ESG 2025 Comparisons

Indonesia is progressively embedding ESG principles into its regulatory framework, transitioning from voluntary guidelines towards more binding obligations. This shift reflects the government’s commitment to align domestic policies with global sustainability frameworks, including the Paris Agreement and the Net Zero 2060 target.

Presidential Regulation No. 110 of 2025 on the Implementation of Carbon Economic Value Instruments and National Greenhouse Gas Emission Control (“PR 110/2025”)

On 10 October 2025, the Government issued PR 110/2025 to replace the previous Presidential Regulation No. 98 of 2021 on the Implementation of Carbon Pricing to Achieve the Nationally Determined Contribution Target and Control over Greenhouse Gas Emissions in the National Development (“PR 98/2021”). PR 110/2025 introduces several key changes from PR 98/2021, namely the following.

1. International carbon trading

PR 110/2025 now recognises two types of international carbon trading, namely:

a. International carbon trading that requires authorisation and corresponding adjustment, covering:

• internationally connected greenhouse gas (GHG) emission trading;
• trading of GHG emission offset that fulfils Articles 6.2 and 6.4 of the Paris Agreement; and
• trading of voluntary GHG emission offset to fulfil other international commitments.

In this case, the authorisation will be issued by the Ministry ofEnvironment based on recommendation from relevant ministries.

b. International carbon trading that does not require authorisation and corresponding adjustment, which covers trading of GHG emission offset that is not used for achievement of Nationally Determined Contribution (NDC) and/or other international obligations, whether under Article 6.4 of the Paris Agreement or under voluntary GHG emissions offset standards.

PR 110/2025 also broadens the definition of “Carbon Unit”. Under PR 98/2021, the definition was limited to the units registered under the National Registry System for Climate Change Control (SRN-PPI). It now includes emission reduction and/or absorption being certified under domestic certification, international certification or GHG emission quota. Specifically for international carbon trading, PR 110/2025 states that the GHG emission offset carbon units being traded can be issued based on national standards, UNFCCC standards or other international standards.

PR 110/2025 also states that carbon trading may be carried out without waiting for the achievement of NDC targets.

The introduction of PR 110/2025, together with Indonesia’s recent entry into mutual recognition agreements with major international carbon certification organisations (including Verra and Gold Standard), is expected to boost the voluntary carbon market in Indonesia in the near future.

2. Introduction of the National Carbon Unit Registry (Sistem Registri Unit Karbon, or SRUK)

Any carbon units (including those issued by international standards) and carbon trading (including international carbon trading) must now be registered in SRUK. PR 112/2025 defines SRUK as a system to provide and manage data and information on carbon units for the implementation of carbon economic value instruments. The regulation mandates that SRUK shall use a decentralised network system, in which all data and transactions are transparent and traceable, reflect real-time information, and are permanent, connected and able to interact with other registry systems.

3. New NDC sector and subsectors

PR 110/2025 introduced a new NDC sector of “marine and fisheries” and new NDC subsectors of “oil and gas” and “blue carbon management”.

In the oil and gas subsector, the Ministry of Energy and Mineral Resources (MEMR) had previously issued MEMR Regulation No. 2 of 2023 on the Implementation of Carbon Capture and Storage, as well as Carbon Capture, Utilisation and Storage, in Upstream Oil and Gas Business Activities, and MEMR Regulation No. 16 of 2024, which governs the carbon capture and storage permitting areas.

The Minister of Marine Affairs and Fisheries recently issued Regulation No. 1 of 2025 on Procedure for the Implementation of Carbon Economic Value in the Marine Sector, which provides more detailed provisions on the carbon pricing mechanism in the marine and fisheries sector, introducing both emission trading and result-based payment schemes. It covers blue carbon management (mangroves, seagrass and coastal wetlands), fishing and aquaculture energy use, and fish-processing operations.

Institutional Restructuring: Environment and Forestry Split

Following the recent administrative transition, the former Ministry of Environment and Forestry has been split into two entities, which are: (i) the Ministry of Environment/Environmental Control Agency (MOE) and (ii) the Ministry of Forestry (MOF). This restructuring is expected to impact the enforcement of existing environmental and forestry regulations. The MOE is tasked with environmental licensing, pollution control and waste management, while the MOF manages forest conservation, sustainable forest use and related regulatory activities.

ESG Reporting by IDX-Listed Companies

In January 2025, the Indonesian Stock Exchange (Bursa Efek Indonesia, or IDX) launched a formal ESG reporting mechanism through Form E020, integrated into its electronic system. The form standardises ESG disclosures and aligns them with the Association of Southeast Asian Nations (ASEAN) Exchanges’ ESG Common Core Metrics. In addition, the current reporting framework adopts methodologies consistent with the GHG Protocol and ISO 14064 standards for emissions calculation and verification.

Indonesia Taxonomy for Sustainable Finance 2.0

In February 2025, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan, or OJK) released Indonesia Taxonomy for Sustainable Finance (Taksonomi Keuangan Berkelanjutan Indonesia, or TKBI) Version 2.0, expanding the previous framework beyond the general principles and energy sector by adding: (i) construction and real estate (C&RE), (ii) transportation and storage (T&S), and (iii) parts of agriculture, forestry and other land use (AFOLU), including forestry and palm oil. TKBI 2.0 covers 192 Standard Classification of Indonesian Business Fields (KBLI) codes.

Mandatory Emission Reporting in the Industrial Sector

To enhance the accuracy of industrial emissions data and strengthen monitoring of the sector, the Minister of Industry issued Circular Letter No. 2 of 2025 on Submission of Industrial Emissions Data Through the National Industrial Information System. This circular introduces mandatory emissions reporting obligations for industrial companies and operators of industrial estates, which consists of air pollutant data and GHG emissions data.

Air pollutant data must be based on test reports issued by ISO 17025-accredited laboratories that are also registered as environmental laboratories and referenced in the relevant environmental documentation. By contrast, GHG emissions data are to be reported on a self-assessment basis, using the forms provided on the SIINas platform.

Mandatory Energy Management for Major Energy Users and Suppliers

In March 2025, the MEMR issued MEMR Regulation No. 8 of 2025 on Energy Management. The regulation requires large energy users and providers that fulfil the following criteria to carry out mandatory energy management activities:

• energy providers that utilise energy sources and/or energy equal to or greater than 6,000 tonnes of oil equivalent per year;
• energy source users and/or energy users in the transportation sector that use energy sources and/or energy equal to or greater than 4,000 tonnes of oil equivalent per year;
• energy source users and/or energy users in the industrial sector that use energy sources and/or energy equal to or greater than 4,000 tonnes of oil equivalent per year; and
• energy source users and/or energy users in the building sector that use energy sources and/or energy equal to or greater than 500 tonnes of oil equivalent per year.

The energy management shall be done by way of:

• appointment of an energy manager within the organisation and formation of an energy management team;
• preparation of energy efficiency programmes;
• periodic energy audit; and
• implementation of audit energy results recommendations.

The entities are required to submit annual reports to the MEMR at the latest on 30 June of the following year. The regulation also provides a framework for the MEMR to grant incentives (fiscal and non-fiscal) to entities that comply with the energy management obligations and fulfil the energy efficiency success criteria for three years in a row.

Expanded Scope for Environmental Activism

Recently, the Constitutional Court issued Decision No. 119/PUU-XXIII/2025, which broadens the protection afforded to environmental activism. Previously, individuals could not be subjected to criminal or civil liability for fighting for the right to a proper and healthy environment. However, this protection was narrowly confined to “victims and/or reporting parties” who sought legal remedies for environmental pollution and/or damage. Such limitations weakened public participation, discouraged broader environmental advocacy and created legal uncertainty.

In its ruling, the Court clarified that the phrase “every person” must be interpreted more broadly, recognising the right to a proper and healthy environment as a fundamental human right. This interpretation extends protections beyond victims and complainants to encompass all individuals engaged in environmental advocacy. Many regard this decision as a significant victory for climate and environmental activism in Indonesia.

More Detailed Social Responsibility Obligations in the Mining Sector

To reinforce the principles of responsible mining practices, Law No. 2 of 2025 on the Fourth Amendment to Law No. 4 of 2009 on Mineral and Coal Mining provides more detailed provisions on mandatory community development and empowerment programmes. Previously, the law merely set out the responsibility obligation without further explanation.

The amendment introduces specific forms of this obligation, which include:

• corporate social and environmental responsibility programmes;
• involvement of local communities and indigenous peoples residing within the mining area; and
• partnership initiatives and community-based economic empowerment programmes.

The preparation of the above programme shall be consulted upon with the MEMR, the relevant regional government, and the local community and/or indigenous peoples.

Circular Letter of Minister of Manpower on Discrimination Prevention

The Indonesian Minister of Manpower has issued Circular Letter No. M/6/HK.04/V/2025 on Prohibition of Discrimination in the Employment Recruitment Process, which reaffirms the prohibition of discriminatory practices in job recruitment on any grounds. Under this circular, companies may impose age requirements only if: (i) the nature of the work objectively necessitates a specific age range with a demonstrable impact on job performance; and (ii) such requirements do not result in losses or a reduction in employment opportunities. The prohibition on discriminatory recruitment also expressly covers persons with disabilities.

Improvement in Banks’ Corporate Governance

OJK has issued Circular Letter No. 14/SEOJK.03/2025 on Governance Implementation for Commercial Banks (“OJK CL 14/2025”), which expands the criteria for banks’ self-assessment from 11 to 16 indicators. The new indicators include (1) sustainable finance and social/environmental responsibility, (2) anti-fraud strategy, including anti-bribery, and (3) governance in the group of banks.

The circular also provides more detailed guidance on preventing and managing conflicts of interest, particularly in transactions with related parties. In this context, banks are required to clearly define related parties, ensure fair treatment based on the arm’s length principle, establish exposure limits and conduct independent audits. The first self-assessment report under this circular must be submitted by December 2025.

International Financial Reporting Standards S1 and S2 Adoption

The Institute of Indonesia Chartered Accountants has adopted International Financial Reporting Standards (IFRS) General Requirements for Disclosure of Sustainability-related Financial Information (“IFRS S1”) and IFRS Climate-related Disclosures (“IFRS S2”) for nationwide implementation starting from 1 January 2027. After a series of lengthy consultations with authorities and stakeholders, a formal launching ceremony, co-hosted by Bank Indonesia, the Ministry of Finance and OJK, was held on 11 August 2025. OJK is aiming for the first reporting under the new standards to begin in 2028, following their formal adoption through the revision of disclosure regulations.

Each authority is responsible for translating laws into implementing regulations within its respective sector. Such implementing regulations are expected to provide clearer standards and actionable requirements for companies to ensure compliance.

For example, in the energy sector, Indonesia has committed to phasing out coal by 2040. To accelerate the transition, the MEMR issued Regulation No. 10 of 2025 on the Roadmap of Energy Transition in the Electricity Sector. This regulation mandates the early termination of coal-fired power plants before the end of their technical or planned operational life, while also considering electricity tariff impacts and the application of just energy transition principles.

ESG considerations are expected to have a growing impact on business operations across Indonesia. However, the sectors likely to be most affected by ESG laws and regulations in the coming years are energy, waste, industrial processes and product use (IPPU), and agriculture, forestry and other land use (AFOLU). The introduction of measures such as a carbon tax and adoption of international sustainability standards and treaties will significantly increase compliance obligations for companies in these sectors.

Indonesia is a member of the United Nations and has ratified the Paris Agreement through Law No. 16 of 2016. On 27 October 2025, the President of Indonesia submitted the country’s second NDC, outlining emission reduction commitments for the 2031–2035 period. This document projects that Indonesia will reach its peak emissions by 2030, with emission levels expected to be 8–17.5% lower than those projected in the previous NDC. 

At the regional level, Indonesia remains an active member of ASEAN, of which it is one of the founding members. Recently in 2025, the ASEAN Capital Markets Forum (ACMF), in line with its 2022 commitment to promote sustainable development, issued the ASEAN Simplified ESG Disclosure Guide to support small and medium-sized enterprises within supply chains. Looking ahead, OJK will assume the role of ACMF Chair, positioning Indonesia at the forefront of regional ESG standard-setting.

The most noticeable development in corporate governance has occurred within the financial sector. The enactment of Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (“Law 4/2023”) reinforces the obligation of banks to implement good corporate governance (GCG) in the conduct of their business activities. This mandate is further elaborated under OJK Regulation No. 17 of 2023 on Governance Implementation for Commercial Banks, which, among other provisions, requires banks to take additional measures as part of their governance, risk management and compliance frameworks. Further, OJK CL 14/2025 provides detailed guidelines for banks in applying corporate governance principles. OJK is expected to introduce additional regulations in the coming years.

The adoption of IFRS S1 and IFRS S2 in 2027 is expected to affect corporate reporting practices, requiring companies to adjust their disclosures to meet the new standards. Climate-related reporting will become mandatory under these frameworks, while disclosure of other non-climate ESG information will continue to be voluntary.

Apart from the aforementioned developments, Law No. 16 of 2025 on the Fourth Amendment to Law No. 19 of 2003 on State-Owned Enterprises (SOEs) has also been enacted recently. This regulation removes the provision that previously excluded, among others, directors, commissioners and supervisory board members of the SOE and Danantara (a sovereign wealth fund) from the scope of state officials and reinforces gender equality for employees in executive and managerial positions within the SOEs.

The main legal basis for general corporate governance in Indonesia is set out in Law No. 40 of 2007 on Limited Liability Companies, as amended by Law No. 6 of 2023 on Job Creation (“Job Creation Law”) (the “Company Law”).

In essence, the Company Law requires a limited liability company, whether public or private, to comply with the applicable statutory provisions including in its articles of association. Key stipulations include the requirement to hold an annual general meeting of the shareholders (GMS) to ensure transparency on the financial reports, the main responsibilities of the board of directors (BOD) and the board of commissioners (BOC), and the obligation to conduct corporate social and environmental responsibility (CSER).

OJK further regulates specific corporate governance for public companies (including listed companies), which has been enacted under the following regulations:

• OJK Regulation No. 21/POJK.04/2015 of 2015 on the Implementation of Corporate Governance Guidelines for Public Companies (“OJK Reg 21/2015”);
• OJK Circular Letter No. 32/SEOJK.04/2015 of 2015 on Corporate Governance Guidelines for Public Companies (“OJK CL 32/2015”);
• OJK Regulation No. 15/POJK.04/2020 of 2020 on the Planning and Convening of the General Meeting of Shareholders of Public Companies;
• OJK Regulation No. 14 of 2025 on the Implementation of Electronic General Meetings of Shareholders, General Meetings of Bondholders, and General Meetings of Sukuk Holders;
• OJK Regulation No. 33/POJK.04/2014 of 2014 on the Board of Directors and Board of Commissioners of Issuers or Public Companies;
• OJK Regulation No. 45 of 2024 on the Development and Strengthening of Issuers and Public Companies; and
• OJK Regulation No. 34/POJK.04/2014 of 2014 on the Nomination and Remuneration Committee for Issuers or Public Companies.

For example, OJK Reg 21/2015 and OJK CL 32/2015 set out GCG guidelines (“GCG Guidelines”) which address five key areas: (i) relations between companies and shareholders; (ii) the role of the BOC; (iii) the role of the BOD; (iv) stakeholder participation; and (v) transparency. While adherence to the GCG Guidelines is mandatory, the regime follows a “comply or explain” approach. Companies that do not comply must disclose in their annual reports the reasons for non-compliance and any alternative measures adopted. Failure to provide such explanations may result in OJK sanctions, including written warnings and fines.

OJK has also promulgated a number of regulations establishing corporate governance standards applicable to financial institutions, whether bank or non-bank, irrespective of their status as private or public entities, such as:

• OJK Reg 17/2023;
• OJK CL 14/2025;
• OJK Circular Letter No. 12/SEOJK.03/2024 of 2024 on the Implementation of Corporate Governance for People’s Economy Banks;
• OJK Regulation No. 73/POJK.05/2016 of 2016 on Good Corporate Governance of Insurance Companies, as lastly amended by OJK Regulation No 43/POJK.05/2019 of 2019; and
• OJK Regulation No. 48 of 2024 on Good Corporate Governance for Financing Institutions, Venture Capital Companies, Microfinance Institutions and Other Finance Institutions.

Under the Company Law, a company’s purpose is not limited to generating profits but also includes the obligation to carry out CSER. However, the Company Law limits such obligation for companies that engage in activities relating to natural resources (eg, mining, agriculture, energy, forestry and manufacturing). In practice, CSER has become an expected and common obligation across all sectors, especially for companies with a social or environmental impact.

Nonetheless, such CSER obligations have influenced the responsibilities of the BOD and executive officers, as Government Regulation No. 47 of 2012 on Social and Environmental Responsibility of Limited Liability Companies (“GR 47/2012”) requires them to integrate CSER programmes into the company’s annual work plan and allocate funding that is proportionate, reasonable, and recorded as part of the company’s expenses. The implementation of CSER must be disclosed and presented to the annual GMS through the company’s annual report.

Additionally, public companies and financial institutions, including issuers, are subject to Law 4/2023 and OJK Regulation No. 51/POJK.03/2017 on Implementation of Sustainable Finance for Financial Service Institutions, Issuers and Public Companies (“OJK Reg 51/2017”). These regulations require the preparation of an annual Sustainable Finance Action Plan that contains strategies and initiatives to integrate sustainability principles into business operations and financing activities, and its submission to OJK.

Social enterprises or entities pursuing non-profit objectives are generally established in the form of a foundation. Under Law No. 15 of 2001 on Foundations, as amended by Law No. 28 of 2004 (“Law 15/2001”), a foundation is a legal entity consisting of separate assets intended to achieve specific objectives in the social, religious and humanitarian fields, which does not have members. Different from limited liability companies, all kinds of profit are prohibited from being distributed to the advisers, administrators and supervisors of the foundation. However, there is no restriction preventing a foundation from holding shares in a company.

In the context of public companies, ESG has become an emerging trend in Indonesia, as reflected in IDX’s initiative to establish ESG reporting early this year. This system, supported by the applicable laws and regulations, has led to a growing number of public companies adopting ESG practices. Consequently, shareholders’ perspectives in decision-making and policy setting have shifted, with greater alignment towards applicable ESG standards.

Under OJK Reg 51/2017, companies are required to present their Sustainable Finance Action Plan to shareholders through the GMS, thereby encouraging shareholders to recognise the importance of ESG implementation in business operations. The practical implementation of this requirement is also reflected in IDX’s official ESG index, which evaluates companies against defined thresholds to determine their compliance with ESG standards.

Further, to strengthen the implementation of GCG, OJK CL 32/2015 sets forth principles and recommendations on GCG to be applied by shareholders in relation to their respective companies.

In addition, the Company Law imposes a general obligation on certain companies, both private and public, to conduct CSER with its realisation reported at the annual GMS. This demonstrates that shareholders are also expected to play an active role in fulfilling ESG-related obligations.

OJK continues to strengthen the sustainable finance framework through a series of non-binding guidelines designed to direct the market and prepare stakeholders for forthcoming binding regulations. Following the issuance of TKBI 2.0, OJK plans to release TKBI 3.0 in 2026, expanding coverage to include the agriculture, industrial processes and product use (IPPU), and waste sectors, as well as approximately 537 additional KBLI codes. Revisions to sustainable finance regulations are scheduled for 2027, with full implementation targeted by 2028.

In parallel, Bank Indonesia has strengthened its sustainable finance incentives. Through Regulation of the Board of Governors (PADG) No. 21 of 2024 on the Second Amendment to PADG No. 11 of 2023 on Regulations on the Implementation of Macroprudential Liquidity Incentive Policies, it expanded the eligible sectors for incentive-based financing to include water supply, waste management, waste treatment and recycling. Banks that extend financing to these sectors may receive incentives in the form of reduced reserve requirements (giro wajib minimum, or GWM) maintained with Bank Indonesia on an average basis. This expansion complements existing incentive-linked financing categories, namely: (i) property loans or financing for environmentally friendly properties; and (ii) motor vehicle loans or financing for environmentally friendly vehicles.

Although Indonesia has mandated sustainable finance under Law 4/2023, the implementing regulations are still under development. One key step forward has been the issuance of OJK Regulation No. 18 of 2023 on Issuance and Requirements for Debt Securities and Islamic Bonds based on Sustainability, which regulates sustainable debt securities and Islamic bonds (Efek Bersifat Utang dan Sukuk, or EBUS), covering:

• green bonds and/or green Islamic bonds;
• social bonds and/or social Islamic bonds;
• sustainability bonds and/or sustainability Islamic bonds;
• waqf Islamic bonds;
• sustainability-linked bonds and/or sustainability-linked Islamic bonds; and
• other types of green EBUS as determined by OJK.

Although not legally binding, OJK strongly encourages banks and other financial institutions to use TKBI 2.0 as a key reference in identifying and classifying sustainable investees and debtors. Financial institutions could utilise TKBI 2.0 as part of their investment decision-making and due diligence processes in credit, financing and insurance. Similarly, credit rating agencies will consider TKBI 2.0 to provide ESG-related data to investment managers in the management of sustainable investment funds and in the selection of investees.

There is no widely cited market survey on the accessibility of sustainable finance in Indonesia. However, OJK’s Sustainable Finance Statistic (per June 2025) indicates steady growth. Bank lending and financing under the environmentally friendly business activity category increased from IDR705,154 billion in 2019 to IDR2,047,366 billion in 2024. Similarly, the issuance of green EBUS rose from IDR500 billion in 2018 to IDR27,190 billion in 2025. These figures suggest that sustainable finance has demonstrated a consistently positive trend over recent years.

Currently, there is no hard law in Indonesia that strictly prohibits banks or investors from funding high-emission or traditional industries. However, ESG regulations and market expectations may affect these sectors’ access to financing. This raises the risk of stranded assets and limits the ability of “old economy” borrowers to fund their operations or transition.

The current pressing point lies in ensuring that the government’s downstreaming programme is implemented in line with strong ESG standards. For example, since 2020, the government has banned the export of raw nickel ore to encourage the construction of domestic smelters. While this policy supports industrial growth, it also raises ESG concerns, including the environmental impact of smelter operations, energy use and potential community conflicts.

There have been no greenwashing cases brought to trial in Indonesia to date.

In the industrial sector, the Ministry of Industry (MOI) has published its Industrial Decarbonisation Roadmap, aiming to provide clearer policy directions for emission reduction by the year 2050. In support of this initiative, the MOI plans to enact a Ministerial Regulation on Industrial Decarbonisation in 2026. The proposed regulation is intended to ensure that industry participants comply with the requirements and measures outlined in the roadmap, thereby facilitating the systematic implementation of decarbonisation initiatives across the sector.

Particularly for the financial sector and publicly listed companies, in order to strengthen the implementation of TKBI 2.0, OJK plans to amend OJK Reg 51/2017 to incorporate the standards of IFRS S1 and IFRS S2, effective from January 2027. TKBI will serve as a key indicator of green and sustainable performance under the climate-related disclosure framework.

At present, Indonesia does not have specific regulations requiring the conduct of due diligence within the value chain. Nevertheless, several regulations have been enacted concerning the supply of goods. For instance, as further outlined in 5.3 Regulation of ESG Labels, Presidential Regulation No. 16 of 2025 on Indonesian Sustainable Palm Oil (ISPO) (“PR 16/2025”) mandates that business actors engaged in the palm oil plantation sector, the downstream palm oil industry and palm oil-based bioenergy operations obtain ISPO certification. This certification encompasses compliance with applicable laws and regulations, as well as adherence to principles of traceability and sustainable business practices. Consequently, distributors may also be required to ensure that the goods they handle comply with the certification requirements.

Additionally, the Ministry of Human Rights has developed a voluntary self-assessment platform (Penilaian Risiko Bisnis dan HAM, or PRISMA) to assist businesses in identifying potential human rights risks arising from their operations. One of the key indicators assessed under PRISMA relates to the supply chain, including the number and types of suppliers (such as outsourcing arrangements) and the company’s policies or criteria for supplier selection.

With the emerging trends in ESG due diligence promoted by the international community, such as the EU Due Diligence Directive and the OECD Handbook on Environmental Due Diligence, international investors and other relevant stakeholders are increasingly emphasising the importance of ESG compliance throughout the supply chain. Many are seeking to determine whether there are corresponding ESG-related regulations applicable in Indonesia.

Environmental Aspect of Due Diligence

Under Government Regulation No. 22 of 2021 on Administration of Environmental Protection and Management, environmental approval is a prerequisite to obtaining a business licence. Such approval is mandatory for all business entities or activities. Based on the nature, scale and potential environmental risks of their operations, businesses may be obligated to prepare and submit an Environmental Impact Assessment (Analisis Mengenai Dampak Lingkungan, or AMDAL) or other relevant environmental management documents (such as UKL-UPL, Environmental Management and Monitoring Efforts or SPPL, Statement of Capability for Environmental Management and Monitoring). Since an environmental permit constitutes a prerequisite for a company’s business licensing, ensuring compliance with this requirement during a due diligence is essential for the company’s ability to operate.

Social Aspect of Due Diligence

With respect to employment matters, a merger or acquisition transaction will also cover this aspect, as it is essential for the acquiring company (buyer) to evaluate potential employment-related risks associated with the target company (seller). This due diligence assessment is carried out pursuant to the provisions of Law No. 13 of 2003 on Manpower as amended by the Job Creation Law (“Manpower Law”). The Manpower Law stipulates the fundamental requirements for employers to provide employment agreements, for either a definite or indefinite term, which must include, among other things, provisions on working hours, compensation and minimum wage. Further, an employer is required to submit a Company Mandatory Employment Report (Wajib Lapor Ketenagakerjaan Perusahaan) on an annual basis. This reporting obligation is also taken into account during due diligence to verify the company’s compliance.

In the context of an acquisition, the transaction is subject to Article 42 of Government Regulation No. 35 of 2021 on Fixed-Term Employment, Outsourcing, Working Hours, Rest Periods and Termination of Employment Relationships (as the implementing regulation of the Manpower Law as amended by the Job Creation Law). Under this provision, employees may exercise the right to request termination of their employment with entitlement to compensation if changes in work requirements arise as a result of the acquisition, particularly where the new controlling party reduces the employees’ compensation and/or benefits.

Governance Aspect of Due Diligence

As outlined in 2.2 Differences Between Listed and Unlisted Entities, the Company Law sets out the fundamental framework for corporate governance applicable to all limited liability companies. GCG compliance under the Company Law, such as annual GMS, the appointment of the BOD and BOC, as well as its financial statements, must also be considered. Further, there are additional corporate governance requirements for specific sectors (such as public companies and financial services institutions) that require special attention when conducting due diligence.

Mandatory ESG disclosure in Indonesia currently applies to publicly listed companies and financial services institutions. These entities must submit an annual sustainability report and make it publicly accessible. Under OJK Circular Letter No. 16/SEOJK.04/2021 on the Form and Content of Annual Reports of Issuers or Public Companies, the sustainability report must cover three key components: (i) sustainability strategy and governance, (ii) ESG performance and target achievements, and (iii) sustainability data and metrics.

For example, environmental aspects in a sustainability report must, as a minimum, cover:

• energy use;
• emission reduction;
• waste and effluent reduction; and
• biodiversity conservation.

For non-listed companies, the Company Law requires that the CSER Report be included as part of the annual report submitted to shareholders. However, there is no obligation for these companies to publicly disclose such information.

PR 110/2025 requires businesses to record and report, among other things: (i) their climate change mitigation and adaptation actions and (ii) the extent of their achieved GHG emission reductions and/or removals. The submission shall be made through the SRN PPI.

Several mining companies have also voluntarily published decarbonisation transition plans for their operations.

Sustainability claims in Indonesia are regulated through both mandatory and voluntary labelling schemes. Palm oil is subject to mandatory certification under PR 16/2025, requiring all producers to obtain ISPO certification before marketing their products, thereby ensuring claims are verifiable. Separately, the MOE administers a voluntary eco-label scheme under MOEF Regulation No. 2 of 2014, which allows products to carry a government-certified eco-label only after independent verification and formal MOE approval.

It is also notable that Law No. 8 of 1999 on Consumer Protection prohibits businesses from making false or misleading claims regarding the condition, liability, warranty, rights or compensation of a product.

ESG disclosure compliance and sustainability-related claims are monitored by several regulators, each with its own authority, including OJK for sustainability report disclosures by financial institutions, listed companies and issuers, and the MOE for eco-label inclusion and general environment-related claims.

Non-compliance with the sustainability report submission requirement is subject to sanction in the form of reprimands or written warnings.

For non-compliance with ISPO certification, sanctions may include:

• a written warning;
• temporary suspension; or
• revocation of the business licence.

For misuse of the eco-label, businesses may be subject to complaints and sanctions in the form of a warning and an obligation to remove the eco-label logo from their products.

As OJK targets 2028 as the start of mandatory reporting aligned with IFRS sustainability standards, publicly listed companies and financial institutions will need to adjust their reporting systems, governance and data collection processes to meet these requirements. In the coming years, progress is expected in the form of gradual capacity-building, pilot projects and alignment with TKBI 2.0.

Regarding the environment aspect of ESG, pursuant to Law No. 32 of 2009 on Environmental Protection and Management as amended by the Job Creation Law (“Environmental Law”), there are a few mechanisms by which to initiate environment-related cases against companies. In accordance with the Environmental Law, designated parties are authorised to initiate legal action against companies or business activities that result in pollution and/or environmental degradation causing harm to the environment, under the following rights:

• The right for central and regional government: The right to file a lawsuit or take specific actions for the government adheres to the institutions/authorities for environmental matters in the event that they have found businesses and/or activities that caused pollution and/or environmental degradation resulting in harm or loss to the environment.
• The right for civilians: The public has the right to file a representative (class action) lawsuit for their own interests and/or for the interests of the community if they suffer harm as a result of pollution and/or environmental degradation.
• The right for environmental organisations: Environmental organisations have the right to file lawsuits for the purpose of preserving the functions of the environment, where the right is limited only to claims seeking specific actions, without claims for compensation, except for actual costs or expenditures incurred. Such an environmental organisation must also ensure that it (i) has established itself as a legal entity; (ii) has specified in its articles of association that the organisation is founded for the purpose of preserving the functions of the environment; and (iii) has carried out tangible activities in accordance with its articles of association for a minimum of two years.

The procedural mechanisms for handling environmental cases are further regulated by Supreme Court Regulation No. 1 of 2023 on Guidelines for the Adjudication of Environmental Cases. This shows further support for the relevant parties to ensure legal certainty and the protection of justice in the handling of environmental matters.

Regarding the social aspect of ESG, particularly in relation to employment, Indonesia has a long-established and dedicated court system to adjudicate employment cases across the Indonesian territory. Law No. 2 of 2004 on Industrial Relations Dispute Settlement, as amended by the Government Regulation in lieu of Law No. 1 of 2005 (“Law 2/2004”), sets out the mechanisms for resolving disputes between companies and their employees or labour unions, including (i) disputes concerning employee rights; (ii) disputes arising from conflicting interests; and (iii) disputes relating to termination of employment. Law 2/2004 serves as the procedural guideline in resolving the dispute, where consideration shall be given to whether there has been any breach of the employment agreement, company regulations, collective labour agreement or applicable laws, ie, the Manpower Law and its implementing regulations.

Additionally, for consumer-related cases (ie, greenwashing), Law No. 8 of 1999 on Consumer Protection prohibits business actors from producing and/or trading goods and/or services that do not align with the claims stated in the label, packaging, description, advertisement or sales promotion of the said goods and/or services. In addition, this regulation prohibits business actors from promoting goods using exaggerated language or offering something that includes uncertain promises. In such instances, consumers may file a lawsuit against the business actors.

In the context of policy-making, NGOs and activists have played an important role. For example, TKBI 2.0, which serves as a reference for financial institutions, investors and business actors, both domestically and internationally, in disclosing information relating to financing, funding and investments in green economic activities, involves stakeholders from different sectors, including associations, NGOs, environmental activists/enthusiasts and academicians, in the determination of the outcome of TKBI 2.0.

Not to mention, NGOs and activists have also been proactively providing opinions and conducting analyses, as well as engaging in advocacy through social media and other channels, with the purpose of communicating and addressing concerns relating to environmental changes, particularly those occurring within the territory of Indonesia. Many NGOs and activists in Indonesia initiate movements to express their concerns against companies, as well as citizen lawsuits against the government, urging for a more sustainability-oriented policy to be implemented (as mentioned in 6.1 Instruments for ESG Litigation, the Environmental Law specifically enables environmental organisations to file a lawsuit in environmental cases). Even so, the mechanisms for addressing public input remain underdeveloped and require further enhancement to ensure that concerns relating to ESG matters that have been delivered through NGOs, activists and other related parties are effectively communicated, considered and appropriately acted upon within relevant policy and decision-making processes.

Presently, there are no claims that have been brought by investors or regulatory authorities for such cases. Except for OJK Reg 51/2017, presently, Indonesia has yet to enforce applicable laws and regulations that have the potential to impose sanctions following claims or lawsuits in the event of greenwashing, green hushing or green bleaching by investors and the regulatory authorities. Even with the enactment of OJK Reg 51/2017, the regulation itself only stipulates that OJK is authorised to impose administrative sanctions and written warnings in the event that the obligated companies do not fulfil the obligation of sustainable finance. Due to these reasons, no claims have been brought to date, as the prospect of initiating proceedings on the basis of greenwashing (including green hushing and green bleaching) by investors and regulatory authorities remains highly unlikely.

The prospect of ESG-related proceedings in Indonesia remains limited, largely due to the absence of clear and robust laws and regulations with which to challenge corporate conduct on ESG grounds. In light of this, it is unlikely that many claims will arise in the near future. Nonetheless, there has been increasing demand from stakeholders, including international investors and the general public, for more robust implementation and enforcement of ESG standards. Fortunately, the government has demonstrated support for further strengthening and incorporating ESG standards into policies that are currently being developed and those to be introduced in the future. This means that there might be a chance of increased ESG-related proceedings, upon the development and issuance of regulations and policies in connection with ESG standards.