SUSTAINABILITY REPORT AND APPLICATION OF ESG PRINCIPLES AS ONE OF THE REQUIREMENTS IN IDX LISTING
On September 21, 2021, PT. Visi Globalindo Data Utama (VISI) in collaboration with Kadin Indonesia held a Virtual Business Dialogue entitled “Leveraging Sustainability Practice in Corporate Branding & Marketing” by presenting a number of speakers who are experts in their fields from institutions such as the Indonesian Coalition for Business Sustainable Development (ICBSD), Global Reporting Initiative (GRI) and PT. Bursa Efek Indonesia. This event is a series of Business Dialogues held to help Indonesian business people to increase business growth and resilience, especially during the current pandemic.
New Trends in Assessing Company Performance
In recent years, a new trend has emerged in assessing the performance of a company. Where investors not only consider financial and operational factors but also consider environmental, social and corporate governance factors or also known as the Environmental, Social, and Sovernance (ESG) score. The ESG score measures a company’s performance on ESG issues and the level of risk associated with ESG.
The ESG criteria are considered to help investors in examining environmental, social and governance topics when making investment decisions. It reveals data that traditional financial analysis usually does not capture such as corporate sustainability in a broad sense.
In Europe, the ESG score and the Sustainability Report are very commonly used as an assessment of company performance. Meanwhile, in Indonesia, even though ESG has been introduced for more than a decade, not many people know about it or use it. However, currently, the Indonesia Stock Exchange (IDX) has begun to encourage all public companies or listed on the IDX to have environmental, social and corporate governance (environment, social, and governance (ESG) principles starting in 2022. The application of these principles ESG, among others, requires issuers to submit sustainability reports in stages. By 2020, there are at least 135 issuers on the IDX that have published sustainability reports. The number recorded a significant increase from 54 issuers in the previous year.
ESG and Sustainability Report Provides Many Benefits for Companies
The application of ESG principles and Sustainability Reports will provide benefits for the company in the future, including contributing to efficiency, productivity, long-term risk management, to operational improvements. The Sustainability Report has a varied effect, seen from the type of profitability ratio used, where social aspects affect the company’s financial performance. The better the disclosure in the social performance of the company reported in the sustainability report, the higher the financial performance.
The Sustainability Report not only contains information on financial performance but also contains information on no-financial performance consisting of environmental and social activities that will enable the company to grow sustainably (sustainable performance). Sustainability Report is also believed to improve reputation and is believed to increase reputation and trust for consumers. With the increasing reputation of the company, the direction and goals of the company are no longer limited to how to accumulate company wealth but rather to the achievement of sustainable development reported in the Sustainability Report.
Based on a study from the Asian Development Bank Institute, it is stated that ESG-based companies in Southeast Asia are more profitable than non-ESG companies. The average net profit margin of 143 companies in 10 Southeast Asian countries that prioritize green investment is almost 2% higher. Meanwhile, in Europe, investment that prioritizes ESG increased from USD 12 billion in 2016 to USD 14 billion in 2018. An increasing trend is also seen in the United States, Japan, Canada, Australia, and New Zealand. Meanwhile, in Indonesia, based on data from the Financial Services Authority (OJK) as of December 2020, there are only 14 ESG-based mutual funds and ETF products with the value of managed funds (asset under management/AUM) reaching IDR 3.062 trillion.
Although the portion of ESG-based investment in Indonesia is still small, the trend continues to increase from year to year. It is hoped that in the future more companies will apply the principles of ESG and Sustainability Report so that more stakeholders and investors will believe in investing in Indonesia.