Andi F – Tanrigau, Indonesia's economy is becoming more deeply embedded in global supply chains, and with that integration comes a new reality: sustainability reporting is no longer optional. It cannot be treated as a document prepared only when time and resources allow. As global markets tighten their requirements – especially the European Union – strengthening Indonesia's reporting standards has become an economic necessity.
The EU's Corporate Sustainability Reporting Directive (CSRD) exemplifies this shift. Under this framework, sustainability performance has moved from strategic preference to legal obligation. Industry voices are reinforcing this trend: on October 1, more than 100 investors and business entities issued a joint statement emphasizing that compliance with high-quality reporting standards will directly influence access to financing, investment decisions, and market competitiveness. For Indonesian companies operating in Europe, adaptation is no longer optional – it is the price of staying in the market.
The EU's recent decision to postpone the CSRD submission deadline has often been misinterpreted as a step back from the Green Deal. It is not. The "Stop the Clock" mechanism is a technical adjustment that grants companies in Wave 2 an additional two years, shifting their first reporting obligation from 2025 to the 2027 fiscal year. For Indonesia, this delay should be viewed as a narrow but valuable window to prepare, not a relaxation of regulatory ambition.
Under Article 40a of the Accounting Directive, Indonesian companies or other non-EU undertakings with more than 150 Euro million in EU turnover and a branch or subsidiary in the bloc must report in 2029 for the 2028 fiscal year. The current proposed Omnibus amendments would adjust these thresholds: non-EU undertakings would be subject to reporting only if they generate Euro 450 million in EU net turnover; the EU branch threshold would rise from Euro 40 million to Euro 50 million; and subsidiaries would be aligned with the EU definition of large undertakings.
These proposed changes align Article 40a with the Corporate Sustainability Due Diligence Directive (CSDDD), which applies to firms with 1,000 employees and Euro 450 million in EU net turnover. The broader message is unmistakable: regulatory alignment matters because the interaction among EU directives shapes how they operate in practice. Even if fewer companies fall directly under the directives, the EU's expectations will continue to shape market access. Those who meet them will define Indonesia's competitive position.
Failing to meet these requirements carries real consequences: loss of market share, higher compliance costs, and reduced confidence among European trading partners and investors. Indonesia, therefore, faces an urgent need to align national standards with global regulatory developments. Harmonization is not about following international trends for their own sake; it is about ensuring Indonesian firms remain competitive in a trading system increasingly anchored in sustainability.
At home, the 2017 Financial Services Authority (OJK) regulation remains Indonesia's main reference for sustainability reporting, but significant gaps persist. The most fundamental weakness lies in the depth, comparability, and structure of reported data, particularly when assessed against the CSRD's principle of double materiality.
This principle, set out in Article 29, requires firms to assess both perspectives:
(1) financial materiality – the outside-in view of how sustainability issues affect company performance; and
(2) impact materiality – the inside-out view of how corporate activities affect people and the environment.
Reporting in Indonesia, which largely follows GRI, emphasizes positive societal and environmental contributions but overlooks the full spectrum of financial risks, including transition risks arising from the global shift to a low-carbon economy. Without effective implementation of double materiality, sustainability reports remain compliance exercises rather than strategic instruments for investors or meaningful tools of transparency. This limits Indonesia's ability to align with global sustainability goals.
The challenge is more severe for SMEs, which form the backbone of Indonesia's supply chains. Many lack the resources, skilled personnel, and technical infrastructure required for comprehensive data collection and reporting. Without targeted policies or phased implementation strategies, these demands could undermine the competitiveness of both national and global supply chains.
Yet these challenges also open a pathway for reform. Europe's experience offers Indonesia the chance to leapfrog – to modernize its reporting system by adopting global best practices without repeating unnecessary complexity. Strengthened, standardized reporting supports investment by reducing perceived risk; enhances financial stability by disclosing climate-related physical and transition risks; and ensures credible progress toward national climate and SDG targets. Together, these elements reduce information asymmetry between companies and investors and enhance transparency across Indonesia's economic system.
National standards can also be linked to Indonesia's Sustainable Finance Taxonomy, launched in 2024, which connects reporting requirements with the classification of sustainable economic activity. This alignment ensures that capital flows toward sectors most crucial for national development.
Adopting progressive sustainability reporting standards would also reinforce Indonesia's position as a regional leader. By establishing itself as a pioneer in ASEAN sustainable finance, Indonesia can strengthen its international profile while encouraging domestic innovation and investment.
Indonesia must not waste the time afforded by Europe's delay. The country needs to focus on high-risk and high-impact sectors such as palm oil, textiles, and mining, and align national reporting requirements with international standards – especially reinforcing double materiality and supporting SMEs. Now is the moment to convert external pressure into strategic advantage, strengthen investor confidence, and accelerate the transition toward a sustainable economy with a clear pathway to net-zero emissions by 2060.
Economist John Maynard Keynes wrote that investment should "defeat the dark forces of time and ignorance which envelop our future." Sustainability reporting serves exactly this purpose. It is not mere compliance – it is an investment in Indonesia's economic resilience, social responsibility, and long-term prosperity.
[Andi F. Tanrigau, based in Frankfurt, works as a Funding Analyst at Febis Service GmbH. He specialises in renewable energy projects and climate protection. The views expressed in this article are those of the author.]
Source: https://jakartaglobe.id/opinion/indonesia-cant-afford-to-fall-behind-on-sustainability-reportin