New Standard of Sustainability in Indonesia

For many years, the standard practice in Indonesia was to manage sustainability and financial performance as two distinct, yet equally important, pillars. Sustainability reports were traditionally crafted as separate documents to only highlight a company’s broader contributions to the environment, society, and governance.

In 2025, The Indonesian Sustainability Standards Board (Dewan Standar Keberlanjutan Ikatan Akuntan Indonesia/DSK IAI) officially ratified the first Indonesian Sustainability Disclosure Standards: Pernyataan Standar Pengungkapan Keberlanjutan (PSPK) 1 and PSPK 2. Adopted from the global International Financial Reporting Standards (IFRS) S1 and S2 frameworks, these standards are not merely new "checklists." They represent a fundamental change in how Indonesian companies must quantify, communicate, and align their sustainability risk and opportunities with general purpose financial reports to investors, creditors, and the global market.

The PSPK standard will take effect starting in the financial year beginning January 1, 2027, with the first mandatory reports scheduled for publication in 2028.

To align with these changes, here is what you need to know. 

The Strategic Pivot in Standard Approach

To understand the weight of PSPK 1 and 2, we must look at how they differ from the existing regulation: POJK 51/POJK.03/2017 Regarding Implementation of Sustainable Finance to Financial Services Institution, Issuer And Publicly Listed Companies (POJK 51/2017). POJK 51/2017 has followed an approach of: "How does our company impact the world?" It focused on social responsibility, community empowerment, and general environmental stewardship.

In contrast, PSPK 1 and 2 standards demand that companies assess: "How do climate change and sustainability risks impact our financial performance, cash flows, and long-term value?" This shift is critical for science-based reporting. Under the new standards, a "hotspot" is no longer just a high-pollution area, it is a financial vulnerability. PSPK  requires the company to disclose how that risk affects the asset valuation and future revenue.

Understanding PSPK 1 and 2 

PSPK 1 (General Requirements for Disclosure of Sustainability-related Financial Information) mandates that sustainability disclosures be published with connected information from financial statements, treated with the same level of governance and internal control. 

Both PSPK 1 and 2 follows the IFRS framework is built on four core pillars:

1. Governance: The processes, controls, and procedures used to monitor sustainability-related risks.

2. Strategy: How the entity plans to address these risks and capitalize on opportunities.

3. Risk Management: The process to identify, assess, and prioritize risks.

4. Metrics and Targets: The specific impact calculations used to track performance.

One of the most significant advancements in PSPK 1 and 2 is the emphasis on connected information. This framework creates an opportunity for ESG and Finance teams to bridge their expertise and move beyond working in silos. For instance, if a company is transitioning to a circularity model to mitigate resource scarcity, this new standard allows for a cohesive story where sustainability initiatives are clearly reflected in the capital expenditure (CapEx) or operational shifts of the financial report. 

PSPK 2: The Quantification of Emissions

While PSPK 1 serves as the general baseline for all sustainability-related disclosures, PSPK 2 focuses specifically on climate.  For companies to be compliant with PSPK 2, they must adopt science-based methodologies, such as the Greenhouse Gas (GHG) Protocol unless a different method is mandated by the jurisdiction or exchange where the entity is listed.

For instance, the standard requires the disclosure of three distinct scopes:

• Scope 1: Direct emissions from owned or controlled sources.

• Scope 2: Indirect emissions from the generation of purchased energy.

• Scope 3: All other indirect emissions in a company’s value chain.

The "Climate First" Transition Relief

Recognising the complexity of data collection, the DSK IAI has provided transitional relief. For the first three years of implementation:

• Companies are only required to disclose PSPK 2 or climate-related disclosures (non-climate issues like biodiversity or social labour remain voluntary initially).

• Scope 3 emissions are not mandatory during this period, allowing companies to build the necessary data pipelines with their suppliers.

Companies can use this period to implement sustainability initiatives and optimise their operations. While these improvements require time and specialised expertise in emission factors, starting now ensures a proven track record of science-based results.

Why Science-Based Reporting is Required

The adoption of PSPK 1 and 2 moves Indonesia  toward comprehensive reporting backed by hard data. When an investor looks at a report under the new standard, they are looking for materiality. Information is material if its omission could reasonably be expected to influence the decisions of investors.

For example, a manufacturing company identifying a hotspot in its supply chain—perhaps a high-emission raw material source—must now quantify that risk. By using impact calculation tools, the company can show exactly how carbon tax would affect its profit margins. 

Preparing for 2027

The transition to PSPK 1 and 2 is a "major milestone," but it is also a technical hurdle. Companies  will need significant capacity building to navigate these complex data requirements.

To be ready, companies should begin three key actions today:

1. Conduct a Gap Analysis: Compare current sustainability  reporting standards that the company uses (such as GRI or POJK) against the PSPK 1 & 2.

2. Invest in Data Infrastructure: Move beyond spreadsheets. Accurate impact calculation requires robust systems that can track energy use, waste, and supply chain data in real-time.

3. Align Internal Teams: Bridge the gap between the sustainability officer and the CFO. Sustainability data must now be "audit-ready."

Conclusion

Indonesia’s adoption of PSPK 1 and 2 signals that our nation is ready for high-quality, transparent capital allocation. By embracing science-based reporting and quantification of risks and opportunities, Indonesian companies can not only comply with the law but also secure their place in a low-carbon global future.

At LCI, we understand that the journey toward PSPK and/or IFRS alignment requires careful navigation and a gradual adaptation of data. We are here to act as your collaborative partner, helping your team identify emission hotspots and develop accurate, credible impact calculations.

The information presented in this article is accurate as of the publication date, based on publicly available data. LCI may periodically update this article to reflect evolving standards and regulations. If there are any inquiries, please contact admin@lifecycleindoensia.com.