Industry for Tomorrow: Towards ESG Implementation in Indonesia by Mandiri Institute

ESG investing continues to grow. Data from Principles for Responsible Investment (PRI) suggests that total signatories and assets under management (AUM) have climbed significantly. Global ESG bond issuance reached USD930 billion in 2021. Furthermore, the positive trend of green bond issuance was recorded by almost 14 times compared to 2014.

Financial services support on sustainable development has been significant. This is reflected in The Equator Principles, which were already adopted by 134 financial institutions in 38 countries.

However, ESG investing in Indonesia, particularly in the financial market, still faces some challenges. ESG Products Offered Suffer from Lack of Product Differentiation with Sectoral and Fund Style Concentration. According to our survey, 94% of fund managers express that lack of quantitative data on ESG becomes the main hurdle. As a result, the company report serves as their primary data reference for ESG.

For individual investors, the term Environmental (E) is perceived as the most important factor in ESG investing. Because individual investors are familiar with Environmental issues such as climate change and pollution. An interesting fact is that 54% of respondents look for ESG information, meanwhile, the majority of them are not aware of the availability of ESG-related funds. This highlights the importance of sharing information on ESG products with retail investors.

The majority of listed companies (53%) believe that ESG business practices will be a priority in the future. However, 60 percent of them find critical ESG-related indicators as a challenge The good news is that almost all of them would consider ESG in business practices. For listed companies, the Governance (G) aspect is the most important factor.

Three-fourths of non-listed companies are considering ESG in their business practices. Yet only 23 percent of them published sustainability reports. This is mainly due to cost as one of their main challenges. Particularly, 45 percent are unwilling to pay any costs in verifying the sustainability report.

Reporting standards are increasingly necessary as a reference for ESG implementation. Identifying factors can materially affect the business sustainability, besides risk management and mitigation as well as the capability to optimize each opportunity. ESG reports are important, not only for the companies but also for the investors.

In the policy space, consultations among the government, regulators, and business sectors are important. The Indonesian Financial Services Authority (OJK) has issued sustainable-related regulations such as POJK No 51/POJK.03/2017 on sustainable finance. Yet it remains important to develop a matrix of sustainability disclosure that is relevant to any industry. It allows comparison of sustainability performance across companies in different industries.

Download and read the ESG report by Mandiri Institute through the button below to get more update on how private sectors in Indonesia implement ESG practices to date. The report also discusses ESG trends in financial sectors and sustainable investing as well.

Source: Mandiri Institute