The modern business paradigm has now shifted from being solely oriented toward financial profitability to being more holistic. Stakeholders, ranging from investors and regulators to consumers, now demand transparency regarding how a corporation manages the operational impacts of its activities on the environment, social equity, and internal governance.
In this context, Environmental, Social, and Governance (ESG) and sustainability reports have become vital instruments. In Indonesia, this awareness has been growing since 2005 and received a strong regulatory push through Financial Services Authority (OJK) Regulation No. 51/POJK.03/2017, which mandates financial institutions and public companies to report their sustainable activities gradually.
According to OJK data, the number of business entities adopting ESG principles in the country rose sharply from 45 companies in 2018 to 675 companies in 2023. Nevertheless, this quantity does not yet reflect quality. Research on 767 sustainability reports of listed companies over the 2016–2022 period shows that although report volume increased by up to 69 percent during the 2020–2021 period, the depth and transparency of presented environmental impact information remain inconsistent.
Many companies are suspected of merely fulfilling administrative obligations to comply with applicable regulations. In fact, mature ESG integration is proven to correlate positively with long-term financial performance. Research on 84 listed companies on the Indonesia Stock Exchange (IDX) for the 2019–2023 period shows that strong ESG performance significantly boosts company profitability, particularly in the Return on Assets (ROA) and Return on Equity (ROE) ratios.
In addition to optimizing business value in the eyes of investors, preparing sustainability reports helps management map operational risks earlier. Identifying energy consumption, waste management, and relations with surrounding communities can minimize potential social conflicts and regulatory fines, while stimulating environmentally friendly technological innovation.
Despite offering numerous benefits, ESG implementation in Indonesia still faces complex challenges. Data system limitations, high initial investment costs for medium-sized enterprises, and the risk of greenwashing practices without real action are major obstacles. Therefore, engaging independent audits (external assurance) is crucial to guaranteeing the credibility of published sustainability reports.
