Sustainability reporting has become an essential tool for companies to communicate their environmental, social, and governance (ESG) performance. However, the credibility of sustainability reports is often questioned due to the voluntary nature of many disclosures.
To address this concern, companies increasingly adopt sustainability reporting assurance, which involves independent third party verification of sustainability information. In Indonesia, the adoption of sustainability reporting assurance is growing but remains uneven across sectors. Several key factors influence whether companies choose to assure their sustainability reports.
- Regulatory Environment in Indonesia
- Company Size and Resource Availability
- Industry Characteristics and Environmental Sensitivity
- Corporate Governance Quality
- Investor and Stakeholder Pressure
- International Exposure and Global Standards
- Reputation and Legitimacy Considerations
- Cost Benefit Considerations
Regulatory Environment in Indonesia
Regulation is one of the primary factors influencing sustainability reporting assurance in Indonesia. The Financial Services Authority (OJK) requires listed companies and financial institutions to publish sustainability reports, particularly following POJK No. 51/POJK.03/2017.
Although external assurance is not explicitly mandatory, regulatory pressure encourages companies to improve the credibility and transparency of their disclosures.
Companies operating in sectors with higher regulatory oversight such as banking, mining, and energy are more likely to adopt assurance as a proactive compliance strategy. Assurance helps firms demonstrate accountability and reduce regulatory risk, especially as ESG-related regulations continue to evolve.
Company Size and Resource Availability
Firm size plays a significant role in determining the adoption of sustainability reporting assurance. Larger companies generally face greater public visibility and stakeholder scrutiny, which increases the demand for credible sustainability information. In addition, large firms possess more financial and human resources to cover the costs associated with third-party assurance.
In Indonesia, sustainability reporting assurance is more commonly observed among large listed companies, state-owned enterprises (BUMN), and multinational corporations. Smaller firms may perceive assurance as costly and less beneficial, leading to lower adoption rates.
Industry Characteristics and Environmental Sensitivity
Industry type strongly influences sustainability reporting assurance practices. Companies operating in environmentally and socially sensitive industries such as mining, oil and gas, energy, manufacturing, and infrastructure are more exposed to ESG risks. These firms often face greater pressure from regulators, communities, and environmental groups.
As a result, companies in high-impact industries are more likely to seek sustainability assurance to enhance report credibility and maintain legitimacy. In contrast, firms in less environmentally intensive sectors may consider assurance less critical to their business strategy.
Corporate Governance Quality
Strong corporate governance is positively associated with sustainability reporting assurance. Governance mechanisms such as independent boards, active audit committees, and robust internal control systems encourage transparency and accountability. Companies with higher governance quality tend to view sustainability assurance as an extension of good corporate governance (GCG) practices.
In Indonesia, firms with well established governance structures are more inclined to adopt assurance to strengthen stakeholder trust and reduce information asymmetry between management and investors.
Investor and Stakeholder Pressure
Growing awareness of ESG issues among investors significantly influences sustainability reporting assurance decisions. Institutional investors increasingly rely on ESG data to assess long term risk, firm resilience, and value creation. Assured sustainability reports provide higher confidence in the reliability of disclosed information.
Beyond investors, pressure from other stakeholders such as customers, non governmental organizations (NGOs), employees, and local communities also encourages companies to improve sustainability disclosure quality. In Indonesia, stakeholder activism and global supply chain requirements are becoming stronger drivers of assurance adoption.
International Exposure and Global Standards
Companies with international operations, foreign ownership, or export oriented business models are more likely to adopt sustainability reporting assurance. Global investors and business partners often expect sustainability disclosures to follow international standards such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), or Task Force on Climate-related Financial Disclosures (TCFD).
For Indonesian companies competing in global markets, sustainability assurance enhances comparability, credibility, and legitimacy at the international level. It also supports access to global capital and responsible investment funds.
Reputation and Legitimacy Considerations
Reputation management and legitimacy concerns are important motivations for sustainability reporting assurance. According to legitimacy theory, companies use assurance to align their activities with societal expectations.
In Indonesia, firms facing environmental incidents, social conflicts, or public criticism may adopt assurance as a strategy to restore trust and protect corporate reputation. Independent assurance signals a strong commitment to transparency and responsible business conduct, helping companies maintain social acceptance and long-term viability.
Learn more:
Sustainability Report Assurance
Cost Benefit Considerations
Despite its advantages, sustainability reporting assurance involves additional costs, including audit fees and internal preparation efforts. Some Indonesian companies, particularly smaller listed firms, may delay assurance adoption due to cost considerations or limited perceived benefits.
However, as ESG maturity increases and assurance practices become more standardized, the long-term benefits such as reduced risk, improved investor confidence, and enhanced reputation are expected to outweigh the costs.
Conclusion
Sustainability reporting assurance in Indonesia is influenced by a combination of regulatory pressure, firm characteristics, industry sensitivity, governance quality, stakeholder demands, and international exposure.
While assurance remains largely voluntary, its adoption is increasing among large, well-governed, and internationally oriented companies. As ESG expectations continue to rise, sustainability reporting assurance is likely to become a critical component of corporate transparency and sustainable value creation in Indonesia.
Reports that are prepared systematically, grounded in reliable data, and aligned with global standards make the assurance process more effective while strengthening the confidence of investors and other stakeholders.
Through Validerra’s Sustainability Report preparation services, your company is supported from ESG data management through to the development of a report that is ready for independent verification. With a well-structured and credible report, your company’s sustainability commitments can be communicated more transparently and positioned as a strategic asset for your business reputation.
Author: Indah
Editor: Shoofi
References
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García-Sánchez, I. M., Martínez-Ferrero, J., & García-Benau, M. A. (2019). Integrated reporting and assurance: The role of the board of directors and audit committee. Business Strategy and the Environment, 28(7), 1444–1459.
Hummel, K., & Schlick, C. (2016). The relationship between sustainability performance and sustainability disclosure: Reconciling voluntary disclosure theory and legitimacy theory. Journal of Accounting and Public Policy, 35(5), 455–476.