SR Indonesia

OJK (Indonesia Financial Service Authority) regulation no. 51/2017 on Sustainability Reporting for financial service institutions, issuer, and public companies has been welcomed with mixed reception. While some accepted it as a great achievement of Indonesian Government in the effort of insisting harmonious stability of economic, social, and environmental aspects of national economic, others look at it as new challenge as it is still new in the country and very little reference could be used as comprehensive guidance or best practice.

After its announcement and validity on July 2017, OJK sets out with the implementation by put it mandatory for the first 40 of 114 banks (nationals and multi-nationals) to be scheduled to hand over their Rencana Aksi Keuangan Berkeberlanjutan (RAKB) or Sustainability Finance Action Plan by March 2018 and the latter by early January 2019. One might question what happen with the (listed) public companies? Are they required to report too? Or is it just focusing on financial institution and issuer only? The answer is yes! People maybe forgetting that in attachment II (2) of the regulation it is stated that a full sustainability reporting is required as separate part of mandatory annual report of issuer and public companies.

The RAKB itself should reflect the institution’s short and middle range plan (up to five years). By setting the five years plan, the RAKB is able to serve as guidelines for the annual report. However, in the first implementation, the RAKB is only apply specifically to financial institutions where for the issuer and public company they only need to prepare the annual and sustainability report within the timeline set by OJK. The timeline of course is not coinciding with other specific industry mandatory report such as environmental and mining.

The fact that findings from Ernst & Young in 2017 in their “Sustainability Reporting: Key Insights from the Indonesia Stock Exchange Top 100” shows only 32% of the IDX top  100 report on their sustainability performance should not discourage the spirit of the movement. In fact, it show that many of the top executive still has limited understanding about many aspects of sustainability activity and the value of its reporting. By planning sustainability activity and disclosing it, companies may achieve several internal and external objectives. KPMG international in their 2005 survey concluded that disclosing sustainability activity would achieve as follows:

a)     Evaluating the organisation’s performance on sustainable development in relation to established regulations and voluntary initiatives.
b)     Highlighting the relationship and influence on each other among organisations, and expectations created around the sustainable development.
c)      Comparing the performance of an organisation with other companies, as well as analysing its evolution over time.
d)     Reducing the risk level in managing the social and environmental aspects that affect corporations.
e)     Reducing costs through improving management mechanisms and increasing profits by accessing socially or environmentally-oriented markets.
f)       Increasing its stock market capitalisation due to the growing ethical investment.

Enforcement of the regulation is a word to avoid, since it is only giving administrative sanctions. What most important is to ensure that top executives of these companies is well informed about the action and not to look at it as another cost of business that does not yield any positive impact to the company. What to do next is to champion the cause by doing creative, relentless and extensive campaigning so public and relevant stakeholder will have comprehensive understanding as from my observation, the reception on sustainability is still poorly accepted.