law Number 3 of 2022 concerning Indonesian Capital City (“Law 3/2022”). The various aspects that are important to be regulated are (i) acknowledgment of indigenous peoples’ rights, including the mechanism of free, prior, and informed consent (FPIC); (ii) mechanism to enforce indigenous peoples’ rights; and (iii) the choice of dispute resolution mechanisms, both in court and outside the court.
As the construction of IKN upholds the concept of a sustainable city that implements ESG principles, it is important to pay specific attention to the land rights of indigenous people. The land rights of indigenous people are closely related to the cultural sites and their rights to manifest, develop, and teach their customs and traditions. Two-way dialogue with indigenous people representatives and a more detailed stipulation in Law 3/2022 regarding the indigenous people’s rights are several salient aspects to the construction of IKN while protecting one of the World´s last remaining areas of biodiversity.
 Setyawati Fitrianggraeni holds the position of Managing Partner at Anggraeni and Partners in Indonesia. She also serves as an Assistant Professor at the Faculty of Law, University of Indonesia, and is currently pursuing a PhD at the World Maritime University in Malmo, Sweden. Additionally, Keshia Bucha is a Middle Associate and Irvena A. Dewanto is a junior associate at Anggraeni and Partners. The writers express their gratitude to Dr. Hary Elias for generously dedicating his time to provide valuable feedback on their article
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 The FPIC right is a right of indigenous peoples to freely determine whether a development agenda may enter the territory of indigenous peoples or not. If for individuals or groups that are not indigenous peoples, FPIC leads to the achievement of a consultation process, then for indigenous peoples, FPIC leads to the achievement of “consent”/decisions regarding the approval or rejection of indigenous peoples for any development agenda that enters the territory of indigenous peoples.
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