~[b]Top quartile of JSX firms possessing good governance ratings

~Top quartile of JSX firms possessing good governance ratings
enjoyed an average share price out-performance of over 200
percent.

;JP;
ANPAk..r..

Sustainable business performance & communication
JP/6/DAVID

Sustainable business performance & communication

David J. Finneren
Jakarta

Recent media reports on corporate corruption, fraud, poor
governance, and environmental and social mismanagement have
eroded much of the faith held in companies by a broad range of
constituent parties. Society wants to better understand what
companies are doing -- how they are improving or damaging lives
and the environment -- what they are doing to ensure resource use
and business operations are set-up for the long haul.

In today's business climate, where companies compete globally
for customers and talent, where reputation is as important as
financial outcome, and where social and environmental risks have
become key business dynamics, companies are increasingly being
called to account (both boards and management by implication) --
by a diverse gallery of stakeholders -- across a wide spectrum of
their activities and operations.

The first National Corporate Sustainability Reporting Awards
were launched in Jakarta in late June in coincidence with the
first Sustainable Performance Conference.

In order to demonstrate a true commitment to corporate
responsibility, firms need to re-examine their policies,
practices and presentation. Companies can no longer afford to
outsource their conscience to a corporate foundation or the
community development department.

Business is beginning to recognize that a responsible and
integrated sustainability strategy is required to ensure that all
line departments effectively manage social and environmental
issues and impacts in the company. In fact, corporate
sustainability is being seen as a core part of the overall
business "raison d'etre" and a direct responsibility of the Board
that needs to be managed accordingly.

Corporate reporting is evolving as a part of a broader system
of business accountability and organizational management. As a
practice, reporting is progressing with varying degrees of
qualitative and quantifiable language attracting the attention of
business owners, mainstream investors, capital markets, and many
others.

Various parties are using reporting outputs to benchmark,
assess and survey corporate performance, rating and ranking as
well as to improve business practices and make investment
decisions. This is creating momentum to elevate the quality of
reporting guidance, frameworks and tools to a higher level of
robust and precise communication.

The primary reason that a company publishes a sustainability
report is due to a combination of self-enlightment and self-
interest. It is not an altruistic gesture. A company publishes a
sustainability report because its directors believe it will
benefit the business.

The business case for sustainability reporting is therefore
remarkably simple: The process and product bring internal and
external benefits that exceed actual or perceived costs. Although
a definitive cost/benefit analysis on sustainability reporting
has not yet been produced, the steady acceleration and uptake in
the activity indicates that companies believe expanded disclosure
is a rewarding exercise.

A comprehensive report by Linstock and Imagination during 2004
involved over 1000 publicly-listed enterprises and revealed that
companies using generally-accepted reporting guidelines (i.e.
GRI) to report on non-financial performance experienced lower
share price volatility and significantly higher operating profit
margins. The report also attributed the results to the presence
of good management teams and noted a somewhat slower rate in
comparative revenue growth.

A 2005 Corporate Responsibility survey by KPMG confirms that
52 percent of the top Fortune 250 companies now report
specifically on sustainability practices for a number of
commercial reasons; to protect brand image and reputation, to
maintain strong market position, to increase shareholder value,
to insure the trust of the financial community, to be an
employer-of-choice and to be innovative in creating new products,
services and markets.

Each company, depending on its specific market circumstances,
values a variety of business benefits from sustainability
reporting. A company that process tons of raw materials might
value the reporting process for the internal materials
inefficiency it helps identify. A company that depends on brand
reputation for continued success might value sustainability
reporting for its ability to position and convey the company
commitment to ethical principles and community care.

While there are numerous benefits to cite, almost without
fail, companies point to the internal benefits of sustainability
reporting as far outweighing those reaped externally. They do not
belittle the benefits of strengthening dialogue and trust with
stakeholders or attracting additional socially responsible and
mainstream investors, they just see the internal effects as
fundamental improvements to their basic business foundations.

Sustainability reporting requires a concerted effort to arrive
at broadly accepted strategies, objectives and action plans. The
reporting process links typically discreet and insular corporate
functions -- finance, marketing, R&D, human resources -- into a
more integrated strategic vision and operation, opening new
conversations that pave the way for discovery and innovation.

The strategic impact of a commitment to measuring, reporting
and continuous improvement can influence product design and
manufacturing processes in the early stages. Setting performance
targets and making commitments in a sustainability report can
radically alter corporate execution and operational results.

A key purpose of reporting is to track progress and shed light
on areas needing improvement. When a corporation publicly reports
its performance, there is a marked impact on the inside. By
exposing the company to public scrutiny, employees and management
become motivated to take action to insure the numbers improve in
the next report.

The reporting process also provides a warning for trouble
spots -- and unanticipated opportunities -- in supply chains, in
communities, among regulators, and in reputation and brand
management. These discoveries can help management evaluate
potentially damaging developments before they emerge as unwelcome
surprises.

In today's business climate, the smart companies are those
that identify their operational, social and environmental risks
and put plans in place to deal with them.

The corporate sector in Indonesia is no exception in rising to
the challenge of more sustainable business practices.

Heeding a recent 2004 analysis of corporate governance impact
across the Asia Pacific capital markets by CLSA and the Asia
Corporate Governance Association, astute local business leaders
now realize that the top quartile of JSX firms possessing good
governance ratings enjoyed an average share price out-performance
of over 200 percent.

It is a clear indication that implementing and reporting on
more accountable operational practices in Indonesia is rewarded
by the investment community and delivers major financial
benefits.

The writer focuses on corporate sustainability initiatives
that impact corporate and national competitiveness, productivity
& profitability. He can be reached at finnindo@cbn.net.id