Corporate Governance Codes in Indonesia

Introduction

Climate change and nature loss pose material, systemic and financial risks to corporations and their shareholders. Managing and mitigating these risks, while working towards the net zero transition, also presents opportunities for businesses to increase resilience, drive value and competitive advantage.

This brief provides an overview of the principles and provisions in the Indonesian Code of Good Corporate Governance that support climate and nature-related action in the boardroom. 

This brief is part of the Corporate Climate Governance Navigator that shares best practice, standards and guidelines in corporate climate governance for board directors across the world, including mandated requirements at jurisdictional level. The actions proposed draw on international frameworks including the OECD’s Principles on Corporate Governance and Climate Change and Corporate Governance Report, the IFC’s Climate Governance Approach, and the Principles for Effective Climate Governance developed by the World Economic Forum, which form the foundation of the Climate Governance Initiative’s (CGI) work. This country brief can be reviewed alongside the Directors’ Duties Navigator where board directors will find further guidance on the Indonesian legal and regulatory landscape regarding climate change and nature loss.  

About the Indonesian Code of Good Corporate Governance

The Indonesian Code of Good Corporate Governance (Indonesian Code) was issued by the National Committee of Governance in 2006. The Code offers standards and guidance for companies on corporate governance and describes the function and independency of the company structure: The Board of Commissioners (Board Directors), the Board of Directors (Executive management) and the General Meeting of Shareholders. Limited liability companies in Indonesia have a two-board system, namely the Board of Commissioners and the Board of Directors. The Board of Commissioners is responsible for overseeing and providing advice to the Board of Directors and ensuring that the company implements the Indonesian Code. The Code is not legally binding but provides best practice and ethics-based guidance for the business community to implement good corporate governance.  It describes the necessary steps to create important checks and balances processes, to ensure transparency and accountability, as well as promoting corporate social responsibility in the long-term stewardship of the company. 

Principles and provisions in the Indonesian Code of Good Corporate Governance that support climate and nature action

This brief highlights relevant board-level (Board of Commissioners) actions including questions to ask in the boardroom relating to the climate and nature provisions of the Indonesian Code. These are grouped to align with the six parameters of IFC’s Climate Governance Approach and the eight Principles for Effective Climate Governance published by the World Economic Forum.

The above table highlights provisions in the Indonesian Code and practical steps to advance climate- and nature-related engagement and action at the Board of Commissioners level. The steps and questions can be used as a starting point to gradually strengthen the Board of Commissioners’ engagement in these areas. The tone set at the top of the organisation is of great importance to the culture of the whole organisation, and boards are uniquely positioned to drive positive action on climate change and nature loss through the lens of corporate purpose and strategy.  

For easy reference please find the Indonesian Code of Good Corporate Governance (2006) and the Indonesian Corporate Governance Manual (2014). 

Best practice examples of international frameworks for corporate governance on climate and nature

• The OECD Principles on Corporate Governance (2023) support policy makers to evaluate and improve the legal, regulatory, and institutional framework for corporate governance. They also provide guidance for stock exchanges, investors, corporations, and others that have a role in the process of developing good corporate governance. The Climate Change and Corporate Governance Report provides an overview of main trends and issues related to the implications of climate change for corporate action. 
• International Finance Corporation has developed the IFC’s Climate Governance Approach: The IFC Climate Governance tip sheet: Equipping Corporate Boards to Mitigate Climate Risks and Seize Climate Opportunities presents the business case for climate governance and offers guidance to assist  Board directors in identifying and overseeing climate-related risks and opportunities. The tip sheet provides advice on incorporating climate into strategy deliberations and identifying, monitoring, and responding to climate-related issues. The IFC Climate Governance Progression Matrix helps test and assess your boards’ maturity when it comes to Climate Governance and support board directors in identifying and overseeing climate-related risks and opportunities. It provides practical and progressive climate-related actions for each of the six parameters of the IFC Corporate Governance Approach: Commitment, Board Structure and Function, Control Environment, Disclosure and Transparency, Minority Shareholder Treatment and Governance of Stakeholder Engagement. 
• The Principles for Effective Climate Governance published by the World Economic Forum (2023) help you, as a board director, to holistically address climate opportunities and risks, and align global climate goals with the organisation’s purpose, values and long-term prosperity. It provides an overview of global climate policy, science and economics, an overview of trends related to regulation and disclosure, and points at implications for corporate boards. It provides 8 guiding principles for effective climate governance on corporate boards.
• The Directors’ Duties Navigator: Climate Risk and Sustainability Disclosure issued by the Climate Governance Initiative (2024) supports directors to make informed decisions and understand their legal duties regarding how to manage that risk and understand the broader climate-related regulatory landscape in which they operate. The Navigator provides information on over 30 jurisdictions on the following topics: Government and regulatory approaches to climate change, Sustainability and climate-related disclosure requirements, Liability risks for companies and directors and practical tips for directors.