ESG stands for Environmental, Social, and Governance, a framework that measures corporate responsibility toward the environment, society, and organizational governance. In the context of modern business, ESG is more than an annual report submitted to regulators.
It reflects how responsibly a company conducts its operations. In Indonesia, discussions around ESG implementation have grown increasingly prominent amid mounting pressure from global investors, domestic regulations, and a public that is becoming more critical of the impacts of business activity.
Table of Content:
- Common ESG Reporting Standards
- The Role of Government Regulation
- How Is Implementation Going?
- Beyond Compliance Toward Long-Term Value
Common ESG Reporting Standards
When preparing sustainability reports, companies around the world refer to several internationally recognized standards. These serve as guides for identifying and communicating ESG performance to stakeholders.
The Global Reporting Initiative (GRI) is among the most widely used. GRI applies a principles-based approach focused on a company’s economic, environmental, and social impacts.
Its broad coverage makes it suitable for a wide range of stakeholders, from investors to local communities. The Sustainability Accounting Standards Board (SASB), takes a different approach by focusing on industry-specific financial materiality.
SASB standards are designed to help companies identify sustainability issues most likely to affect financial performance within a particular sector, making them especially relevant for investors. The Task Force on Climate-related Financial Disclosures (TCFD), specifically addresses climate-related risks and opportunities.
It is built around four pillars: governance, strategy, risk management, and climate-related metrics and targets. More recently, the International Sustainability Standards Board (ISSB), established by the IFRS Foundation in 2021, published its first two standards in June 2023: IFRS S1, covering general sustainability-related financial disclosures, and IFRS S2, which focuses specifically on climate. Indonesia is currently in the process of integrating these international standards into its local regulatory framework.
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The Role of Government Regulation
The legal foundation for ESG implementation in Indonesia has existed for some time, even if the term ESG itself was not always used explicitly. Law Number 40 of 2007 on Limited Liability Companies, particularly Article 74, obliges companies operating in the natural resources sector to carry out Social and Environmental Responsibility (TJSL).
This became the early groundwork for ESG implementation-related regulation in Indonesia before the concept gained wider recognition. The Financial Services Authority (OJK) has taken the lead role in advancing ESG adoption within the financial and capital markets sector.
Through OJK Regulation Number 51/POJK.03/2017 on the Implementation of Sustainable Finance, OJK requires financial service institutions, issuers, and public companies to prepare annual sustainability reports. OJK Circular Letter Number 16 of 2021 further specifies the minimum contents of such reports, including sustainability strategies, summaries of economic, social, and environmental aspects, and statements from the Board of Directors.
Companies that fail to comply may face administrative sanctions. That said, existing regulations are still considered fragmented. Each ESG implementation dimension is governed by separate rules, and there is no single comprehensive legal framework that brings them together in an integrated manner.
How Is Implementation Going?
The picture on the ground reveals a considerable gap between regulatory obligation and actual practice. Many companies still regard ESG implementation compliance as a cost burden rather than a long-term strategic investment.
As a result, implementation often remains ceremonial, meeting report requirements on paper without genuinely embedding ESG principles into the core of business strategy. One risk arising from this situation is greenwashing, where companies project an environmentally responsible image without concrete actions to back it up.
Global data, on the other hand, points in a more promising direction. Assets managed under ESG-focused funds have reached approximately 41 trillion US dollars, up from 22.8 trillion in 2016. A study by the Asian Development Bank covering companies across 38 countries from 2013 to 2022 also found that higher ESG scores correlate positively with market value, with stronger effects observed among Southeast Asian companies.
This suggests that ESG implementation, when applied with genuine commitment, can become a competitive advantage rather than merely a compliance checkbox.
Beyond Compliance Toward Long-Term Value
Indonesia’s greatest challenge at this stage is pushing companies past the threshold of formal compliance. What is needed is a combination of stronger law enforcement, tax incentives for companies with sound ESG practices, harmonization of domestic regulations with international standards, and capacity building that enables management to understand and apply sustainability principles in a meaningful way.
With the right approach, ESG implementation holds real potential as a driver of long-term business value and as a substantive contribution to sustainable development in Indonesia.
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Author: Ainur
Editor: Lina
References
Wirawan, F., & Kusumaningsih, T. (2025). ESG Implementation in Indonesia: Between Legal Compliance and Profit Orientation. Nalarnagara Journal, Vol. 1, No. 1, pp. 97-104. https://doi.org/10.56861/nalarnagara.v1i1.189