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

Updated: Apr 7

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