ESG in Indonesia’s Corporate Landscape

Incorporation of ESG principles is on the rise globally (Photo: pwc.com )

Environmental, Social, and Governance is a rising concept in the Indonesian business environment, with many companies from all around the country racing to excel in the idea of promoting a sustainable future. But how are these businesses actually adapting to the pressure of ESG? Let’s dive in how policy, innovation, and local initiatives contribute in a new era of green enterprise.

Why ESG Now?

Indonesia’s ESG journey started off with government action. The government has rolled out a Sustainable Finance Roadmap, a carbon tax, and stricter reporting rules for listed companies, all designed to nudge businesses toward more green practices. This push is only getting stronger with Indonesia’s goal of aiming for net-zero emissions by 2060. Unlike in many developed countries, where ESG is mostly about investor sentiment, in Indonesia, it’s often about meeting regulatory requirements and keeping up with the rules of global trade. The EU’s Carbon Border Adjustment Mechanism and Indonesia’s own carbon tax mean that local businesses have to start to think globally or risk getting left behind.

Big Players, Big Moves

Peringkat ESG Pertamina Naik Jadi Nomor Satu Dunia (Photo: OG Indonesia)

When it comes to ESG, Indonesia’s state-owned enterprises (SOEs) aren’t just talking the talk, but they’re walking the walk. Take Pertamina, the giant of oil and gas. The company is investing in everything from green hydrogen and ammonia to electric vehicle infrastructure, partnering with Gojek for battery swap stations and piloting green hydrogen projects in areas like Lampung. Their ESG risk rating has improved significantly, putting them ahead of global companies like BP and Exxon. PLN (Perusahaan Listrik Negara) is the state electricity company that is also in action, teaming up with Pertamina and others to create a Green Industry Cluster, some kind of eco-friendly power squad working to decarbonize Indonesia’s Industrial heartland. Both companies are part of a select group of SOEs mapping out decarbonization plans with government-set emission baselines and clear roadmaps for short, medium, and long-term solutions.

Pineapples: Small but Mighty

Indonesia’s SMEs (Small and Medium-sized Enterprises) face a different set of challenges in coping with the pressure of ESG. While there’s growing awareness about sustainability and ESG, many SMEs find it tough to comply due to limited resources, knowledge gaps, and the complexity of regulations.

Pineapple-based food SMEs in Riau Province have become a case study of green innovation. These companies based in Kampar, Siak, and Dumai districts are found doing green actions like using pineapple wastes to produce organic fertilizer, reducing landfill contributions, switching from conventional wood-fired drying to solar drying, emission reductions, deforestation, and packing their products with biodegradable materials from local resources. Research finds indeed, much more than technology or external pressure, organizational factors such as leadership commitment, internal culture, and employee involvement create the most powerful motivation. Sustainability-oriented owners influence their employees to adopt green practices, which leads future generations to follow the same.

Pekalongan Green Batik: From Tradition To Innovation (Photo: Asia Climate Lab)

Similarly, Batik producers in Solo and Pekalongan have taken great action to combat water pollution, a condition that greatly affects the industry due to the dye application and water utilization involved in the production process. In Solo, especially in Kampung Batik Laweyan, various companies such as Batik Mahkota Laweyan have started treating waste by installing wastewater treatment systems, thereby ensuring that dye runoff gets good treatment before release and is not overly discharged as a pollutive factor to local rivers. In Pekalongan, the green batik movement is gaining momentum with many SMEs using eco-friendly natural dyes obtained from plants and minerals that are far less toxic to the environment than synthetic dyes, thus lessening the overall environmental burden of their craft. Usually, these activities are supported by collaborations with local universities, providing research and technical support for the development of less polluting dyeing techniques and better water management practices. Furthermore, government grants and support from NGOs constitute vital assistance for financing these activities and creating the necessary partnerships to scale up sustainable practices and ensure that even small family workshops can take part in this green transition.

The government is setting the stage, SOEs are leading by example, and SMEs are finding their starting point. While the road is long, Indonesian businesses are proving they’re ready to take the journey to ESGs.

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