In business, the practice of Environmental, Social, and Governance (ESG) investing can be traced back to the 1960s, when business actors would take some illegal or unethical businesses out of their portfolios to attract more investors. In today’s world, ethical considerations and value alignments still subsist, with financial materiality cogitation added to its component.
The three variables of ESG should be referred at as an amalgamation and inextricable solitary, as one is not graver than the others. However, despite its significance, the social component of ESG tends to be overlooked.
The Importance of Women’s Involvement
Presently, an increasing number of women have completed higher levels of education. According to the United Nations Educational, Scientific and Cultural Organization (UNESCO), in Indonesia, 59% of women graduated from tertiary education in 2018, constituting a significant increase from 16% in 1993.
Despite the growing talent pool, gender bias and attitudes remain as impediments to women’s career progression, affecting areas such as recruitment, promotion, and work assignments for women.
Men are more inclined to be hired in management and decision-making positions, which allows for professional growth and promotion.
In contrast, women are overrepresented in support management functions, with lower chances for upward occupational mobility.
A prevalent issue is the low number of women representation at the highest management levels across enterprises.
Out of the surveyed limited liability companies, only 8% companies achieved 40-60% gender-balanced board members of either sex. Less than 20% companies delineated that their board members consist of 30-39% women. Statistically, the gender ratio worldwide is almost equal for both sexes.
It raises the question as to why the c-suite level boards fail to reflect this figure. A study surveying Indonesian enterprises revealed that 77% of the Respondents agreed that gender diversity has contributed towards improved business outcomes.10 66% reported increased profitability, productivity and eminent creativity, and 46% reported an improved ability in evaluating consumer interest and demand.
In addition to business outcomes, the participation of women in decision-making also plays a salient role in addressing climate change, thus contributing to the environmental aspect of the ESG.
According to the United Nations, the impact of climate change on gender is not identical, whereby women are perceived to be more vulnerable to climate change’s impact than men.13 For instance, climate changerelated events such as: droughts, hurricanes, and cyclones may prompt girls and women to migrate to displacement camps due to the deterioration in living conditions in their homes.
Oftentimes, women lived in poor shelters without proper doors where they are more exposed to violence from strangers.14 Furthermore, climate change-related events may
put girls at a higher risk of child marriages.
Having lost their homes and livelihoods, poor families may perceive child marriage as a way to escape poverty and ensure the security of their daughters.
Moreover, in rural communities around the world, the responsibility to gather food, water, and household energy resources are borne by women. As drought and forest fires occur, farther distances must be travelled, and more time needed to be spent by women to acquire such basic resources.
This causes greater difficulty for women to manage household resources for cooking, gathering resources, and caring for children.
Women’s Role in Eliminating Climate Change
Globally, women have less access than men to resources such as land, credit, agricultural inputs, decision-making structures, technology, training and extension services that would strengthen their ability to adapt to climate change.
Looking at the bigger picture, higher representation of women in decision-making positions, as a highly impacted stakeholder of climate change gives a favourable consequence for the State, in this case, Indonesia, in achieving its aspirations concerning climate and sustainability.
This is aligned with Law Number 16 of 2016 concerning Ratification of the Paris Agreement to the United Nations Framework Convention on Climate Change (“Law 16/2016”) and Presidential Regulation Number 18 of 2020 concerning the 2020-2024 National Medium-Term Development Plan (“PR 18/2020”).
ESG Regulations in Indonesia
Currently, ESG regulations are regulated on a sectoral basis and mainly included as part of the company internal policy.
The Financial Services Authority (FSA) has taken several steps to regulate ESG, including through the establishment of FSA Regulation No. 51/POJK.03/2017 concerning the Implementation of Sustainable Finance for Financial Service Institutions, Issuers, and Public Companies (“POJK 51/2017”)19 and completion of the Phase II Sustainable Finance Roadmap (2021-2025), focusing on creating a comprehensive sustainable finance ecosystem.20 According to Art. 10 par.
(1) POJK 51/2017, “Financial Services Institutions, Issuers, and Public Companies are required to prepare a Sustainability Report”.
Presently, a Gender Equality Reporting Guide for Annual and Sustainability Reports has been created based on the provisions of POJK 51/2017, FSA Circular Letter No.16/SEOJK.04/2021 (“SEOJK 16/2021”), the Gender Reporting Guideline, Women’s Empowerment Principles, Sustainable Development Goals (SDG) Indicators, and Global Reporting Initiative (GRI) Standards.21 Such documents guide companies in reporting gender equality-related aspects in their Annual and Sustainability Reports.
Furthermore, provisions regarding women’s representation in the workplace, among others, are regulated in Law Number 13 of 2003 concerning Manpower (“Law 13/2003”) and Law Number 21 of 1999 concerning Ratification of the ILO Convention No. 111 Concerning Discrimination in Respect of Employment and Occupation (“Law 21/1999”) in conjunction with ILO Convention Number 111 Concerning Discrimination in Respect of Employment and Occupation (“ILO Convention No.111”).
According to Art. 5 Law 13/2003, “Every worker has equal opportunities without discrimination to
obtain employment”. Art. 6 further stated, “Every worker/labour has the right to receive equal treatment without discrimination from employers”.
Moreover, according to Art. 1 ILO Convention No. 111, the term “discrimination”, among others,
includes: “(a) any distinction, exclusion, or preference based on race, colour, sex, religion, political belief, nationality or origin which results in nullifying or reducing equality of opportunity or treatment in employment or occupation”.
Additionally, the Indonesia Stock Exchange (IDX) has regularly encouraged gender equality programmes, for example through the issuance of IDX Sustainability Report based on POJK 51/2017 and GRI reporting standards, holding webinars discussing women empowerment, 22 and conducting capacity building for the stakeholders of IDX, which aims to enhance awareness regarding ESG principles and encourage the implementation of ESG.23 IDX, however, has not set a mandatory minimum rule for women on boards.
Global Perspective on Women Representation in High Management Positions
Globally, various countries have implemented measures to improve gender parity in the corporate scheme. However, the implementation comes with challenges. In 2003, Norway adopted legislation which required a minimum of 40% female board representatives in public limited and state-owned companies.
Non-compliance can be sanctioned with forced liquidation. Such quota has resulted in a noticeable increase of women representatives from 6% in 2002 to 40% in 2008. On the other hand, research found that several companies de-listed from the stock exchange after the implementation of the requirement.28 Furthermore, a higher number of Norwegian companies opted to register in another country, suggesting a circumvention of such threshold.
Similarly, India’s 2013 Company Act required the appointment of a minimum of 1 woman on the board for listed companies and other large public limited companies. Failure to comply results in the imposition of fines.
Unfortunately, it was found that several companies in India employed only one female director merely to fulfil the minimum gender requirement,resulting in gender tokenism.
In some regions, however, social norms have seemingly eliminated the need for hard law.34 This is the case for Sweden and Finland, where the number of females on boards are among the highest globally, despite the absence of hard laws on gender quota.35 Conversely, in countries such as South Korea, China, and the United States, lack of regulation may hinder progress towards gender diversity.
The ESG principle plays a significant role in the business world, with each variable holding an equally important role. Nevertheless, the social component of ESG, particularly women’s participation, tends to be overlooked. This can be illustrated by the low level of women representation in highest management levels across enterprises.
As a highly affected stakeholder, women participation in decision-making plays a salient role in addressing climate change, thus also contributing to the environmental variable of the ESG. In Indonesia, several regulations have been established pertaining to ESG and gender equality in the workplace such as POJK 51/2017, SEOJK 16/2021, Law 13/2003, and Law 21/1999.
In practice, the global implementation of mechanisms to ensure gender parity have shown that although laws and regulations have played a significant role, the effectiveness of such laws and regulations are highly determined by the general outlook of the society where they are implemented.
In Indonesia, a remaining obstacle towards the career progression of women is the prevailing stereotypes regarding women and men.
Such stereotypes emanate from hierarchical structures and patriarchy which perceives women to be less competent than men.38 Furthermore, unconscious gender biases can also be adopted because of learned behaviours, early education, as well as gender role expectations from families, schools and society. Nevertheless, a one-size-fitsall approach to improving gender diversity does not exist.
The regulatory solutions must consider the differing levels of social acceptance for gender equality among different regions, and since any regulations would impact each region differently.