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Regulatory update
Indonesia's journey to sustainability reporting has seen a gradual shift from regulatory frameworks focusing on the internal impact of businesses to adopting global standards that emphasise external risks and opportunities.
The cornerstone of Indonesia's sustainability reporting framework is POJK 51/2017, a regulation introduced by Indonesia’s Financial Services Authority (OJK) that requires public companies and financial institutions to develop and submit a Sustainable Finance Action Plan and an annual Sustainability Report
POJK 51/2017 adopts an ‘inside-out’ perspective, focusing on how business operations affect external stakeholders, including communities, ecosystems and the broader environment. This regulation encourages companies to address their social and environmental footprints, providing transparency and accountability to the public, investors and other stakeholders.
However, as part of its long-term strategy to align with international standards and ensure better integration with the global sustainability landscape, Indonesia is planning to adopt the International Financial Reporting Standards (IFRS) S1 and S2 by 2027. These frameworks mark a significant shift by adopting an ‘outside-in’ approach. Unlike POJK 51/2017, which emphasises the inside-out impacts of business activities, IFRS S1 and S2 require companies to assess how external sustainability risks—such as climate change, resource depletion, and social upheaval—could affect their financial performance, governance structures and business strategies. The focus is on how these risks influence the company’s value chain, operations and long-term resilience.
This shift from inside-out to outside-in reflects a paradigm change in how sustainability is incorporated into business operations. POJK 51/2017 focuses on measuring and managing a company’s impacts on its external environment, while IFRS S1 and S2 stress the importance of understanding how external sustainability challenges impact corporate value and risk management.
The planned adoption of IFRS S1 and S2 standards is expected to significantly expand the scope and depth of sustainability reporting in Indonesia. By doing so, it will provide companies with a more robust framework to identify, assess, and report on sustainability risks and opportunities. This will help enhance the transparency and reliability of sustainability disclosures, giving investors, stakeholders, and policymakers a clearer picture of a company’s long-term viability in the face of global challenges like climate change.
As part of this transition, Indonesia's government has outlined key stages for the adoption of IFRS S1 and S2, indicating that these global standards will be gradually implemented alongside POJK 51/2017. This phased approach allows businesses time to adapt to the more comprehensive reporting requirements, ensuring that Indonesian companies can meet both local and international sustainability expectations.
Update to POJK 51/2017 - Adoption of IFRS S1 and S2 is pending developments from DSK-IAI
(DSK IAI standard assumption are issued in Q2 2025)
As Indonesia aligns its national framework with global standards, the Institute of Indonesia Chartered Accountants (IAI) and OJK are driving further enhancements to sustainability reporting. In November 2023, the IAI established the Sustainability Standards Advisory Board (DPSK) and the Sustainability Standards Board (DSK) to set national sustainability disclosure standards.
Update for Standard Development:
The IAI issued its Sustainability Disclosure Standards (Standar Pengungkapan Keberlanjutan/ SPK) Roadmap (Peta Jalan Standar Pengungkapan Keberlanjutan or SPK Roadmap) in December 2024. The SPK Roadmap is a strategic direction for the preparation and development of SPK, based on ISSB Standards.
There are three main points emphasised in the SPK Roadmap:
1. Standards Implementation Strategy
In adapting the ISSB Standards convention and the readiness of sustainability reporting practices and ecosystems in Indonesia, there are two key points:
- Climate first: While the ISSB Standards include both climate-related disclosures and environmental performance information on nature-related issues beyond climate, the SPK only mandates climate-related disclosure. Disclosures 'beyond climate-related information' are considered voluntary.
- The SPK is expected to become effective on January 1, 2027, with early adoption permitted.
2. Assurance on Sustainability Reporting (Assurance on SR)
The need for ‘assurance’ provided by an independent party to SR has the potential to enhance the quality of SR and safeguard the public interest. Realizing this need requires the establishment of audit standards, regulations, and professional ethics specifically for SR.
3. Sustainability Reporting Ecosystem (SR Ecosystem)
A strong and comprehensive SR ecosystem is essential for the effective implementation of the SPK.
Key elements:
- Standards: Establish standards for preparing and assuring SR.
- Regulations: Implement regulations mandating the preparation and assurance of SR.
- Capacity and competence: Ensure that the parties involved in preparing, assuring, and supervising SR possess the necessary skills and expertise.
The DSK issued two Exposure Drafts (ED) of Pernyataan Standar Pengungkapan Berkelanjutan (PSPK) related to sustainability disclosure standards on December 17, 2024. These consist of PSPK 1 (General Requirement for Disclosure of Sustainability-related Financial Information) and PSPK 2 (Climate-related Disclosures), which are adopted from IFRS S1 and S2 (issued by the ISSB).
ED PSPK 1 requires entities to apply this core (fundamental) content to sustainability-related risks and opportunities. Conversely, ED PSPK 2 applies to climate-related risks and opportunities. The implementation of both PSPK 1 and PSPK 2 are expected to become effective on January 1, 2027, with early adoption permitted.
These efforts demonstrate Indonesia's proactive approach to developing comprehensive sustainability reporting standards that align with national priorities while positioning Indonesian companies to meet global expectations for transparency in ESG disclosures.
What's next:
Key market insights:
Indonesia has committed to achieving net zero emissions by 2060 under its nationally determined contribution (NDC). To reach this target, the country has outlined a roadmap with key regulatory developments and sustainability initiatives.
- POJK 51/2017: Mandates public companies and financial institutions to submit sustainable finance action plans and sustainability reports.
- Green Bond and Sukuk Framework (2018): Established to promote green financing in the country.
- POJK 14/2023: Introduces carbon trading through a carbon exchange, regulating carbon market activities.
- PSPK1 & PSPK 2 (based on IFRS S1 & S2): Set to begin annual reporting in 2027, requiring companies to disclose sustainability and climate-related financial information.
- Climate Risk & Management Scenario (CRMS): A pilot project for 18 banks in 2024 to assess and manage climate-related financial risks.
- Indonesian Taxonomy for Sustainable Finance (TKBI): Launched in 2024, aligning Indonesia’s sustainable finance practices with global standards.
Looking ahead, several initiatives are planned:
- Expansion of TKBI: To include sectors like construction, agriculture, and forestry by 2025, and industrial processes and waste sectors by 2026.
- CRMS Refinement: Full implementation and supervisory actions in 2025.
- POKK adoption of IFRS S1 & S2 and CRMS Full Implementation: To be achieved by 2026, ensuring alignment with global sustainability standards for Indonesian companies.
The transition to IFRS S1 and S2 will significantly change how Indonesian companies report sustainability. With POJK 51's inside-out perspective now complemented by IFRS's outside-in approach, companies must capture both their operational impacts on the environment and how external sustainability risks affect their business.
Rosita Uli Sinaga, Managing Partner of RSM’s Consulting practice and Chair of the Sustainability Standards Monitoring Board (IAI), emphasised that, “The integration of financial and sustainability disclosures requires the same level of governance and internal controls as financial reporting. This not only enhances transparency but also prepares companies to compete in global markets.”
For example:
The transition to IFRS S1 and S2 requires companies to integrate sustainability reporting with financial reporting, moving away from the previous practice of maintaining separate reports, such as financial statements prepared by finance/accounting and sustainability reports prepared by the ESG team or other related departments.
This shift necessitates enhanced governance and collaboration among finance, strategy, risk management, and sustainability teams. Furthermore, the implementation of consistent internal controls for both types of reporting is essential. As a result, sustainability reports can be cross-referenced with financial statements, allowing companies to report their sustainability performance alongside financial metrics, thereby improving transparency and stakeholder trust.
The increased focus on ESG and climate has heavily impacted the energy, mining and agriculture sectors in Indonesia, due to their significant environmental and social impact. These industries are at the forefront of Indonesia’s push for sustainable practices, driven by regulations such as POJK 51/2017 (on sustainable finance) and the upcoming adoption of IFRS S1 & S2. Each sector must integrate transparency and responsible practices into their operations to manage and mitigate sustainability risks, using a blend of inside-out and outside-in approaches to ensure they are both reducing their environmental footprints and addressing external climate-related challenges.
Indonesian companies must evaluate sustainability risks throughout their entire value chains, extending beyond the requirements of POJK 51/2017. This assessment encompasses the identification of vulnerabilities within the supply chain, such as the potential impact of climate risks on financial performance and reputation.
For example, a manufacturing company that sources raw materials from a region prone to climate risks (such as flooding) must disclose this vulnerability under IFRS S2 as part of its climate risk management strategy. The potential disruption to supply chains must be directly linked to the company’s financial report, showing how these risks may affect cash flow, costs, and, ultimately, profitability.
As the demand for accurate ESG reporting grows, assurance services are becoming essential. Global assurance rates have increased from 51% in 2019 to 69% in 2022, indicating that companies increasingly recognise the value of external verification. To enhance the credibility of their sustainability disclosures, Indonesia’s financial sector and public companies must adopt globally recognised assurance standards.
Rosita Uli Sinaga - Managing Partner, Consulting at RSM Indonesia and Chair of Indonesia's Sustainability Standards Oversight Board
“Indonesia’s adoption of IFRS S1 and S2 represents a monumental shift towards integrating sustainability into core business strategies. By ensuring that ESG is not just a compliance requirement but a strategic initiative, companies can unlock long-term value and foster trust with stakeholders.”
The information on this page is current as of 9 Janauary, 2025