Revolutionising State Owned Company: ESG Assesments as the Catalyst For Change in Indonesia 2023

REVOLUTIONISING STATE-OWNED COMPANY: ESG ASSESSMENTS AS THE CATALYST FOR CHANGE IN INDONESIA 2023

By Setyawati Fitrianggraeni, Yoga Adi Nugraha, Marcel Raharja[1]

Environmental, Social, and Governance (ESG) are the three main factors used not only when measuring progress on sustainability, but also the ethical impact of an investment. Environment emphasizes the importance of carrying out optimal financial performance and various other matters related to environmental balance, such as support for climate change. Social emphasizes the importance of good relations with the wider community as the main consideration, employee development through training, implementation of occupational safety and health, and CSR. Governance (corporate governance) means the company prioritizes capacity, legitimacy, control, internal relations, and investor rights in operations.

Public companies that implement environmental, social, and governance (ESG) principles are considered to benefit from this practice. The Indonesian government started initiatives for ESG implementation in 2022, by launching the ESG framework by the Ministry of Finance and pushing for ESG Applications to G20 countries during Indonesia’s presidency of the G20. Subsequently, the Indonesia Stock Exchange (IDX) and the International Finance Corporation (IFC) have collaborated to develop ESG capacity in the capital market. The collaboration is expected to help companies in Indonesia to understand topics related to ESG more deeply.

Kate Lazarus, IFC’s Senior ESG Advisory Lead for Asia Pacific, said the companies that implement ESG practices have many advantages. Companies that apply ESG principles are considered to be more likely to be financially sound, and companies that implement ESG also increase their value proposition(the value promised by the company so that its products or services are accepted by the market or consumers). Companies that implement ESG also more easily get funding facilities from banks and funding institutions.

The implementation of ESG is also being encouraged in State-Owned Enterprises (SOEs). The Financial and Development Supervisory Agency / Badan Pengawasan Keuangan dan Pembangunan (BPKP) issued Guidelines for Assessment of the Application of ESG Factors in SOEs. BPKP Deputy Head for State Accountant Sally Salamah said that ESG assessment guidelines are the basis for BPKP supervision in assessment activities in the second quarter of 2023. “This guideline aims to support the increase in the value of SOEs by integrating ESG and also support the achievement of Indonesia’s Enhanced Nationally Determined Contribution (NDC) target,” she said, Monday (17/4).

The guidelines contain environmental, social, governance, and economic indicators to capture the quality of ESG implementation in 33 SOEs. This portrait of the implementation of ESG factors is intended to provide input on the Area of Improvement (AoI) on SOE Sustainability Reporting (SR) and subsequently provide policy recommendations to the government. This assessment is expected to accelerate SOEs’ support for long-term goals set by the government.

One of the SOEs, Wijaya Karya (WIKA), continues to implement ESG principles in order to win competition in the regional-global construction market. WIKA, as a state-owned company with international experience, has implemented ESG principles in its business processes. “ESG initiatives are one of the focuses of Wika, which is now 63 years old,” said WIKA President Director Agung Budi Waskito.

WIKA Group participates in building projects using the green building concept, such as Mandiri University and Jakarta International Stadium through its subsidiary Wika Gedung. WIKA also focuses on environmentally friendly products such as the use of modular technology which is now used in the construction of housing for construction workers at IKN and the development of new renewable energy through Gesits electric motors and the production of solar panels & solar lamps.

To support sustainable values, WIKA has begun implementing ESG initiatives in its business processes. both in project implementation and implementation of environmental social responsibility. This is proven by the achievements of the Sri-Kehati Index, ESG Sector Leaders IDX Kehati, and ESG Quality 45 IDX Kehati.

Source:

[1] 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, Yoga Adi Nugraha is a Managing Associate in the Practice Group White Collar Crime and Investigation and Marcel Raharja 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.

Anastasia Joice Tauris Santi, ‘BEI dan IFC Dorong Emiten Terapkan Prinsip ESG’ (Kompas, 17 March 2023) <https://www.kompas.id/baca/ekonomi/2023/03/16/bei-dan-ifc-dorong-emiten-terapkan-prinsip-esg?status=sukses_login&status_login=login> accessed 8 April 2023.

‘BPKP Terbitkan Pedoman Asesmen ESG Bagi BUMN’ (Badan Pengawas Keuangan dan Pembangunan, 25 May 2023) <https://www.bpkp.go.id/berita/read/42041/0/BPKP-Terbitkan-Pedoman-Asesmen-ESG-Bagi-BUMN> accessed 8 April 2023.

Rumpi Rahayu, ‘Serba-Serbi Environmental, Social, and Governance (ESG) di Indonesia’ (TrenAsia, 22 June 2023) <https://www.trenasia.com/serba-serbi-environmental-social-and-governance-esg-di-indonesia> accessed 4 September 2023.

‘BUMN Karya Jalankan ESG agar Menangkan Pasar Konstruksi Global’ (Mediaindonesia.com, 9 March 2023) < https://mediaindonesia.com/ekonomi/564041/bumn-karya-jalankan-esg-agar-menangkan-pasar-konstruksi-global> accessed 19 September 2023.

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