JAKARTA, Wednesday (August, 25, 2021)–Melbourne Business School in Collaboration with Synthesis Communication held the second roundtable with the theme: Sustainability & Business: A Strong Path to Grow.
The discussion brought various perspectives from the panelists including Andrew C. Beckham, Chief Financial Officer, PT Bumi Resources Tbk, Ahmad Solichin Lutfiyanto, Director of Compliance, PT Bank Rakyat Indonesia Tbk and Glenn Hoetker, Professor of Business Strategy, MBS Foundation Chair of Sustainability & Business. The Roundtable was moderated by Shoeb Kagda, Founder of Synthesis Communications Indonesia.
Glenn Hoetker, Professor of Business Strategy, MBS Foundation Chair of Sustainability & Business kicked off the discussion with key points including: sustainability is not a choice and will affect every company; it is a trade – off between costs and benefits and there is no magic solution; companies must consider timeframes as it cannot be executed overnight and lastly it is about relationships with communities, workers, suppliers and others;
He emphasized three significant points in his presentation. Firstly, just like COVID-19, sustainability isn’t a choice. Secondly, there aren’t solutions as we have had to balance options to create trade-offs in order to keep businesses operating without causing too much damage for the future. Third, the earlier you start to plan for and take action on those trade-offs, the more time, the less pressure you have in getting it right and the greater your odds of success.
Professor Hoetker added, “We need to stop thinking about sustainability strategy as something separate from your real strategy. Rather, I encourage you to make sustainability part of your overall strategy.”
“We all have our preferences for how others, be it insurers, regulators, funders etc. are going think about sustainability and we can try and influence that, but at the same time, there are limits to what we can influence and part of this really the big strategic challenge for every industry going forward is, how do you manage those trade-offs given the things in the small e-environment, in the environment we operate in, that are changing and the pace they’re changing at,” he noted.
“It’s not just the customer, it’s the employee, it’s the supplier, it’s the community that you rely on who are becoming more and more concerned about this and that creates opportunities for companies that can really capture that energy and I think it’s that combination of bottom-up and top-down that’s going to really drive things forward.”
“I would say we can always look at the sustainability arenas or areas: the product (what we do), process (how we do what we do) and purpose (why we do what we do). And there will be top down aspect. First, managers. It can be our regulator, funders. Then the individual consumer, employee, supplier and community that is becoming more and more concerned about this issue. This provides big opportunities for companies that can capture this energy and booming area for sustainability investing now,” Professor Hoetker noted.
Andrew C. Beckham, Chief Financial Officer, PT Bumi Resources Tbk. in his comments noted that in sustainability, it isn’t a matter of the pace, but the willingness to conduct business in a sustainable manner. In mining industry the Indonesian government has compelled industries to be sustainable as possible and for the mining sector, it has mandated coal gasification, liquid natural gas and other downstream industries. It is also mandatory for mining companies to develop green areas such as solar panel, mining process electrification using green energy.
Being sustainable has become imperative from a financing and business perspective as investors today put a premium on companies that are sustainably manage. “Our financing costs can be lower and we are also more attractive to investors if we deemed to have sustainable practices,” he said.
Mr Beckham added that for at least the next 20 years, coal will still be needed as an energy source. Rather than eradicate the use of coal, people should join hands and create solutions on how to make it efficient.
This can be achieved by coming out with strategies on how to make it greener, making coal mining more carbon neutral. As miners, it is also important to be responsible in reducing the carbon footprint. “You’ve got to try to encourage that green development, not by stopping, coal” said Mr Beckham.
“We will always be a responsible miner. And we have to encourage everyone, includes banks and also insurance companies that in the past can’t help us because we are coal producer. Now I’ve seen banks require the green elements,” he added.
Ahmad Solichin Lutfiyanto, Director of Compliance, PT Bank Rakyat Indonesia said that the market for green bonds and sustainable product instruments in Indonesia offers huge opportunity. From a global perspective, sustainable bond issuance has reached around US$291billion or around 6% of total global bond issuance in 2020. It has been growing significantly over the years, increasing by 4 times in the last 5 years, compared to sustainable bond issuance in 2016.
Indonesia’s domestic market is also growing significantly in line with the global trend. In 2019, BRI issued sustainable bonds, followed by other SOE banks such as Bank Mandiri in 2021. The National Development Planning Agency (Bappenas) noted there is a financing gap for Indonesian SDGs projects from the non-government sector of between US$79-US$137 million. This provides a huge opportunity for the issuers of sustainable instruments from non-government sector.
“The fact that Indonesia is one of the most attractive emerging markets, with the demographic composition dominated by productive age of millennials who are highly concerned with companies and banks being more sustainable; strong government support and favorable economic conditions, the conditions are ideal for the growth of the sustainable finance market,” Mr Solichin said.
With growing support from regulatory perspective, for example fundamental regulatory issuance include ratification of the Paris Agreement, presidential regulation roadmap to sustainable financing by OJK in 2017, the upcoming national task force for sustainable finance, sustainability instruments are expected to grow in the next two to three years. Meanwhile, the role of ESG rating agencies will become more critical as investors will consider their rating as well as to identify gaps to improve a company’s sustainability journey.
In the coming years, BRI will expand its sustainability offering beyond the SME sector to new areas such as green energy, transportation projects such as the Jakarta LRT, as well as RSPO/ISPO certified palm oil.
“We started our sustainable finance journey from a very basic initiative, the CSR program. Then later we received alot of pressure from stakeholders asking us to improve our initiatives in sustainable finance and there was also increased attention from Western investors and regulators. So we realized that we needed to develop our sustainability projects beyond just CSR projects. Our ESG initiatives so far are too focused on social and economic value in MSME, but now we have seen large room for improvement. We are now in the process of strengthening our ESG governance starting with the setting up a roadmap for the next phase of our journey,” Mr Solichin added.