The Most Recent State and Future Directions of Sustainability Reporting Indonesia

PwC releases Asia Pacific Sustainability Counts II Report.

• An overall rise in the disclosure of identified climate-related risks and/or opportunities in companies’ sustainability reporting from 77% in 2021 to 88% in 2022

• In most Asia Pacific jurisdictions, 92% of companies have Environment, Social and Governance (ESG) targets

• The Global Reporting Initiative (GRI) Standards and Sustainable Development Goals (SDGs) are the most used standards and framework for Sustainability Reporting among most of the jurisdictions

• In 2022, 80% of the companies studied (in Indonesia), used the GRI Standards for their Sustainability Reporting

• Seven out of 14 Asia Pacific jurisdictions studied that plan to make or has made the Task Force on Climate-related Disclosures (TCFD) reporting mandatory

• In Indonesia, the adopters of the TCFD Framework have increased from 4% in 2021 to 10% in 2022

• The disclosure rate of board of directors (BODs) responsibility in all the jurisdictions across the Asia Pacific has increased from 2021 to 2022, with the most evident increase coming from Indonesia, New Zealand and Thailand

Jakarta, 5 September 2023 - As the world continues to address wide-ranging sustainability issues, there has been a strong focus on the development of globally consistent, comparable and trusted sustainability reporting standards due to increasing calls for enhanced transparency about sustainability matters from investors, regulators, and other stakeholders. 

Sustainability reporting is a lot more than reporting operational ESG performance. It is also a strategic assessment tool and communication platform with investors and multi-stakeholders. It serves as an annual "health” check on a company's strength and weakness, for continued improvements to deliver results that will benefit its business and stakeholders.

Sustainability Reporting has become mandatory in Indonesia for banks since 2019 and listed companies since 2020. However, due to COVID-19, the enforcement has been pushed back to 2021. In the second year of mandatory reporting implementation, 88% of Indonesian listed companies submitted their 2022 Sustainability Report. The Sustainability Report is a vital instrument for Indonesian companies' ESG reporting approach. It conveys strategies addressing climate risks, stakeholder engagement, and better ESG performance. It delineates the BOD’s' sustainability responsibility, showcases sustainability upskilling efforts, and underscores external assurance for enhanced credibility. This report serves as a comprehensive means to ensure transparency, align with global standards, and underscore unwavering dedication to sustainability.

Today, PwC Indonesia hosted an event with the theme of “The Future Directions of ESG and Sustainability Reporting in Indonesia” that discusses PwC’s report on Sustainability Counts II: State of Sustainability Report in Asia Pacific. This report developed by PwC Singapore and the Centre for Governance and Sustainability (CGS) at the National University of Singapore (NUS) analyses the state of Sustainability Reports in Asia Pacific. It is the second edition of Sustainability Counts, and provides the updates of where the region on. Analysing the sustainability reports of the top 50 listed companies by market capitalisation across 14 Asia Pacific jurisdictions, the study further reveals that critical reporting and disclosure gaps remain for businesses to demonstrate that they have a viable and robust pathway to reach net zero by 2050 or mid-century and highlights the evolving challenges facing businesses ahead.

State of Stakeholder Engagements 

The report unveils an intriguing aspect regarding stakeholder engagement. It is noteworthy to highlight that a mere 54% of companies have disclosed their strategies for addressing stakeholders' concerns. In this context, it is particularly significant that companies in Indonesia, where firms are identified as those listed on stock exchanges worldwide, including the Indonesia Stock Exchange (IDX), have shown significant progress in this aspect.                                  

Yuliana Sudjonno, PwC Indonesia ESG Leader stated that, “Approximately 70% Indonesian companies have disclosed how they have engaged stakeholders in their sustainability reporting.  Stakeholder engagement can provide an organisation with the latest and most relevant sustainability considerations across its value chain. Through effective engagement channels and timely responses, organisations gain an understanding of the depth of stakeholder involvement in identifying an organisation's impacts on the economy, environment and people which will subsequently be used in determining the most important ESG topics for an organisation.”

Sustainability upskilling for board and management remains on the low side

36% of the companies studied reported that their BOD or management have attended or received sustainability training in 2022, up from 24% in 2021. In 2022, Indonesia stood out with an impressive rate, surpassing the average, reaching 68% of companies involving their BODs or management in sustainability training. While there is progress made, the rate remains low and points to the need for sustainability upskilling at the leadership level for them to effectively carry out their roles in overseeing the company’s sustainability strategy, progress and governance. 

Yuliana Sudjonno, PwC Indonesia ESG Leader, also commented, “In 2022, six jurisdictions have more than 90% of companies studied disclosing the BOD responsibility on sustainability: Malaysia (100%), Singapore (100%), South Korea (98%), Australia (96%), Indonesia (96%) and Hong Kong SAR (94%). It is encouraging to see that the disclosure rate of BOD responsibility in Indonesia has increased 36% from 2021 to 2022”. 

Yuliana added, “In 2021, for listed entities, Indonesia mandated sustainability reporting / ESG performance reporting and published sustainability reporting guides. These statistics underscore Indonesia's proactive approach in tackling sustainability challenges and align well with the rising expectations surrounding corporate sustainability.”

Adoption of Sustainability Reporting Standards and Frameworks 

GRI Standards and SDGs are the most used standards and frameworks for Sustainability Reporting among most of the jurisdictions, followed by International Organisation for Standardisation (ISO) and the TCFD Framework. In 2021, 80% of the companies studied in Indonesia reported using GRI Standards. With the recent launch of International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards S1 and S2 that adopt the architecture of TCFD Framework, climate-related disclosure is predicted to become more popular and expected to be increasingly adopted by companies. In the first year of IFRS S1 and S2 implementation, IFRS Sustainability Disclosure Standards provide the exemption for the early adopters, allowing them to apply IFRS S2 Climate-related disclosures first, followed by the application of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information in the second year of reporting. In this context, IFRS S1 and S2 will drive companies to disclose their sustainability and climate risks and opportunities and draw the connection between sustainability/ climate and financial information. 

The state of sustainability reporting assurance

With regards to providing stakeholders with credible information on the company’s sustainability performance to enhance confidence in their business, the study saw an increase in companies obtaining external assurance from an independent party for their ESG disclosures, up from 37% in 2021 to 49% in 2022 among the companies from selected jurisdictions in Asia Pacific studied in 2022. Considering that three-quarters of investors polled in a Global Investor Survey by PwC indicated that their confidence in sustainability reporting would receive a bigger boost if it were assured at the same level as the company’s financial statement, businesses would do well to build a higher degree of credibility around their sustainability reporting through obtaining external assurance. 

Specifically, in 2022, 28% of companies across the Asia Pacific have carried out internal assurance, with China demonstrating the highest internal assurance (58%). On the other hand, 49% of companies studied have carried out external assurance, with South Korea having the highest external assurance rate (100%). Although the requirement of reporting assurance for certain-sized companies will only start from 2025 in Korea, it is encouraging to see how South Korea listed companies in the study went further to carry out external assurance to build trust and enhance the quality of their sustainability disclosure.

In addition, the report highlights top challenges facing businesses around sustainability reporting and includes the developments of key sustainability reporting standards and frameworks that preparers of sustainability reports need to keep an eye on and navigate.