Indonesian ESG-compliant Stocks Resiliency in Times of COVID-19

Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

Larry Fink, CEO of BlackRock Group

Indonesia has the highest percentage of population who doesn’t believe in man-made climate change, with a staggering 18% of the population doubtful that mankind has any effect in changing the climate (Fagan & Huang, 2018). The irony this statistic brings comes in stark contrast to the fact that effects on climate change has been and will be significant to the archipelagic nation. In a world engulfed in paranoia with its full attention in containing a worldwide pandemic, talks of climate change and social equity seem to have died down significantly, with both developed and emerging economies focusing their best resources to fight a potentially deep recession (Bloomberg NEF, 2020). However, 2020 will prove to become a significant turning point for industries, and the investment world as a whole, to regear and redirect its movement for a better future ahead.

Research is increasingly showing that Environmental, Social, and Governance investing will reduce portfolio risk (BlackRock Investment Institute, 2019), generate competitive investment returns (NASDAQ, 2018), and help investors feel good about the assets they own (Henisz & Koller, 2019). Learning more about incorporating an ESG lens into investments can help uncover attractive, sustainable long-term investment opportunities. Recent downturn of the economy and a volatile 2020 for the global financial markets has shown how we are powerless against forces of nature. However, the ongoing volatility paved way for a pattern: BlackRock research found that after risk-adjustment, 94% of the widely analyzed sustainable indices around the world has outperformed its parent benchmark—showing robust evidence of ESG-complying stocks’ resiliency (BlackRock Investment Institute, 2019).

The KEHATI Foundation published the first ever green index in Indonesia, called the Sustainable and Responsible Investment (SRI) - KEHATI Stock Index on June 8, 2009, with reference to the United Nations’ Principles for Responsible Investment in collaboration with the Indonesia Stock Exchange (Kehati Foundation, 2020). With company selection standards that apply the principle of Sustainable Responsible Investment (SRI), as well as environmental, social and governance (ESG) principles, the SRI-KEHATI Index emphasizes ESG issues in the Indonesian capital market. The index is made up of 25 constituents of the Indonesian Stock Exchange, ranging from UNVR, BBRI, JPFA, PGAS, TLKM, KLBF, BBCA, WIKA, JSMR, etc. that qualify based on 3 main criteria

Chart 1

SRI-KEHATI selection criteria

Source: Kehati Foundation

As the index was found in 2019, from this we can look at how the index has performed in comparison to the IHSG.

Chart 2

SRI-KEHATI and IHSG performance comparison

Source: Yahoo Finance, Reuters Eikon

As we can see, since 2011, The SRI-KEHATI index has consistently outperformed the market. Even in the middle of the COVID-19 pandemic and panic selling due to an oil price war between Saudi Arabia and Russia, the index showed resiliency, dropping by only 20.35% as the market plunged by more than 30% in March. Use of the index has also been more and more prevalent as 10 mutual fund managers are now using SRI-KEHATI as an investment vehicle, with aggregate asset under management using the index totaling approximately Rp1.54 tn.

How is this possible? Companies that follow ESG-compliance tend to have good customer relations, best corporate practises, social consciousness and sound management that will in turn translate into resilient and strong financial performance in the long run. (Henisz & Koller, 2019) The advantage of ESG-compliant companies right now is the perception that they are more likely to take a stakeholder view of their business as opposed to a purely shareholder view of their business. Investors are starting to look for companies that deliver on values, best practices and sustainability (Ballentine, 2020).

We still need to tread with caution. As the SRI-KEHATI index only consists of 25 constituents, the sample is still too small. Furthermore, financial development in Indonesia is still lacking, with only 1% of the population financially literate. However, the outperformance of the SRI-KEHATI index, as well as ESG stock indices across global capital markets, bring further proof of how ESG investing brings values and sustainability, making companies more resilient and stable.

Written by Michael Abraham Hukom


Bloomberg NEF. (2020, November 19). BlackRock’s Fink Calls on Investors to Embrace ESG.

BlackRock Investment Institute. (2019, February). Sustainability: The future of investing. New York, New York, United States of America.

NASDAQ. (2018, June). NASDAQ . Retrieved from

Henisz, W., & Koller, T. (2019). Five ways that ESG creates value. London: McKinsey Quarterly.

Fagan, M., & Huang, C. (2018). A look at how people around the world view climate change . Pew Research Center.

Kehati Foundation. (2020, June). Index Sri-kehati. Retrieved from Kehati:

Ballentine, C. (2020, March). Bloomberg Green. Retrieved from


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