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ESG: The Future of Sustainable Investment

ESG Illustration (Techno Business)
ESG Illustration (Techno Business)

The worsening climate crisis has triggered the world to change the development system that cannot support a sustainable future. The Indonesian government tries to move toward sustainable development after Suharso Monoarfa as the Minister of National Development Planning/Head of Bappenas with Per Bolund, Swedish Minister of Environment and Climate, and the Swedish Minister of Infrastructure Thomas Eneroth signed a commitment to develop the concept of a blue economy in Indonesia. This concept is part of the Indonesian National Long-Term Development Plan (RPJPN) 2005-2025. One of the development plans is to boost the business sector to meet ESG standards for sustainable investment.

What is ESG?

ESG Poster (Sustainability Academy)
ESG Poster (Sustainability Academy)

In realizing Indonesia’s sustainable economic development, the business sector has an important role in implementing green investment. Green investment is implemented in compliance with Environmental, Social and Governance (ESG) standards. ESG is a standard to implement green investment practices regarding the environmental and social impacts of investment activities and company operations.

In Indonesia, ESG investment grows well because the number of products has increased from 1 product in 2016 to 15 products in 2021 at the Indonesian Stock Market (Bursa Efek Indonesia/BEI). The government also issued bonds that were standardized with ESG as much as IDR 35.2 trillion to support a sustainable economy.

Why is ESG Important?

Growing Plants Illustration (West Papua Diary)
Growing Plants Illustration (West Papua Diary)

In general, ESG provides benefits from environmental sustainability, employee welfare, and investment aspects. From an environmental point of view, ESG-certified companies have operational systems, supply chains, and investments that take into account the environmental impact. Therefore, they contribute to climate change prevention, and emission reduction.

Another important aspect to achieve ESG is employee welfare. Companies that want to obtain this certification must ensure the welfare and development of their employees. Therefore they have to uphold employee rights, work policies, and capacity-building facilities.

In addition to these two aspects, investment profits are the main goal for companies and investors. Companies that have been certified ESG are considered to have stable business activities. Environment recovery efforts are seen as part of mitigating the future impacts of climate change which will affect business and investment. ESG companies also have trusted credibility, accountability, and inclusiveness so that they have great investment opportunities.

Implementation Strategies of ESG

ESG Strategies Poster (Dorothy Neufeld / Visual Capitalist)
ESG Strategies Poster (Dorothy Neufeld / Visual Capitalist)

To implement ESG, companies must ensure that their investments aim to reduce negative environmental and social impacts. This goal is realized in 7 ESG investment strategies as follows:

  1. Exclusionary: Negative impact on businesses selection
  2. Best in Class: Selection of ESG companies based on ratings
  3. ESG Integration: Analysis and adjustment of ESG aspects
  4. Sustainability Theme Investment: investing in companies that bring certain environmental conditions 
  5. Green Bond: Investment in the form of debt in green projects 
  6. Impact Investment: An investment that targets positive impacts rigidly
  7. Stewardship & Engagement: Supervision of environmental and social aspects management between investors and companies

 

Of all these practices, exclusionary and ESG integration are mostly applied by companies and investors. Exclusionary is widely used to ensure that investment objectives are right on target to industries that truly support environmental sustainability. Meanwhile, ESG integration is widely used because it helps the investment managers analyze and adjust investment strategies that benefit both parties flexibly. 

Indonesian ESG Companies

Kalbe Office (Kalbe)
Kalbe Office (Kalbe)

Several private and government companies are also implementing the ESG standard and have obtained a good ESG index from MSCI in the Indonesia ESG Leaders Index report. MSCI is an American financial company who is also engaged in ESG index services. They rank ESG indexed companies with the Best In Class strategy. Examples of ESG companies in Indonesia are PT Bank Central Asia (Banking), PT Kalbe Farma (Health), and PT Unilever Indonesia (Consumer Products).

The implementation of ESG that prioritizes environmental sustainability is a strategy that can be applied by industry players to invest in the future of the earth and the company. This is part of implementing a circular economy that is currently being developed in Indonesia.

Not only industrial players but also you can also be involved in ensuring the earth remains healthy in the future for the well-being of you and all of humanity. Click here to make changes!

Author :

Aviaska Wienda Saraswati

Aviaska Wienda Saraswati

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