ABSTRACT
Sustainability reporting plays a crucial role in disclosing a company’s environmental, social, and governance (ESG) impact. In Indonesia, the preparation of sustainability reports began with a voluntary approach and gradually moved toward more structured regulations. Corporate awareness and compliance in sustainability reporting have increased, as seen in 2024, when 97% of listed companies submitted their sustainability reports. The Indonesian Institute of Accountants (IIA) introduced the Sustainability Disclosure Standards Statement to align disclosures with global frameworks. However, assurance standards are still needed to enhance the credibility of these reports.
A sustainability report is a document that contains information related to the environment, social, governance, and economic impacts of a company. This report evaluates how the company conducts its operational activities by incorporating factors of environment, social, and governance, commonly referred to as ESG, as well as the strategies implemented for future sustainability (Emerick, 2023).
The preparation of sustainability reports in Indonesia began with a voluntary approach and gradually transitioned toward more structured regulations. Initially, companies referred to international standards such as the Global Reporting Initiative (GRI) to report on sustainability and ESG aspects. As awareness of the importance of transparency grew, the Financial Services Authority (FSA) issued FSA Regulation No. 51/POJK.03/2017, which mandates companies to prepare Sustainability Reports, as well as FSA Circular Letter No. 16/SEOJK.04/2021 regarding the Format and Content of the Annual Report for Issuers or Public Companies. Public corporations, issuers, and financial service institutions are required to generate this sustainability report (PwC,2023).
The number of companies listed on the Indonesia Stock Exchange (IDX) that report sustainability reports has increased significantly from year to year, indicating that there is a growing awareness and compliance among companies to submit sustainability reports. In 2019, 54 issuers submitted sustainability reports. In 2021, this figure rose to 135 issuers. The number of companies that submitted sustainability reports through the information disclosure facility on the IDX continued to rise until 2023 financial year, when as many as 873 companies, or 97% of the total listed companies, had done so.
This rise in awareness was followed by the establishment of sustainability reporting standards that were more closely aligned with international standards. Indonesia will commence the implementation of IFRS S1 and S2, which govern the disclosure of information regarding climate risks and sustainability factors in corporate financial statements, in 2024. IFRS S1 provides guidelines on the disclosure of sustainability factors that impact a company’s financial performance, while IFRS S2 focuses on the disclosure of climate-related risks. With the introduction of these standards, it is expected that sustainability reports in Indonesia will become more comprehensive and transparent, supporting companies in managing and communicating ESG risks more clearly.
This is supported by the role of the Indonesian Institute of Accountants (IIA), which, at the end of 2024, issued the Exposure Draft on General Requirements for Financial Information Disclosure Related to Sustainability and exposure draft on Sustainability Disclosure related to Climate Change refer to the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB), which are donated as DE PSPK 1 for General Requirement and DE PSPK 2 for Climate Change.
DE PSPK 1 and DE PSPK 2 are part of the Sustainability Disclosure Standards (SDS), which serve as the foundation for preparing disclosures of sustainability-related financial information. The disclosure of this information and financial reports is a component of general purposes financial reports. In terms of preparation, both companies and the accounting profession have played a significant role, with 97% of companies being aware of and reporting their sustainability reports by 2024. The Indonesian Institute of Accountants (IIA) has also taken part in preparing the reporting standards. Now, Indonesia needs to prepare assurance standards to ensure the accuracy and credibility of the sustainability reports being compiled, so they can meet global standards and enhance stakeholder confidence.
In 2022, the International Auditing and Assurance Standards Board (IAASB) established relationships and engaged in discussions with stakeholders, including the International Organization of Securities Commissions (IOSCO), the International Forum of Independent Audit Regulators (IFIAR), the Financial Stability Board (FSB), the European Commission (EC), the United States Securities and Exchange Commission (SEC), the Committee of European Auditing Oversight Bodies (CEAOB), the International Sustainability Standards Board (ISSB), the Global Reporting Initiative (GRI), the Forum of Firms (FOF), the Global Public Policy Committee of the largest international network firms (GPPC), and Jurisdictional/National Standard Setters (NSS).
Engagement with these stakeholders clearly demonstrates the demand for international standards for assurance in sustainability reporting, in order to reduce the risk of fragmentation of assurance standards globally and promote the implementation of consistent and high-quality assurance practices.
Finally, this led to the approval in September 2022 by the IAASB of a project proposal to develop a core assurance standard for sustainability reporting. The proposal stated that the objective of the project is to develop a new core standard for assurance on sustainability reporting that:
- Responsive to the public interest’s need for timely standards that support the consistent and high-quality implementation of sustainability assurance engagements;
- Applicable to all sustainability topics, the information disclosed on these topics, and the reporting frameworks; and
- Usable by all assurance practitioners.
The proposed Exposure Draft of the International Standard on Sustainability Assurance (ISSA) 5000 (ED-5000) was approved at the Board meeting in June 2023 and published on August 2, 2023. ED-5000 is accompanied by an Explanatory Memorandum that highlights public interest issues and key matters addressed by the IAASB in developing the exposure draft.
With the publication of ED ISSA 5000 as the international guideline for assurance on sustainability reporting, the next step for Indonesia is to determine who will develop, adopt, and formulate the regulations within the scope of Indonesia. It is crucial for Indonesia to establish appropriate assurance standards, so that each sustainability report submitted can ensure its accuracy, thereby enhancing the credibility and trust of these reports in the eyes of stakeholders.
Monitoring compliance with the alignment of Sustainability Report preparation to the standards set by IIA, including the form of assurance referring to the standards established by Indonesian Institute of Public Accountants, will be an important milestone for professional practices regarding management assertions and assurance by independent accountants. The SW Sustainability Centre continues to develop the latest tools and infrastructure, incorporating technology to assist in the preparation of Sustainability Reports and assurance working papers for Sustainability Reports.
