Sustainability, in the context of environmental degradation, is older than you may think. With evidence dating back to at least 500 BC by Plato, discourse on humanity’s impact on the environment has remained consistent. This has been amplified recently by climate change where, for example, 195 parties at the 2015 Paris Agreement agreed to limit the global temperature rise.
Enter: Corporate Social Responsibility (CSR) and Environmental, Social, Governance (ESG), two contenders in an earth-sized ring.
CSR, while taking many forms, most often refers to disparate company initiatives to address environmental or social concerns. Unsurprisingly, two criticisms are CSR’s potential for greenwashing and the potential for one-off, unimpactful projects. Born out of these criticisms and the growth of sustainable investment was ESG, a framework for keeping companies accountable across three distinct pillars. While often thought to be synonymous with CSR, ESG actually represents a measure of a company’s impact on the environment, society, and its employees.
When done correctly, both strategies could make the difference so many businesses claim. The true meanings, however, seem to have been lost amid the vanity-chasing projects of Indonesia’s corporate world. So what, then, is the difference?
*News articles published about each keyword are not mutually exclusive; a climate change article may also address CSR measures.
Data for the chart above are Indonesian news articles containing the keywords Climate Change, CSR, or ESG over the period January 2014 to December 2023. With Climate Change as a reference keyword, ESG, despite its trendy newcomer status, has not managed to edge out CSR. From January 2021 to the present, all three keywords share approximately the same number of articles published. When compared to worldwide Google Trends data, we see ESG becoming more popular than CSR since May 2021. This suggests Indonesian ESG reporting is yet to catch up to the rest of the world.
The European Union, for instance, has required companies with operations in the EU to publish annual sustainability reports according to ESG-based European Sustainability Reporting Standards (ESRS). Albeit at varying levels of rigor, many countries have similar mandatory ESG reporting including China, Malaysia, and the U.K. Indonesia is no exception, although reporting is only mandated for publicly-listed companies.
At such national scales, the biggest question is how effective are these measures really? For Indonesia, mandatory sustainability reports are only limited to the 900 companies listed on the stock exchange, as of December 2023. Data on the number of companies in Indonesia is difficult to find but a 2016 Economic Census by Indonesia’s Central Bureau of Statistics lists over 26 million, 350 thousand of which are medium to large businesses (UMB). That is, only 0.3% of medium to large businesses need to report their societal and environmental impact (or 0.004% of all businesses). These numbers are likely much smaller as the number of businesses continue to grow.
In spite of this, sustainability in one form or another is undoubtedly a part of many business strategies. But how do companies incorporate sustainability? Data used for the following sections are Indonesian ESG and CSR news articles from a sample of 14 companies over the period 2018-2023. The companies span 8 different industries and were selected from the Indonesian Stock Exchange’s top 50 largest companies by market capitalization.
The first category of note is the Donation category (38% CSR and 14% ESG). Within this category, companies donated money, clean water, and animals to sacrifice for Eid Al-Adha, among other things. When the company’s business model has no relation to the objects of donation or cause, the most likely reason for this behavior is PR. This is especially true when it is a one-off donation.
The biggest ESG category (24%), Commitments, sees companies pledging to engage in ESG, mostly focusing on the Environmental pillar. Some examples in this category are participation in Earth hour and a commitment to sustainable business through an ‘ESG Day’. One substantial category (11% CSR and 8% ESG), Awards, reports on the innumerable awards these companies won for their ESG efforts. Lastly, Other (25% CSR and 6% ESG) compiles all the categories amounting to less than 5 percent of the total headlines. The projects outlined here are varied but include river conservation, providing internet for students, a turtle conservation program, and providing a single ambulance during the pandemic.
A sizable portion appear to miss the mark when engaging in ESG. Not many companies report on all three pillars, let alone measurable metrics for the pillars they do. Instead, attention is drawn to impressive sums and shiny awards without consideration for the projects’ real impact. This is more forgivable for CSR, given its company-defined metrics, but likely leads to criticism among skeptical stakeholders.
As to the companies doing ESG/CSR right, here are a couple examples. At a total investment value of Rp 10.8 trillion, cigarette producer, Gudang Garam, is currently building an airport in Kediri as part of a CSR initiative. The airport, fully funded by Gudang Garam’s own capital, will be turned over to the government for commercial use upon completion. Besides increasing eastern Java connectivity for the masses, Gudang Garam is headquartered in Kediri. The airport will likely cut down travel time and costs for Gudang Garam employees, a great example of Creating Shared Value (CSV). Interestingly, there were only two articles about this airport in the entire dataset.
Coal mining company, Kaltim Prima Coal (KPC), is an example of ESG done right. Based in Sangatta, KPC heavily invests in its people and region. Some measures and activities they have carried out include: prioritizing Sangatta residents when recruiting and offering training programs; building schools, health care facilities, and residences in Sangatta; offering scholarships for the children of KPC employees; and an externally regulated system of reporting Code of Conduct violations. Despite starting at a disadvantage as a coal company, KPC appears to recognize its negatively impacted stakeholders and works towards helping them. As a testament to their efforts, 65% of Sangatta are either employees of KPC, contractors, or families of employees.
Media coverage of Indonesia’s sustainability projects generally portray the responsible companies as motivated by vanity and the pursuit of shiny awards, instead of a lasting impact on the environment and society. However, hidden in the haystack are a few golden needles with instructions on how to do sustainability right. Perhaps through greater media attention on the effective projects and the presence of far-sighted leaders, we would have more KPCs and Gudang Garams.
Written by Lucas Ong