Pushing for Change in Doing Business in Indonesia

Jakarta Globe, Muhamad Al Azhari & Tito Summa Siahaan, November 29, 2013

Company executives pose with their sustainable business awards at the Business
 for the Environment (B4E) Summit in Jakarta on Thursday. The event stressed that
environmentally sound business practices should be the standard to strive for.
(JG Photo/Yudhi Sukma Wijaya)

Gone are the days when companies operating in Indonesia had no obligation to pay any attention to the environment, with the country’s investment chief now calling for a sea change in how environmental sustainability should be viewed in the context of doing business.

“For Indonesia, it is not just a voluntary decision to be a part of this global undertaking,” Mahendra Siregar, the chairman of the Investment Coordinating Board (BKPM), said on Thursday at the Business for the Environment (B4E) Indonesia Summit 2013 in Jakarta.

“Sustainable development, and sustainable investment is not just a matter a choice, it is not just an option. It is a must,” he said.

More sustainable and environmentally friendly business practices have increasingly become more important for investors, stakeholders and shareholders, Mahendra told business leaders, top government officials as well as prominent figures from nongovernmental organizations at the B4E summit.

“Unless your business model, the supply-chain activities are already very much in accordance globally and nationally recognized sustainable practices, then it is just a matter of time before you are out of business,” said Mahendra, a longtime bureaucrat who has held various important positions in the government.

The summit was hosted at the Shangri-La Hotel in Jakarta by the Indonesian Chambers of Commerce and Industry (Kadin), Global Initiatives, BeritaSatu and the Indonesian Business Council for Sustainable Development (IBCSD). The Jakarta Globe is a BeritaSatu publication.

The new paradigm being pushed by Mahendra has elsewhere been dubbed green economy practices.

According to United Nations Environment Program, a green economy is defined as “one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.”

In its simplest form, a green economy should result in low carbon emissions, be resource efficient and socially inclusive.

Around 400 delegates from various stakeholders, including local and multi-national companies, had a chance to discuss recommendations for sustainability, natural capital valuation as well as investments in sustainable forestry and agricultural landscapes during the summit.

Key figures speaking at the forum included Bayu Krishnamurthi, the deputy minister for trade; Peter Holmgren, the director general of the Center for International Forestry Research (Cifor); and IBCSD president Shinta Kamdani.

“If we understand the big picture, then individually we can share our ideas and initiatives to enrich not only the discussion, not only the conceptual thinking, but more importantly to the concrete deliverable that are now much needed than just an issue of negotiations,” Mahendra said.

“There are no other options.”

Indonesian companies, particularly palm oil producers and pulp and paper companies, have long been criticized by environmental organizations for massive deforestation that contributes to greenhouse gas emissions.

Some Indonesian companies have adopted green business practices while others are only starting to catch up to the new measures. Analysts note that an obstacle to making the business model standard practice is that it requires a large amount of investment, which can discourage many companies from spending the money on such an investment. Lack of awareness is also to blame, observers say, but the trend appears to be changing.

“Increasingly investors look at companies from a perspective called ESG, or environmental, social and governance,” said Tony Gourlay, the chief executive of Global Initiatives, a forum that promotes sustainable global development through a series of media projects and international events like the B4E Summit series.

“There are some criteria that private banks, private equity companies and institutional investors, see when they make decisions to invest,” he said.

Shinta said many companies “still have very limited understanding about what sustainable development is.”

“Some think that corporate social responsibility is sustainable development, and some say that if they talk about green, it should be in the context of public relations affairs, or marketing tools, or a means to promote the company,” she said.

The IBCSD is a CEO-led association from corporations operating in Indonesia. Members of the association, which was conceived by Kadin in April 2011, share a commitment to promoting sustainable development and the main aim of encouraging companies to apply ecological balance, apart from best social practices.

“I think we should change those kind of mind-sets and I believe there should be a set of standards for what we call green business,” said Shinta, who is also the chief executive and owner of Sintesa Group, a conglomerate with a diversified portfolio covering property, industrial, energy and consumer businesses.

The B4E Summit also honored the winners of the second annual Sustainable Business Awards (SBA), which recognize best practices and leadership in sustainable business among Indonesian companies.

Developed in partnership with Kadin, BeritaSatu, Global Initiatives and PricewaterhouseCoopers, the SBA methodology mixes the best sustainability benchmarking and awards processes globally to deliver green business growth.

Twenty-one companies received awards on Thursday night, coming from various sectors, including construction, banking and finance, health care, and even pulp and paper.

“This shows Indonesian companies are realizing that sustainable business makes sense for many reasons,” Gourlay said.

Senior government officials have emphasized that sustainable business is not merely a concept, but something that is reflected in national policies.

Bayu, the deputy trade minister, said sustainability in business meant sustainable economic growth for the country.

“We implement sustainable practices not because we have to, but because we need to,” he said.

He added the Trade Ministry had directed its policies toward sustainable practices with a view toward three objectives: environmental protection, fair trade, and economic growth.

“That’s why we have some of the toughest licensing rules in the world for timber product, known as SVLK, and for palm oil, known as ISPO,” Bayu said.

“With these rules, we want to make life very difficult for those who don’t follow the highest standards of sustainability.”

The strongest call for companies to go greener, however, has always come from customers. One example of how pressure from customers effected positive change can be seen in Unilever, the consumer goods giant that invested in a palm oil processing plant in the Sei Mangkei Special Economic Zone (SEZ) of North Sumatra, specifically to allow it enable the traceability of the palm oil used in its products.

“Unilever plans to purchase palm oil sustainably from certified, traceable sources by 2020,” the company said on its website. “As one of the world’s largest buyers of palm oil for use in products such as margarine, ice cream, soap and shampoo, Unilever recognizes the need to be able to trace where its palm oil is grown. Unilever also wants to ensure certified palm oil supplies are not mixing with non-certified supplies during milling, transport and use,” Unilever said. The plant will be operated by a Unilever subsidiary, Unilever Oleochemical Indonesia, and is scheduled to start commercial production next year.