Why Indonesia’s ESG Narrative Must Be Rooted in SDGs

In recent years, ESG (Environmental, Social, and Governance) has become a defining language of sustainable business. ESG ratings, sustainability disclosures, and thematic bonds are reshaping corporate strategies and capital flows. In Indonesia, this trend is accelerating—with regulators encouraging ESG reporting and financial institutions pushing for sustainable portfolios. But beneath the growing momentum lies a critical challenge: Indonesia’s ESG narrative risks becoming structurally shallow if it is not explicitly rooted in the Sustainable Development Goals (SDGs).

The ESG Narrative Dissonance

The ESG framework, while useful, is not value-neutral. It reflects what we choose to measure, report, and prioritize. When ESG is applied without a moral compass, it can lead to performative compliance rather than structural transformation. Companies may score high on ESG indices yet still contribute to emissions, ignore labor rights, or engage in extractive business models. ESG, in such cases, becomes a signal—one that reassures markets but says little about long-term alignment with national or planetary goals.

Indonesia stands at a unique crossroads. The country has integrated the SDGs into its national development plans, including the RPJMN and subnational action plans. Therefore, it supposedly already possesses a clear framework for long-term sustainable transformation. Yet, most corporate ESG disclosures in Indonesia remain disconnected from the SDG architecture. Reports are abundant, but coherence is lacking. This disconnect weakens both the credibility of ESG practices and their contribution to national priorities.

Potential for Alignment

The release of Indonesian Taxonomy for Sustainable Finance marks an important step toward aligning financial flows with sustainability objectives. The 2024 update reflects encouraging progress—extending its scope beyond green sectors to include wider environmental and social considerations. Still, as the taxonomy continues to evolve, further efforts may be needed to strengthen its role as a clear and effective signal for the market.

Without SDG alignment, ESG data remains fragmented—lacking a north star to define impact. To move forward, the taxonomy must be more than a classification tool; it must evolve into a narrative framework that links capital allocation with development outcomes.

Globally, the pressure to move from reporting to results is mounting. Investors, especially those with impact mandates, are increasingly skeptical of ESG ratings that are not backed by substantive change.

In this context, Indonesia has an opportunity to lead—not by mimicking ESG trends from abroad, but by anchoring its ESG narrative in the SDGs it helped shape. Such alignment would not only ensure greater policy coherence but also reduce the risk of greenwashing and enhance trust in the integrity of the Indonesian market.

This is not a call for more indicators or reporting obligations. Rather, it is a strategic invitation to reframe ESG within a development logic: to move beyond checklists and toward a purpose-driven economy. ESG metrics should reflect how companies contribute to reducing inequality, strengthening climate resilience, and advancing inclusive growth—all core elements of the SDGs.

Reframing Indonesia’s ESG Narrative

Indonesia’s strength lies in its ability to build bridges—between public and private sectors, between local wisdom and global frameworks, and between national aspirations and international responsibilities. By integrating SDGs into corporate ESG strategies, Indonesia can offer a distinctive model: not ESG as compliance, but ESG as nation-building in the 21st century.

Moreover, this integration will require institutional innovation. ESG reporting cannot be siloed within corporate sustainability departments or seen as a niche responsibility. Ministries, financial regulators, enterprises, and even subnational governments must coordinate to align incentives, standards, and impact measurement. The SDGs provide a common grammar through which such coordination can occur—across sectors and across scales.

Without clear linkage to the SDGs, the ESG narrative runs the risk of being perceived as a reputational exercise rather than a developmental commitment. This weakens market trust and may disincentivize meaningful investment in structural change. Conversely, when ESG is explicitly mapped to SDG targets—such as reducing stunting, expanding renewable energy, or promoting financial inclusion—it provides investors with clarity, regulators with accountability tools, and companies with purpose. It transforms ESG from a mirror of market expectations into a vehicle for societal alignment.

Opportunity for Meaningful Changes

For Indonesia, this alignment is not only a matter of integrity—it is a matter of positioning. As the country navigates its G20 legacy, ASEAN chairmanship, and aspiration to join the OECD, the strength of its sustainable finance narrative will shape its global influence. A robust, SDG-rooted ESG narrative would distinguish Indonesia as a nation that does not just follow ESG trends—but redefines them from the perspective of the Global South.

Because in the end, the world does not need more sustainability reports. It needs sustainability with direction.

Editor: Nazalea Kusuma

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