For the past 10 years, Indonesia is experiencing rapid progress in term of infrastructure development.  It has made significant progress over the past decade, with a focus on enhancing economic growth and achieving sustainable development goals (Sulistyowati & Wibowo, 2022). President Joko Widodo’s administration has prioritized infrastructure development as a key driver of economic advancement in the country (Benyamin & Soekarno, 2023). To expedite infrastructure projects, the Indonesian government has implemented Public-Private Partnerships (PPP) to leverage both public and private sector resources (Rachmawati, 2024).

The integration of Environmental, Social, and Governance (ESG) principles in infrastructure development through Public Private Partnerships (PPP) is crucial for achieving sustainable development goals. Research has shown that incorporating ESG factors into infrastructure projects can lead to enhanced operational efficiency, increased long-term resilience, and improved financial performance (Steelyana, 2024; Sousa, 2023; Ahmad et al., 2023).

Studies have highlighted the positive impact of ESG performance on investment efficiency, with auditing quality playing a mediating role in this relationship (Wang et al., 2022). Additionally, the disclosure of ESG practices has been found to influence firm financial performance, emphasizing the importance of considering ESG factors for investors, decision-makers, and regulators (Almeyda & Darmansya, 2019).

Moreover, the adoption of ESG measures is becoming a global trend, especially in response to challenges like climate change and the COVID-19 pandemic, with a focus on creating socially responsible companies (Kristianti, 2024). Integrating ESG into business models has been shown to enhance transparency, accountability, compliance, and honesty in firms’ practices, benefiting stakeholders and shareholders (Aldowaish et al., 2022).

ESG Polices in PPP scheme in Indonesia

Indonesia is making significant strides towards a more sustainable future. The Indonesian Ministry of Finance has taken a significant step towards promoting sustainable infrastructure development by launching an Environmental, Social, and Governance (ESG) framework specifically tailored for Public Private Partnership (PPP) schemes. This initiative underscores the government’s dedication to constructing infrastructure in a responsible and sustainable manner (Pambudi, 2023). Indonesia’s rapid infrastructure growth has highlighted the importance of integrating ESG principles to achieve sustainable development goals (Steelyana, 2024).

The Indonesian government’s National Medium Term Development Plan (RPJMN) for 2020-2024 integrates the UN Sustainable Development Goals (SDGs) directly into its development objectives (Bappenas, 2024). This strategic move aligns with Presidential Regulation number 111 of 2022, emphasizing the importance of achieving the SDGs (Indonesia Ministry of Finance, 2024). The Ministry of Finance has implemented innovative policies and financial instruments to promote sustainability and address climate change concerns. These include the Climate Change Fiscal Framework (CCFF), which incorporates climate change considerations into the national budget. Indonesia is also establishing a carbon pricing system to incentivize polluters to reduce their impact. Moreover, the government is issuing Green Sukuk and SDG Frameworks to fund green projects aligned with the SDGs. Additionally, the Energy Transition Mechanism Country Platform (ETM Country Platform) is being developed to facilitate a transition towards cleaner energy sources in Indonesia (Nofyanza et al., 2021).

These initiatives demonstrate Indonesia’s strong commitment to building a sustainable future for its citizens and the planet. By integrating the SDGs into its development planning and implementing financial tools like the CCFF, carbon pricing, Green Sukuk, and the ETM Country Platform, Indonesia is showcasing leadership in sustainable development and climate action.

The application of ESG in infrastructure development not only has a positive economic and social impact, but also minimizes the negative impact on the environment. This principle is very important considering the rapid economic growth and urbanization in Indonesia.

ESG Integration Study: Assessing Successes and Challenges

The commitment to sustainable infrastructure development in Indonesia is further evidenced by the implementation of PPP schemes in various sectors, such as water projects and airport investments, as outlined in the National Medium-Term Development Plan (Yusfida, 2022; Amelia, 2023). The government’s efforts to enhance infrastructure through different financing mechanisms, including PPP, demonstrate a proactive approach to addressing the country’s development needs (Kadang, 2022).

Moreover, the success of PPP projects in Indonesia is contingent on critical factors such as government support, project oversight, and stakeholder engagement (Adiyanti & Fathurrahman, 2021; Kavishe & Chileshe, 2019). Understanding the roles and performance of the government in PPP projects is crucial for both public and private sectors to navigate the Indonesian infrastructure investment landscape effectively (Rohman, 2021). The integration of ESG principles in PPP schemes not only aligns with Indonesia’s sustainable development goals but also contributes to improved financial performance, operational efficiency, and stakeholder trust  (Sousa, 2023). By embracing ESG practices, businesses can enhance innovation capacity, value creation, and overall financial performance (Ahmad et al., 2023).

Conclusions

In conclusion, Indonesia is making significant progress in integrating ESG principles into Public-Private Partnership (PPP) schemes for infrastructure development. The government’s commitment is evident through the launch of an ESG framework and various policies like the Climate Change Fiscal Framework (CCFF) and Green Sukuk. This focus on ESG ensures infrastructure development is sustainable, minimizes environmental impact, and contributes to achieving the UN Sustainable Development Goals (SDGs). While challenges exist, ongoing research to assess successes and identify areas for improvement will help optimize ESG integration in PPP schemes, leading to a more sustainable future for Indonesia.

References:

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