VOLUME XI, SEPTEMBER 2014
Indonesia Business Council for Sustainable Development
Finance &
investment
CEO Column
Started from Valuing Our Stakeholders From Editor in Chief Tiur Rumondang
Dear readers, We are pleased to bring you the 11th IBCSD Newsletter, September 2014 edition with appealing topic of Finance & Investment. The highlight is given about how financial sector develop strategy through the sustainability perspective. In this edition, President Director PT. Bank Negara Indonesia (Persero) Tbk. shares his vision about company’s action on sustainability. The edition also exposes some of IBCSD’s programs and activities, as well as rev ea l o n re sp on si ble investment principles. As a case study, PT. Bank Negara Indonesia (Persero), Tbk shares its program on Kampoeng BNI. Happy Reading!
Gatot M Suwondo, President Director of PT. BNI (Persero), Tbk Sustainability has a diverse definition. For us, to be sustainable means is to fulfill our stakeholder’s expectation; our customer, investor, staff, environment, and the banking industry. To improve our service to the customer, we use customer-centric approach to understand our customer better. For the investor, we try to make sure that their investment to the BNI is profitable, while to the staffs, by improving the company performance, the staff will also gain from the improvement. For the environment, PT. Bank Negara Indonesia (Persero) Tbk. focuses on various initiatives such as community empowerment, environmental conservation, and waste management. Our aim is value creation. The community, in which we conduct our business, is also our stakeholders. We must show that the existence of a bank in their community has value. One of our missions is to become more actively involved in the community development. Our program focuses on economic development of the community and on the environment. Priorities are
set based upon the reports of our regional managers on the needs of local communities. BNI is trying to improve its role on economic development in Indonesia. Through its financing program, BNI creates a value of *Picture taken from Asia businessinfo.com change. Sustainability of the staffs enhanced with capacity building for specific issue through various programs (*)
IBCSD WELCOMES NEW MEMBER CHEVRON GEOTHERMAL INDONESIA, LTD
IBCSD WELCOMES NEW MEMBER PT. BUKIT ASAM (PERSERO), TBK
Chevron is the world's largest producer of geothermal energy and has major operations in Indonesia. Chevron Geothermal Indonesia, Ltd discovered the Salak and Darajat fields on Java in Indonesia in the 1980s and began commercial production in the 1990s.
PT. Bukit Asam (Persero), Tbk (PTBA) is one of the biggest coal mining in Indonesia. The company was established on 2 March 1981 with total area of 90.832 hectares, involving 4 operational areas. The company pays great attention towards environmental management, pre and post mining, to minimize the impact of their operations.
In Indonesia, Chevron operates the Darajat and Salak fields, which have a combined operating capacity of 647 megawatts. The combined output from our Darajat and Salak geothermal operations now produces sufficient renewable energy to supply approximately 4 million homes in Indonesia. The Company has many programs to engage communities and individuals, empowering them to promote sustainability and help deliver long-term socioeconomic benefits. The company believes that by investing in people we all benefit. These programs target the communities in which it operates and demonstrate its commitment to being the partner of choice.
Their operations are well planned, based on best mining practices by adopting green mining concept. As part of the global community, PTBA seriously continues to contribute in the reduction of the negative impacts of the global warming phenomenon, and take into account this challenge in the preparation of mine plan, aspects of production and safety aspects. PTBA works to support the Millennium Development Goals, and Good Governance as the Platform in Maintaining Sustainability.
Page 2 Event
MoU Signing: Private Sector Involvement on Climate Change Mitigation On 8 July 2014, Indonesia that sustainable production and Business Council for Sustainable consumption goes in most cases Development (IBCSD) signed an along with energy and resource MoU with Ministry of Environment, saving, which we can easily and GIZ as a reflection of translate into benefits for the collaborative work in Promoting environment and at the same time Initiative and Programs on into cost saving thus “’… the Private Sector strengthening Indonesia’s Signing of Involvement in Mitigation economy competitiveness”. of Climate Change, where MoU should be Henry Bastaman, viewed in Sustainable Consumption Deputy of Deputy Minister on perspective to and Production (SCP) is Environment Technical Facility improve part of sustainable Guidance and Capacity business practice. business Building Ministry of sustainability Shinta W. Kamdani, Environment, on the occasion, through best the President of IBCSD, explained about Sustainable business who represent the Consumption and Production practices” organization on the (SCP) program in the coming signing event, said, “We years, followed by are aware that private sector is presentation of SCP by Noer Adi often blamed publicly for the Wardojo, the Assistant of Deputy ecosystem damage. Inspite of Minister on Standardization and merely encouraging the business to Technology Ministry of change the depiction, the Signing Environment. of MoU may viewed in the IBCSD, as a business perspective of improving association in promoting sustainability in business through sustainable development, best practices.” encourages its member companies On the valuable event, Mr. to exercise best practices on Stefan Bundscherer welcomed the sustainable consumption and MoU as a foundation to share production, especially for those commitment in Sustainable whose extracting natural capital in Development. “We are convinced, its business process.
The expected outcome for the cooperation is to consummate the WBCSD module of Business Ecosystem Training (BET) with Indonesia's ecosystem context. Still relate with the issue, IBCSD establishes Working Group in Ecosystem and Working Group in Energy as a platform for its company member to learn and sustain its business that using natural capital for business sustainability in the long run.
An Intern’s Viewpoint As an intern for IBCSD, it is a pleasure to share my exiting experience in the core of Indonesian sustainable development dynamic.
me. Indeed, more than learning about sustainable development in corporations, I am daily astonished by what is done in Indonesia on this matter. Before to intern, I was an As a French student of the exchange student in “IBCSD OFFERS ME double Master Malaysia and this stay A GREAT WORKING- nourished my sceptical "Environmental Policy", EXPERIENCE, AND which develops both point of view on the environmental scientific ecological awareness in ON THE TOP OF knowledge and the ability to THAT, IT DRIVES AN Southeast Asia, my analyze a sustainable ecological sensibility had OPTIMISTIC development issue through PROSPECT FOR often been upset. its various dimensions SUSTAINABILITY IN (economic, social, political, INDONESIA” Nevertheless, this opinion natural hazards …), when I column is a great platform apply for the internship, I was driven to recognize my positive surprise. by the desire to learn how to First, the more I spend time dealing conjugate sustainable development with sustainable reports, the more I and business interest. appreciate the corporate initiatives that promote the sustainable My expectations were far lower than development. Secondly, IBCSD is a what this internship actually brings new-born association, but I realize
how much they had already accomplished. Finally, having a viewpoint about the current projects, I feel grateful to be a part of the adventure for a while. IBCSD offers me a great workingexperience, and on the top of that, it drives an optimistic prospect for sustainability in Indonesia, which deserves a future free of ecological disasters, especially given that Indonesia hosts such an exceptional wildlife.
(Laure deVriendt , French)
VOLUME XI, SEPTEMBER 2014
Page 3 Event
Celebrating the 69th Indonesia Independence Day In celebrating Indonesia Independence day, IBCSD organize an event for its staff held on 22 August. The event was completely a spectacular event for it is organized for the first time since IBCSD secretariat operates. The team also takes the advantage of the celebration as outing activity and team building. 'Krupuk (shrimp chips) eating contests', 'bottle and pencil race', and also 'sack race' was the games played on that celebration day. The prize were given to all the winners on the few days after, though, the spirit to fill the freedom responsibly and the spirit of patriotism was enliven the atmosphere for a whole month.
Krupuk eating contest
The celebration aiming to commemorate Indonesia Independence Day, to remind the sacrifices of the forefather made for an independency of Indonesia. All the winners
South East Asia Action 2020 Meeting On 5 September 2014, IBCSD participated on the South East Asia Action 2020 meeting in Singapore, aiming to set up sustainability agenda across the region. A common platform namely “Action 2020 in South East Asia� as a business voice in the region has objective to create a greater impact from shifting from business as usual to the beyond business as usual. As the result, some actions in promoting sustainable business practices in various issue is taken as commitment in sounding the business voice in the region. IBCSD invites all the member companies to take the opportunity since as the common platform - teaming up the 6 Business Councils representing a significant force of more than 200 large corporations - the Action is also part of contribution to the construction of the ASEAN Economic Community (AEC).
Sack race
Page 4
Upcoming Event
Round Table Discussion on Sustainable Agriculture Landscape Partnership Indonesia Business Council for Sustainable Development (IBCSD) in partnership with Conservation International (CI) and Monsanto Indonesia is cordially invites you to join the Round Table Discussion with theme on “Sustainable Agriculture Landscape Program�. The discussion that will take place in Jakarta, 3 October
2014, will highlight the role of private sector in promoting sustainable intensification of agriculture to improve livelihood of farmer; the challenges on how sustainable agriculture can contribute in community development and opportunities as well as the steps taken to start the implementation of sustainable agriculture development.
Food Security Summit IBCSD is supporting the 2nd Annual AIDF Food Security Summit: Asia 2014 that will be held on 8-9 October in Jakarta at Ambhara Hotel. The event is organized by the Aid and International Development Forum. The AIDF Food Security Summit is well attended by agriculture, rural development, science & technology and environmental Ministries, senior government representatives, leading NGOs, UN agencies and private sector experts, who are looking to build private public partnerships and cross industry collaborations. It will be a unique global platform promoting food security in vulnerable and developing regions.
Sustainable Business Award 2014 The Sustainable Business Awards (SBA) methodology and process assure highest levels of quality and only allows entries that are in conformity with our designated standards. To qualify for a nomination entry your organization is required to fulfill a minimum of criteria as outlined below. Please answer these questions with due diligence. If your organization fulfills these requirements and all questions are answered accordingly you will be forwarded to the nomination registration page. The Sustainable Business Awards Indonesia 2014 will follow its success of previous two years. It will be held in November together with the 3rd Business for the Environment Summit in Indonesia.
VOLUME XI, SEPTEMBER 2014
Page 5 Member Activity
On Tuesday, 16 September 2014 in Jakarta, Riau Andalan Pulp and Paper (RAPP)-one of IBCSD founding member - held a Book Launching on “ Gallery of Peatland in Kampar Peninsula and Beyond: Beauties, Challenges and Opportunities ”
Program
Member Visit From its Council and Liaison Delegate Meeting held on last June, IBCSD has gathered a variety of inputs and solutions by exchange of experiences, information and best practices of sustainability more effectively and efficiently. One of the inputs was that IBCSD should play an active role by building stronger communication and dialogue with the CEO of member companies. The secretariat also take the advantage of these visit to give an update about IBCSD program, activities and its member services, including propose various initiative of program that able to bring strong sustainability implementation within company operation. To date, IBCSD has visited most of its member companies and plan to finish all the visit before November 2014.
Visit to Garuda Indonesia, discussion with Emirsyah Satar, the CEO of PT. Garuda Indonesia (Persero), Tbk
Build Partnership on News Feed Service “Knowledge is power. Information is liberating”’ is a quote from Kofi Annan on the importance of information.
distribute press releases of various industries around the globe for more than 50 years. The company headquarters in U.S, providing the news delivery platform reserved for Nowadays information is easily journalists and press agencies around accessed everywhere anytime, as the the globe aiming better use of ground for a wise man to take release tips for the journalists works. decision, and IBCSD aware that its member company needs such With IBCSD, the partnership aims to information feed to improve their disseminate information around the business. world for business sector. Commencing October 1st, the Thus, part of its services, IBCSD is information is expected to be about to build partnership with available on IBCSD website. Business Wire, the company that
Page 6
Promoting Member Companies on WBCSD Website As one of benefits from becoming IBCSD member is an opportunity for company to take a leadership on sustainability by showcasing its sustainability action program. The sustainability action will be influential at local or global level, inspiring other company to apply best practices on their business operation in achieving sustainable development. IBCSD is actively collect study cases from its member companies. As appreciation on global level, the case study is also published on WBCSD website. Instead of for public image, the case study aims to share best practices and lesson learned as a learning process in achieving a sustainable development. It is the tool for business to improve their business operation by having a strategic sustainability plan embedded on their business model. The member company’s case study on WBCSD can be viewed on http:// www.wbcsd.org/global-network.aspx.
Capacity Building for IBCSD Member Companies In Thursday, 25 September, IBCSD provided capacity building on Sustainability for its member companies. The training, as one of services that IBCSD provides to its member, was participated by 13 participants from 10 companies. The training was given to mainstream and coordinate effective sustainable development related program and to integrate sustainable development approaches into the frameworks of the company.
VOLUME XI, SEPTEMBER 2014
Page 7 WBCSD Column
Translating ESG into Sustainable Business Value: Key insights for companies and investor The member institutions of the World Business Council for Sustainable Development (WBCSD) and the United Nations Environment Programme Finance Initiative (UNEP FI) believe that a company’s management of ESG factors, as well as a company’s leadership on sustainable development, are at the core of business today and therefore need to be considered by the capital markets. Both organisations believe that ESG factors can be financially material and can enhance long-term, sustainable company value. In 2008, the WBCSD and UNEP FI launched a series of workshops that provided a platform for institutional investors and companies to discuss how to facilitate the integration of ESG factors into key processes of the capital markets. A series of workshops were held in Europe, North America, Asia and Africa for WBCSD and UNEP FI member companies, institutions, partners and stakeholders to collectively address process and communication barriers to assessing the ESG and sustainability aspects of company performance evaluation, and to chart a course for change.
is often not explained by companies in comparable terms.
ESG research needs to focus on financially material issues The need for change is being driven by company frustrations that ESG questionnaires from investors, ratings agencies, indices and direct questions to companies at reporting times are not asking financially material questions, resulting in missed opportunities. The increasing volume of questionnaires in terms of both detail and frequency of requests is causing a major drain on corporate resources that might be used more effectively in direct dialogue with those seeking the assessments.
communication between company sustainability managers and asset managers regarding ESG factors, and they do not speak the same language. The gaps in ESG communication run even deeper within individual companies and investment firms. Company sustainability managers and investor relations managers also do not speak the same language and there is little incentive to bridge the gap.
What Investor want Asset managers who participated in the workshops provided insights on what they need from companies to integrate ESG factors and sustainability into investment decision -making. (Fig. 1)
ESG remains outside the mainstream between company managers and asset managers The depth and breadth of ESG factors are currently not fully integrated into financial valuation models because there is little direct
Companies and investors do not agree on which ESG factors are material The workshops revealed that there are many misconceptions between companies and investors on ESG factors and their financial materiality. Companies found that they have unique expertise on how and why ESG factors are material and core to their business—they understand their business best. Meanwhile, asset managers have not gained access to this information through current ESG questionnaires and desk research, and tend to focus on reputational issues. Many asset managers generally find the information contained in sustainability reports difficult to use for the purposes of valuing a company.
Communication needs to be in relative and comparable language Where companies and investors are able to agree on a material ESG factor, the management of that factor Fig. 1 What Investor want
Page 8 WBCSD Column What Companies can do The workshops revealed several areas where companies can draw ‘quick wins’ in terms of the orientation of corporate communications with the investment community on the financial materiality of ESG factors and sustainability. An immediate roadmap for companies could follow three critical steps: 1. Draw clear links between ESG factors, sustainability, financial performance and strategy 2. Standardize the disclosure of quantitative ESG data 3. Formalize a communication process for qualitative ESG data What Investor need to know Companies that participated in the workshops provided insights on questions capital market actors and asset managers might ask companies about financially material ESG factors and sustainability. (Fig.2) What Investor can do 1. Build expertise on the fundamentals of ESG valuation 2. Use both quantitative and qualitative data in investment analysis 3. Formalize a process for gathering qualitative ESG data
Fig 2. What investors need to know
Getting started The types of ESG factors relevant for valuing companies will differ across industry sectors and geographies. These are only intended as guidelines and are meant to show how ESG factors can be financially material to business performance, and to underscore the importance of comparative, market competitive data. Ultimately, they need to be decided on by companies within sectors, and discussed with investors. Conclusion The recent global financial crisis, which stemmed from the credit crunch in 2007, has forced financial markets and companies to rethink their exposure to systemic risks. As a result, we are finding that the importance of integrating ESG factors and sustainability into corporate and investment decision-making is even more relevant today—it is not something for tomorrow. As we consider the failure of the current financial model and the inadequacy of disclosure regulation and risk management tools to price risk, we are forced to ask questions about the systemic shocks posed by failing to integrate ESG factors and sustainability into company valuation. A recent McKinsey survey has shown that two-thirds of CFOs, investment professionals and corporate social responsibility professionals believe that the shareholder value created by environmental and governance programmes will increase in the next five years relative to their contributions before the crisis. (Valuing corporate social responsibility, McKinsey, 2009). Source: Translating ESG into Sustainable Business Value, Report from an international workshop series of the WBCSD and UNEP FI, March 2010. Fig. 1 What Investor want Fig 3. Key takeaways for companies and investor
VOLUME XI, SEPTEMBER 2014
Page 9 Literature
Applying Equator Principles in Achieving Sustainable Development The Equator Principles (EPs) is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. They are based on the IFC performance standards on social and environmental sustainability, and on the World Bank Group’s Environmental, Health and Safety general guidelines. The EPs apply to all new project financings globally with total project capital costs of US$ 10 million or more, and across all industry sectors.
EP Application The EP apply globally, to all industry sectors and to four financial products 1) Project Finance Advisory Services 2) Project Finance 4) Project-Related Corporate Loans and 4) Bridge Loans. The relevant thresholds and criteria for application is described in detail in the Scope section of the EP. The declared objectives of the Equator Principles is to contribute to improving the quality of large development projects around the world, and ensure that they contribute, rather than undermine, sustainable development. In the Preamble of the Principles, signatory banks “recognize that our role as financiers affords us significant opportunities to promote responsible environmental stewardship and socially responsible development’. Currently 80 Equator Principles Financial Institutions (EPFIs) in 34 countries have officially adopted the EPs, covering over 70 percent of international Project Finance debt in emerging markets.
EPFIs commit to implementing the EP in their internal environmental and social policies, procedures and standards for financing projects and will not provide Project Finance or Project-Related Corporate Loans to projects where the client will not, or is unable to, comply with the EP. The adoption of the EPs is to ensure that the projects they finance are developed in a socially responsible manner and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if unavoidable, should be reduced, mitigated and/or compensated for appropriately.
Critics However, the EP is not without critic. Although some extensions such as include banks' project advisory services and not just financing, for example, plenty still feel the principles don't go far enough, as well as the narrowed scope it has. They also have been targeted for improper governance and lack of transparency. Richard Burrett, co-chair of the UNEP Finance Initiative, says "It's really important to understand that the Equator Principles are about project finance. A lot of the critics of the Principles expect it to have done things far more reaching than the project finance world." "The short answer is: don't shoot the Equator Principles just because they do not necessarily solve other issues", says Burrett. That's not to let financial institutions off the hook. Instead, it's to lay down the challenge to other sectors of the
finance community to develop Equator equivalents of their own. To improve governance, the EPFIs Secretariat was established in London as part of the efforts.
Source: 1.
Center for Corporate Responsibliltiy and Sustainability Working Paper No. 01/05. The Equator Principles: A Step Towards Sustainability? Franck Amalric, January 2005
2.
www.equtor-principle.com
3.
Sustainable finance: how far have the Equator Principles gone?http:// www.theguardian.com/12 Nov 2012, accessed on 21 July 2014.
4.
Equator Principles: Do they make business sense? by Abhijeet Deshpande. www.eco -business.com, 27 January 2011, accessed on 22 July 2014
VOLUME XI, SEPTEMBER 2014
Page 10 Literature
United Nation Principles on Unprecedented environmental and social pressures driven by food, water and energy security, access to natural resources, climate change, human rights, supply chain labor standards and ageing populations have become material issues for business and the corporate world. The impact of poor corporate governance practices on shareholder value, accentuated by the global financial crisis, has also lifted issues such as transparency, corruption, board structure, shareholder rights, business ethics, risk management and executive compensation to the top of the investor agenda. Responsible investment is an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance (ESG) factors, and the long-term health and stability of the market as a whole. It recognises that the generation of long-term sustainable returns is dependent on stable, wellfunctioning and well governed social, environmental and economic systems. Responsible investment requires investors and companies to take a wider view, acknowledging the full spectrum of risks and opportunities facing them, in order to allocate capital in a manner that is aligned with the short and longterm interests of their clients and beneficiaries. The Principles for Responsible Investment were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance issues to investment practices. The
Responsible Investment
(UN PRI)
process was convened by the United Nations Secretary-General.
The six principles are: 1.
We will incorporate ESG issues into investment analysis and decision making processes
2.
We will be active owners and incorporate ESG issues into our ownership policies and practices
3.
We will seek appropriate disclosure on ESG issues by the entities in which we invest
4.
We will promote acceptance and implementation of the Principles within the investment industry
5.
We will work together to enhance our effectiveness in implementing the Principles
6.
We will each report on our activities and progress towards implementing the Principles
UN PRI and private equity return A research, aiming at investigating the relationship between corporate socially responsible standards and private equity returns, by analyzing the impact of the UN PRI principles on US private equity funds that adhered to the UN PRI program in the period from 2006 to 2011 seem to benefit in terms of higher returns, measured by the cash multiple realized in every single investment. The evidence showed in the research confirms the positive impact of the ESG screens in the investment decision
process and neglects common criticism that non-financial screen restrict investment opportunities and worsen investment performance. However, the writers point out the main limit of their work; the results are affected by the limited time horizon of the analysis and by the relatively limited size of sample, and only about 20% of existing compliant funds were analyzed.
Source: 1.
UN PRI website
2.
UN PRI and private equity returns. Empirical evidence from the US market. Emanuele Teti, Alberto Dell’Acqua, Fabio Zocchi. Investment Management and Financial Innovations, Volume 9, Issue 3, 2012.
Kampoeng BNI PT. Bank Negara Indonesia (Persero), Tbk “Kampoeng BNI” (“BNI Village”) - CSR programs of the Bank Negara Indonesia is a smart example of a corporate initiative in order to empower the communities suffering from a low development in Indonesia. Moreover, the case study introduced has been choosing for its simple framework required but produces a large scope of results. Kampoeng BNI” was started in 2007 Indonesia development. 2008. What BNI did for this project is to Currently BNI has established 27 implement infrastructures to empower the Kampoeng BNI throughout Indonesia with villages, thanks to soft loans and also skill total business financing of Rp 31,49 billion teaching. The idea is to avoid the classic for 1.654 funded partners. Kampoeng BNI financial circuit that is not fit for individual aimed to improve economic and social business makers. The focus is made on the livelihood of their Small Medium Enterprise tradition work craft and the ancestral (SME) partners. By giving the soft loan, activities, such as fishing. The point is to the beneficiary is expected to improve bring the first input and let the community their working capital and gain profits in the develop and organize small businesses. long run by growing up in business volume The future of the chosen and even possibly change communities is to be part of a ‘’ … teaching experience from SME into middle network of villages and promote business entities. for any company that their product with exhibition at wants to enhance the national events. The “Kampoeng BNI” The expression ‘give a man communities’ developPartnership Program is a a fish and you fed him for a day, ment but doesn’t have an proper program for the teach a man how to fish and you activity that directly links community or small fed him for lifetime’ is a perfect business owners. For them with the village“’ illustration for the “Kampoeng example: a weaver in BNI” program. Indeed, it is smart to Sumba Island East Nusa Tenggara conjugate both soft loans and teaching confessed that after having soft loan from skills in order to create sustainable BNI , initially he didn’t have savings, now incomes that will eventually produce he can save around Rp 2 million a month development. on average, either in cash or in raw The “Kampoeng BNI” is a teaching materials. BNI also helps the marketing of experience for any company that wants to his products through the exhibition such in enhance the communities’ development “Kampoeng BNI Nusantara” annual event. but doesn’t have an activity that directly They also help them to improve or increase links them with the villages. The their quality of live, for instance: the conclusions about this program should be machinery, gallery room, workshop center, used as a reference for other initiatives. and road within the village. Indeed the fight against the extreme poverty is one of the top priorities in
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Investment for Sustainable Future About IBCSD The Indonesian Business Council for Sustainable Development (IBCSD) is a CEO-led associations of companies operating in Indonesia, who share a commitment to promoting sustainable economic growth, ecological balance and social progress. To learn more about IBCSD membership, please contact: info@ibcsd.or.id Follow us on Twitter: @IBCSD2011 Facebook: IBCSD Indonesia Business Council for Sustainable Development (IBCSD) Menara Duta Building, 6th Floor Wing B Jl. HR. Rasuna Said Kav. B-9 Jakarta 12910 T: +62 21 5290 1941-42