Sustainability Reporting and ESG: Understanding the Role of Companies in Achieving Sustainable Business
A company’s success is no longer measured solely by the size of its profits. Amid growing attention to climate change, environmental protection, workers’ rights and corporate governance, various stakeholders want to know how a business runs its operations and what impact it creates. Investors need more complete information before committing capital, regulators demand greater transparency, and consumers increasingly consider whether the products or services they use come from responsible companies.
This shift has changed the way corporate health is assessed. Whereas annual reports previously focused largely on financial performance, information on carbon emission management, energy use, waste management, employee welfare and corporate governance practices has become equally important. This is because a business’s continuity is determined not only by its ability to generate profit, but also by how the company manages environmental, social and governance risks that can affect its operations in the long term.
This is where sustainability reports and Environmental, Social, and Governance (ESG) play an increasingly strategic role. Sustainability reports serve as a medium for companies to explain how they conduct their business activities responsibly through various ESG indicators. The information presented not only depicts the company’s achievements, but also shows its targets, policies and concrete steps taken to reduce environmental impact, improve community welfare and strengthen corporate governance.
The importance of sustainability reporting is also evident in the growing number of companies beginning to adopt ESG principles. The number of companies in Indonesia adopting ESG principles rose from 45 companies in 2018 to 675 companies in 2023.
Cited from research by Kossay et al. in Jurnal PERKARA (2025), which refers to data from the Financial Services Authority (OJK), this increase shows that sustainable business practices are starting to become part of corporate strategy rather than merely a complement to operational activities. However, the growing number of companies publishing sustainability reports is not necessarily accompanied by an improvement in the quality of the information conveyed.
Cited from research titled Has Mandatory Reporting Improved Environmental Disclosure Quality in Indonesia?, the researchers analysed 767 sustainability reports from Indonesian public companies during the 2016–2022 period to examine the development of environmental disclosure quality after sustainability reporting became gradually mandatory.
The research results show that the number of reports did increase significantly, with sustainability reporting rising by up to 69% in the 2020–2021 period. However, the quality of environmental disclosure has not shown a consistent improvement. Many companies still focus on fulfilling regulatory obligations rather than conveying more comprehensive information about their environmental impact.
Therefore, understanding the relationship between sustainability reports and ESG is important, both for business actors and for society at large. Through this article, you will learn the definitions of sustainability reports and ESG, why both have become an important part of modern business strategy, the standards used in their preparation, and how sustainability reports help companies build a more resilient and sustainable business.
What Are Sustainability Reports and ESG?
A sustainability report is a document that explains how a company conducts its business activities whilst managing the impacts that arise across economic, environmental and social aspects. Whereas an annual report contains mostly information on revenue, profit, assets or the company’s financial performance, a sustainability report provides a broader picture of how the company creates value over the long term.
Through this report, you can find out how a company manages energy and water usage, reduces carbon emissions, handles waste, safeguards worker safety and welfare, and builds relationships with communities around its operational areas. In other words, a sustainability report is a form of corporate transparency showing that business growth goes hand in hand with responsibility towards the environment and society.
Meanwhile, Environmental, Social, and Governance (ESG) is a framework used to assess a company’s sustainability performance. Environmental measures how a company manages its impact on the environment, such as greenhouse gas emissions, energy consumption, water usage and waste management. Social assesses the company’s relationships with workers, customers, suppliers and communities, including workplace safety, diversity, human rights and community empowerment. Governance focuses on corporate governance, such as transparency, business ethics, regulatory compliance, risk management, and oversight mechanisms by the board of directors and commissioners.
Cited from research titled Strategic Orientation, Risk-Taking, Corporate Life Cycle and Environmental, Social and Governance (ESG) Practices: Evidence from ASEAN Countries (2023), ESG adoption is gaining increasing attention among companies in the ASEAN region because investors and various stakeholders demand greater transparency and accountability in business practices. The research also explains that companies are no longer required only to generate profits, but also to demonstrate how they manage environmental, social and governance risks sustainably.
Because they serve different functions, sustainability reports cannot be equated with annual reports. Annual reports are prepared to provide information on a company’s financial condition and business achievements over one year, whereas sustainability reports highlight how the company manages risks and opportunities related to the environment, society and governance. Such information is often not reflected in financial statements, yet has a major influence on the company’s long-term continuity. For example, climate change risks, conflicts with communities, workplace accidents or weak governance can directly affect business performance even when not yet visible in financial figures.
In Indonesia, sustainability reporting practice has developed over nearly two decades. The term sustainability report was first introduced in 2005 by the National Center for Sustainability Reporting (NCSR) as part of efforts to encourage corporate transparency on sustainability aspects. Development accelerated after the Financial Services Authority (OJK) issued OJK Regulation Number 51/POJK.03/2017 on Sustainable Finance, which requires financial services institutions, issuers and public companies to prepare sustainability reports in stages. This policy became an important milestone encouraging more Indonesian companies to integrate ESG aspects into their business strategies whilst reporting them to the public.
Why Has ESG Become an Important Part of Corporate Business Strategy?
In recent years, ESG is no longer viewed as an add-on to sustainability reports or merely a way for companies to build a positive image. Regulatory developments, growing public awareness of environmental and social issues, and changes in how investors assess companies have made ESG part of business strategy. Companies are now expected to demonstrate how they manage the environmental impact of their operations, treat workers fairly, maintain community relations and apply transparent governance.
The ability to manage these three aspects is increasingly seen as a factor influencing long-term business continuity.
On the other hand, ESG adoption also presents opportunities for companies to create business value. Investors increasingly scrutinise how companies manage sustainability risks before making investment decisions. Companies with good ESG practices are considered better prepared to face regulatory changes, shifts in consumer preferences and increasingly complex environmental challenges.
Cited from research titled Pengaruh ESG Disclosure dan ESG Performance terhadap Firm Performance di Indonesia (2026), ESG performance is proven to have a positive influence on company performance measured through profitability indicators such as Return on Assets (ROA) and Return on Equity (ROE). The study used data from 84 companies listed on the Indonesia Stock Exchange during 2019–2023 and showed that better ESG practices can support improvements in company business performance.
This development shows that ESG relates not only to corporate social responsibility but also to growth strategy. When a company consistently manages environmental, social and governance aspects, the benefits can be seen through increased investor confidence, better stakeholder relationships and the company’s ability to face market changes. In other words, ESG helps companies build a stronger business foundation to confront long-term challenges.
The trend of ESG adoption in Indonesia continues to rise alongside regulatory developments and market demands. Cited from PwC Indonesia’s Sustainability Counts 2 release (2023), most Indonesian public companies have begun making sustainability reports part of strategic communication to investors and stakeholders. Sustainability reports no longer function merely as an administrative obligation, but also as a means for companies to demonstrate their targets, strategies and achievements in running a more responsible business.
Nevertheless, ESG implementation still faces its own challenges. Companies need to invest in improving environmental management systems, enhancing the quality of human resources and building more transparent governance mechanisms. For some companies, these implementation costs can be a short-term burden. However, when an ESG strategy is well designed and integrated into the business model, its benefits can support the company’s long-term sustainability.
How Do Sustainability Reports Help Companies Achieve Sustainable Business?
Sustainability reports are no longer seen merely as documents fulfilling regulatory obligations. They have now become an important tool for companies to evaluate the impact of their business on the environment, society and internal governance. Through sustainability reports, companies can see whether the strategies they pursue align with sustainable business principles, whilst showing the public how they manage future risks and opportunities.
One of the main benefits of sustainability reports is helping companies identify risks early. When a company routinely measures aspects such as carbon emissions, energy use, waste management, and relations with workers and communities, potential problems can be detected before they develop into larger disruptions.
Cited from research titled Bridging the Gap between Sustainability Disclosure and Firm Performance in Indonesian Firms: The Moderating Effect of the Family Firm (2022), sustainability disclosure is related to company performance in Indonesia. Research on 850 companies listed on the Indonesia Stock Exchange during 2014–2020 showed that sustainability reports can be one of the factors supporting improved company performance, especially when companies are able to integrate sustainability practices into their business strategy.
Beyond risk management, sustainability reports also play a role in building investor and stakeholder trust. Investors now look not only at a company’s ability to generate profit, but also at how it addresses environmental, social and governance issues. Information on emission reduction targets, clean energy strategies and governance policies provides a more complete picture of the company’s readiness to face regulatory and market changes.
Sustainability reports also drive companies to innovate. When companies set sustainability targets, they need to find ways to make their operations more efficient with a lower environmental impact. Such efforts may include reducing energy consumption, using environmentally friendly technology, improving waste management and developing products that support a low-carbon economy.
Furthermore, sustainability reports help companies measure how far their sustainability strategy is actually progressing. Data collected in the report can serve as evaluation material to see whether set targets have been achieved or still require improvement. That way, sustainability does not stop at being a commitment on paper, but becomes part of everyday decision-making.
Sustainability reports are therefore not just an additional report, but a tool that helps companies build a more resilient business. By understanding risks, improving transparency and driving innovation, sustainability reports can become the foundation for companies to grow sustainably.
Challenges for Companies in Implementing ESG and Sustainability Reports
Although ESG adoption and sustainability reporting are gaining increasing attention, companies’ journeys towards more sustainable business do not always run smoothly. Many companies understand the importance of managing environmental, social and governance impacts, but the implementation process still faces various obstacles. These challenges are felt more acutely in developing countries such as Indonesia, where each company’s readiness varies in terms of resources, technology and the capacity to manage sustainability data.
One of the biggest challenges is the limited availability of data and sustainability measurement systems. Cited from research titled Sustainability Reporting Challenges in Developing Countries: Towards Management Perceptions Research Evidence-Based Practices (2021), companies in developing countries still face barriers in implementing sustainability reports, ranging from limited management understanding, a lack of resources for data collection, to uneven reporting standards across sectors. The research explains that although standards such as the Global Reporting Initiative (GRI) have driven improvements in reporting quality, many companies still struggle to integrate sustainability into their business systems. This situation means some companies focus only on