While Indonesia’s economic growth, fueled by sectors like fisheries, mining, agriculture and manufacturing, brings national prosperity, it also presents human rights challenges.
Despite repeated commitments to sustainability and ethical practices, Indonesia continues to struggle with serious, unresolved issues in key export sectors. Forced labor in the shrimp supply chain, persistent health and safety violations in coal and nickel mining, land grabbing in the palm oil industry and unchecked sea and river pollution largely remain unaddressed and unpunished in Indonesia.
The lack of meaningful consequences of the violations not only undermines affected communities and ecosystems but also threatens Indonesia’s credibility as a responsible player in global supply chains. Without decisive action, the gap between rhetoric and reality will only grow wider, with lasting damage to both the environment and the nation’s international standing. Meanwhile, current legal frameworks are fragmented and insufficient to cope with these issues comprehensively.
To attract more investment, pursue economic cooperation and increase economic growth, Indonesia is aligning its national development efforts and laws toward more legal clarity and accountability, and to meet international environmental, social and governance (ESG) standards, including respect for human rights and responsible business conduct. As global consumers, investors and companies place greater emphasis on human rights, environmental sustainability and ethical business practices. It is important for Indonesia to adopt similar measures to stay competitive in the global market.
The underlying rationale behind business and human rights reporting is the belief that companies have the power to create positive change for both the environment and society in the regions where they operate.
In 2017, Indonesia took a pioneering step as the first country in ASEAN to release its National Strategy on Business and Human Rights. The plan provided a framework for companies to disclose the human rights and environmental risks associated with their operations.
This was translated further into the 2023 National Strategy on Business and Human Rights, which promotes and protects human rights in the business sector with the involvement of all actors, including relevant business associations and trade chambers.
However, the national framework that will expire this year only involves voluntary self-assessment and disclosure rather than mandatory reporting requirements. In contrast, the European Union has binding legislation, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
These laws require companies to assess their environmental and human rights impacts, implement due diligence processes and engage stakeholders, including workers, communities and civil society.
While shifting from voluntary to mandatory approaches is underway, Indonesia has yet to establish and enforce a legal framework that aligns with the growing demand for responsible business practices. The EU’s CSRD and CSDDD provide valuable lessons for Indonesia in creating its own robust and enforceable legal framework for environmental, social and human rights impact reporting, as they include conducting risk assessments, adopting preventive measures and establishing grievance mechanisms to address potential human rights violations.
Human rights in the corporate context is still a relatively unfamiliar issue for many Indonesian companies and their supply chains. They often lack the necessary knowledge and skills to effectively report on their environmental and social, or human rights impacts.
There is therefore a need to build awareness among relevant stakeholders, particularly small and medium enterprises (SMEs), regarding the full spectrum of human rights risks their operations may pose. Without more awareness, companies often struggle to identify potential and actual risks within their operations, making it even more challenging for them to produce comprehensive human rights impact assessments.
As Indonesian companies address their human rights issues, they must recognize the sector-specific risks associated with their activities. Industries such as mining, palm oil and fisheries often face distinct environmental and human rights challenges compared to electronics and textiles. Understanding these differences enables the government to tackle sector-specific concerns more effectively and implement targeted measures for improvement.
In this context, Indonesia should take a cue from the EU’s CSRD and CSDDD, which place significant emphasis on engaging a wide range of stakeholders, including local communities, business chambers, employer and entrepreneur organizations, NGOs and trade unions. This inclusive approach would help ensure that human rights issues in the country are more comprehensively understood and effectively addressed.
While smaller companies face financial constraints that make it difficult to prioritize such initiatives, many businesses also view such reporting as an additional expense and a potential risk to their reputation. Businesses need to shift their perspective on this issue as transparency and sustainability reporting are increasingly becoming a market demand. Companies must view ESG reporting as an investment that is essential for staying competitive and capturing a larger market share.
Indonesia needs a binding legal framework that requires meaningful business participation rather than merely “tick-the-box” compliance. Such a framework should not only ensure high levels of engagement from companies but also offer incentives for compliance and establish clear consequences for failing to meet the required standards. A government initiative, along with other development partners, to create a clear guide for implementing sustainability and human rights due diligence, would be a good start.
Integrating sustainability and human rights into a new economic ecosystem is a Herculean task, particularly as the country aggressively seeks investments to achieve its 8 percent economic growth ambition. However, the long-term benefits far outweigh the short-term challenges.
A well-designed sustainability and human rights law would showcase the country’s commitment to responsible business practices and ensure that Indonesian companies align with global reporting standards.
Ultimately, such a law would foster sustainable business practices, attract socially responsible investment and protect the country’s exports from potential trade barriers tied to sustainability and human rights violations. For Indonesia, such a law would also support its broader goals of economic growth, social equity, environmental sustainability and global market acceptance.