The mining industry plays a vital role in the global economy, including in Indonesia. According to Statistics Indonesia (BPS) (2022), this sector accounts for approximately 12% of Indonesia’s total exports and contributes 7.31% to Gross Domestic Product (GDP).
However, mining activities also have significant environmental impacts, such as deforestation, water pollution, and carbon emissions. In recent years, the concept of Environmental, Social, and Governance (ESG) has become a major focus in efforts to mitigate these negative impacts and encourage more sustainable business practices.
What is the essence of ESG?
ESG (Environment, Social, and Governance) is a framework or approach used to assess the sustainability and social responsibility impact of an organization. Here’s the essence of each aspect of ESG:
- Environment: Focuses on how an entity manages its impact on the environment, including carbon emission reduction, energy efficiency, waste management, natural resource conservation, and climate change adaptation.
- Social: Assesses an entity’s impact on society, such as respecting human rights, providing decent wages, ensuring occupational health and safety, strengthening relationships with local communities, and safeguarding the well-being of workers and stakeholders.
- Governance: Involves good governance, such as transparency, honesty, accountability, risk management, and the application of business ethics to ensure the sustainability of the organization.
Why is ESG so important?
ESG has become a critical element in the modern business world for three main reasons:
- Long-Term Sustainability: ESG helps companies understand and manage their environmental, social, and governance impacts, thus creating sustainable businesses.
- Investor Confidence: Many investors now prefer companies that implement ESG well because they are perceived as more stable and committed to a greener future.
- Regulation and Compliance: ESG also helps companies comply with increasingly stringent environmental and social regulations, reducing legal and reputational risks.
Policy recommendations are crucial in implementing ESG. The government can establish incentive policies for companies that reduce carbon emissions, such as carbon taxes or renewable energy subsidies. They can also implement stricter regulations related to environmental management, such as wastewater management, air emissions, and waste management, as well as the use of recycled materials.
In Indonesia, the implementation of ESG (Environmental, Social, and Governance) is regulated through several important regulations aimed at promoting sustainability in the business world. The following are some of the main regulations related to ESG:
- Presidential Regulation No. 59 of 2017
- Regulates the achievement of the Sustainable Development Goals (SDGs), which cover environmental, social, and governance aspects.
- Presidential Regulation No. 111 of 2022
- Establishes national targets for sustainable development until 2024.
- Law No. Law No. 40 of 2007 concerning Limited Liability Companies
- Article 74 stipulates that companies operating in the natural resources sector are required to implement social and environmental responsibility (CSR).
- Companies must allocate a budget for implementing this responsibility and report it in their annual report.
- Government Regulation No. 47 of 2012
- Strengthens the provisions of Law No. 40 of 2007 by requiring companies to include a social and environmental responsibility work plan in their annual work plan.
- Paris Agreement (Law No. 16 of 2016)
- Enactment of the Paris Agreement to support climate change mitigation and adaptation actions. This encourages companies to integrate ESG principles into their operations.
- OJK Regulation No. 57/POJK.03/2017
- Regulates good corporate governance principles for issuers and public companies.
- Financial Services Authority (OJK) Regulation No. 51/POJK.03/2017
- Regulates the format and content of annual reports for issuers and public companies, including ESG disclosures.
- This report must include sustainability strategies, environmental, social, and governance performance, and the company’s response to stakeholder feedback.
In addition to the main regulations above, ESG is fully supported by the following Ministerial Regulations:
- Ministerial Regulation of the Environment and Forestry (PERMENLHK) Number 1 of 2021.
- The Corporate Performance Rating Program in Environmental Management (PROPER) issued by the Ministry of Environment and Forestry (KLHK). This program aims to encourage companies to adopt sustainable practices with a focus on environmental management.
- Ministerial Regulation of the Environment and Forestry Number 21 of 2022.
- Regulating the economic value of carbon to support greenhouse gas emission reductions in accordance with the Enhanced Nationally Determined Contribution (ENDC).
- Ministerial Regulation of the Environment and Forestry Number 7 of 2023.
- Providing guidance for carbon trading in the forestry sector
