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Standardization for Sustainability Report Audit Necessary to Attract Green Investment

  • Indonesia needs a standardization for sustainability reporting which can be referred to by investors when making investment decisions.
  • There needs to be a standard with higher quality and precision to help with reporting.
  • A survey done by International Federation of Accountant involving Indonesia companies reveals that only 20% of sustainability reports are audited by independent agencies.

Jakarta, 17 November 2022 – To attract green investments, there needs to be a standardization for sustainability reporting, which can help investors in making investment decisions. This was stated during a discussion themed “Engagement Through Financial Sector” during the Indonesia Net Zero Summit 2022: Industrial Decarbonization at All Cost which was held in Bali on November 11, 2022.

The last session of the summit opened up the discussion on engaging the financial sector to decarbonize the industry. Financing and investment are climate mitigation and zero emission civilization in the future can only exist if financial service entities actively play their role. Financial services can play their role and provide a systemic impact in the transition to net zero. Of course this requires clear and supportive regulations and the efforts of various financial service entities, as well as companies who are the targets of investments, to get involved.

Representing the government, Lembaga Otoritas Jasa Keuangan (OJK) stated that they have taken measures to support sustainable financing and the green economy transition by issuing several regulations. For instance, OJK encourages financial service companies to consider companies having sustainability action plans before investing.

OJK has issued OJK Regulation No. 51/2017 concerning the Implementation of Sustainable Finance for Public Financial Services Institutions. This regulation will serve as an umbrella for institutions providing financial services to implement sustainable financial services and support the Net Zero target. OJK has also issued Regulation No. 60/2017 concerning green bond issuance, which provides flexibility to issue green bonds in Indonesia. Also in 2022, OJK has issued version 1 of the green taxonomy document.

“This document is a living document, and if there are developments from the activities of various companies, then there will still be developments and improvements in subsequent versions,” said Edi Broto Suwarno from OJK.


Role of financial service institutions to support the transformation towards green economy

Kelvin Tan of HSBC stated the importance of working together in solving climate problems. “We have a real threat to our existence right now in terms of climate change, as our time is limited,” he emphasized.

It is therefore important and useful for actors in the financial services industry to help their customers transform so that they can stay relevant in the future, for the global economy is transforming towards a low-carbon economy.

HSBC has set a target in accordance with the Paris Agreement to achieve net zero by 2050. As a financial service institution, their largest emissions lie in their Scope 3, which is none other than emissions from their financing activities. And the only way to get to net zero emission is to work with clients, both in Indonesia and globally.

HSBC also sees the opportunities to accelerate climate solutions, such as green technologies and nature-based solutions, to reduce deforestation and configure how to support them in terms of financial infrastructure.

Schroders Indonesia also assists companies through green financing services. In the context of investment financing, the asset and wealth management company​​ has made a lot of efforts. As a public company, it has made a lot of investments and collaboration with various parties to achieve the net zero emission targets.

Schroders Indonesia encourages all of its investee companies to set emission reduction targets by 2050, and will carry out monitoring with a science-based framework internally and also invite third parties to jointly monitor the measured emission reduction efforts and achievements.

“We don’t want this to be what people say ‘hoax-thing’ that is written on paper and doesn’t have any  progress. These are the things we do to achieve our targets and participate in this global movement,” said Michael Tjoajadi from Schroders Indonesia.


Standardization of sustainability reporting to encourage sustainable financing

To make investors interested and willing to invest, Indonesia needs a standardization of sustainability reporting which can be referred to when making investment decisions.

Reflecting on the current situation, from a survey conducted on companies in Indonesia by the International Federation of Accountants, only 20% of these companies’ sustainability reports were audited by independent institutions.

“The problem is because there are no reporting standards that can be used by the auditor to check the report. In my opinion this is a big problem,” said Rosita Uli Sinaga from the Indonesian Institute of Accountants (IAI).

Indonesia needs a standard with higher quality and precision in terms of reporting. At the previous G20 event in Italy, IFRS received permission to set up a board of standards for sustainable reporting quality called the International Sustainability Standards Board. With this year’s G20 leadership momentum, it becomes important for Indonesia to prepare something similar and to be able to set and align with standards at the global level.

Great efforts are needed to harmonize policies with various initiatives to encourage financial service institutions to have a systemic impact, by involving many actors from various industrial sectors to decarbonize the industry and transition towards net zero emission.

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