Listed companies on the Indonesia Stock Exchange (IDX) are set to ramp up efforts to tackle climate change and improve gender equality as part of an agreement that will also make them more attractive to the growing number of investors looking for sustainable assets.
Under a memorandum of understanding (MoU) announced between the IDX, International Finance Corporation (IFC), a member of the World Bank Group, and with the support from Swiss State Secretariat for Economic Affairs (SECO), listed companies and prospective listers will be encouraged to strengthen Environmental, Social and Governance (ESG) practices. The move is expected to boost the companies’ efforts to better weigh ESG issues, including climate-related risks, and help them deliver on sustainability goals. This collaboration had a commencement through the opening bell ceremony for “IFC and IDX ESG Collaboration Launch Event and ESG Leadership Training” held on Thursday (16/3) in the Main Hall of IDX, Jakarta, Indonesia.
While developing countries still need significant amount of an estimated $2.5 trillion financing needs to achieve the SDGs, with an additional projected shortfall of $1.7 trillion as a result of COVID-19—IFC estimates over $23 trillion in investment opportunities in green and climate-related sectors and activities that can help achieve national goals aligned with the Paris Agreement and accelerate the global transition to a low-carbon economy.
“IDX wants to develop the Indonesia capital market ecosystem to adopt and gain advantage from the sustainable practices. This MoU is envisioned to strengthen ecosystem in Indonesia capital market where business and sustainability go hand-in-hand. This collaboration will provide platform to boost the green investing ecosystem in Indonesia and to introduce it to the international spectators”, said Risa E. Rustam, Director of IDX.
The launch of this collaboration also marks the beginning of ESG Leadership Capacity Building series, which is expected to increase awareness of IFC’s Performance Standards and Corporate Governance Methodology and help Indonesian companies address critical ESG topics, including effective Environmental & Social governance and risk management systems, disclosure and transparency, climate risk and mitigation, and gender.
“Twenty-odd years ago, there was no handbook for managing risks in project finance in developing countries, so we established a set of performance standards. Today, what we know from experience, is that sustainability and profitability are not mutually exclusive business objectives, and we are seeing institutional investors increasingly integrating ESG considerations into their investment decisions,” said Randall Riopelle, IFC Acting Country Manager for Indonesia and Timor-Leste. “And at the end of the day, sustainable investing gives people a way to put their money behind their convictions for greener, more inclusive, and more resilient communities.”
Indonesia, a resource-rich country, relies heavily on natural resource exploitation to sustain economic growth, resulting in significant E&S issues. Indonesia is also ranked in the top third of countries in terms of climate risk, with high exposure to flooding, extreme heat, and sea-level rise. Indonesia’s transition to a low-carbon and climate-resilient future will require huge investments and the role of the private sector is crucial. The strengthening of ESG practices will also enable capital markets to play a bigger role in Indonesia’s transition to a low carbon and climate resilient economy.
“There is a growing recognition from capital markets that transparent disclosure on governance, environmental, and social factors help investors make informed decisions and assess exposure to risks and resilience,” said H.E. Olivier Zehnder, Ambassador of Switzerland to Indonesia, Timor-Leste, and ASEAN. “Our partnership with IFC and IDX complements our larger work in sustainable development. It will build on our past work in promoting ESG standards and practices and help guide financial flows towards sustainable investments for a more inclusive and sustainable economic development.”
This cooperation is part of the Indonesia Integrated ESG program launched by IFC and SECO to help regulators, investors, companies, as well as partners in Indonesia manage ESG risks and bottlenecks by promoting effective decision-making and E&S risk management. In addition to working with the Indonesian regulators and IDX, IFC also supports the local institute of directors, training centers and provides ESG advice to Indonesian companies. The signing of the MoU will also support the efforts of Indonesian companies to align with international best practices.
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2022, IFC committed a record $32.8 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises. For more information, visit www.ifc.org.