Responsible Investing to Avoid Recession Through ESG Investment

Responsible Investing to Avoid Recession Through ESG Investment

  • InCorp Editorial Team
  • 19 January 2023
  • 4 minute reading time

The economic slowdown in developed countries is triggering a recession storm expected to occur in 2023. However, essential stakeholders have assured that Indonesia will not experience the extreme impact of the recession.

Indonesian economy only partially depends on commodities from the countries currently undergoing conflict. Therefore, the impact will be lighter than many global countries might fear. 

Should Indonesia Fear of Recession?

In the worst scenario, the impact felt by Indonesia will be indirect. It felt through ways of economic disruption in export destination countries. 

The disruption may cause reducing export volume due to slow demand. Monetary policies enacted by various countries will also weaken the Rupiah. 

So while Indonesia should not fear recession, the public must anticipate the impact of projected inflation, and interest rates should reduce domestic financial liquidity. 

The public is pushing to restrain the intensity of purchasing goods that are not urgently needed within the year to come.

Does Responsible Investing Affect A Sustainable Economy?

Responsible investing is a method that balances traditional investing with environmental, social, and governance (ESG)-related insights to create a more sustainable economy or also known as a green economy. 

In responsible investing, there is an evolution that moves away from traditional financing, which focuses on translating investor capital to investment opportunities with the expectation of generating returns. 

The Method of Responsible Investing

Several elements of responsible investing are more than just rejecting foundational investing concepts. In turn, this involves deeper insight into how value will be created in the future, keeping ESG considerations in mind.

This method of investing also considers diverse stakeholders consistent with how companies develop themselves—this investing puts light pressure on investment organizations to move towards responsible investing models. 

The development of the investment industry is heavily dependent on leadership and innovation within the practice. 

Read more: Why You Should Care About Preparing Growth Plans For Business

Should You Invest in ESG in Indonesia?

Responsible Investing to Avoid Recession Through ESG Investment

Environmental investments and efforts have several advantages in addition to reducing the risks associated with market transformation. 

A firm may see increased productivity, cost savings, top-line growth, and less regulatory and legal interference from the government if it takes steps to lessen its carbon footprint and enhance the sustainability of its operations. 

Top-line change happens when businesses show their dedication to environmental and sustainability activities, which earns them favor with external stakeholders like customers and governments.

For example, many federal, state or provincial, and local governments promote environmentally friendly activities as an organization’s environmental resilience is increasingly considered in contracts, grants, and other expenditures. 

There is a growing tendency to offer contracts to preferred companies. InCorp Indonesia provides business licensing and company registration that facilitates licensing and contract processes for companies and allows them to concentrate more on environmental investment in Indonesia. 

The Development of ESG Investing

The factor of cost savings is the most visible; for instance when FedEx planned to switch its fleet of cars to hybrid or electric engines, it first appeared like a pricey prospect. FedEx could save more than 50 million gallons of gasoline, even though only 20% of its fleet underwent the conversion. 

Companies that commit to decreasing their emissions are frequently at a lower risk of being subjected to demanding regulatory requirements, legal interventions, and penalties. These sorts of efforts have advantages beyond simply the bottom line.

Businesses have had to act quickly and decisively to keep their employees safe and productive in the face of the COVID-19 pandemic. To give employees more freedom using remote or hybrid working models, the company has made significant adjustments addressing the social component of ESG.

Companies often made workplaces more equal by allowing workers to work from home, whether it be temporarily or permanently. It gave workers more time for critical tasks outside work, more possibilities for ongoing learning, and a greater emphasis on wellness and mental health.

In response to the pandemic, several businesses changed their business models to create essential goods like hand sanitizer and masks to help healthcare systems worldwide. 

These additional steps took to address the social issues caused by COVID-19. Among other instances, the commercial sector stepped in to assist Ukrainian migrants to escape the ongoing strife. 

Companies like Airbnb, for example, have collaborated with hosts to temporarily waive their booking fees to lodge up to 100,000 migrants. Conclusively, we see that there are clear attempts made by various companies to take active steps towards ESG development and implementation, especially considering the wide range of benefits it brings.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.