Page 145 - SUSTAINABILITY ISSUES & COVID-19

Ahmad, & Eky Ermal, 2017). This index was created by the KEHATI Foundation, The Indonesian Biodiversity Foundation,
together with the Indonesian Stock Exchange (IDX) in 2009 (Sutrisno, 2019). With company selection standards that
apply the principles of Sustainable Responsible Investment (SRI), as well as environmental, social and governance (ESG)
principles, the SRI-KEHATI Index is now the only reference to investment principles that emphasize ESG issues in the
Indonesian capital market (kehati.or.id, 2020).

The creation of this index was triggered partly by the environmental destruction caused by some Indonesian companies,
such as PT Newmont Nusa Tenggara and PT Newmont Minahasa Raya Mine. It was expected that the public would
be made aware of the existence of an index showing companies regarded as beneficial and constantly managing
sustainable development. The SKI was established as an ethical index for SRI investors to review the performance of
companies’ profitability, supported by their ESG performances (Zulkafli et al., 2017).
The establishment of a socially responsible investment index aimed to raise awareness of the conservation of
biodiversity among the shareholders, the industry and the capital market’s players. It also had the objective of
providing open information to the public regarding the selection and identification of companies included in the
index (Sutrisno, 2019).

The screening process involves an initial exclusion selection of negative line-of-business aspects [such as pesticide use,
nuclear, weapons, tobacco, alcohol, pornography, gambling, and Genetically Modified Organisms (GMO)]. This is then
followed by the financial screening of the companies i.e. their market capitalization and an asset ownership of above 1
trillion Rupiahs, based on their latest audited financial reports, with a 10 percent public ownership on the Indonesian
Stock Exchange (kehati.or.id, 2020). The companies must also have maintained a positive Price/Earnings (PE) Ratio
during the last six months. A further screening also evaluates the fundamental aspects of the companies (such as
their corporate governance, environmental record, community involvement, business manners, human resources, and
human rights record).

The social and environmental performance of the organization is increasingly being emphasized by many stakeholders,
including customers, regulatory authorities, communities, NGOs, and activists on environmental and social (Sarkis,
González-Torre, Gonzalez-Torre, & Adenso-Diaz, 2010). Additionally, although 93% of CEOs recognize sustainability as
essential to their company’s success, there is no evidence that it has been extensively applied in most organizations
(Kanal, 2011). Unfortunately, as market-led actions are no longer enough, it is still doubtful whether business leaders
have the knowledge and means to take sustainable actions effectively (Craig Smith & Soonieus, 2019). In this sense
Deutsch (2007) reported that firms are increasingly recognizing the limitations of their executives and decide to hire
corporate sustainability officer. Similarly, to address such sustainability demand from various stakeholder, sustainability
officer can be appointed by the organizations (Arora & Subramanian, 2017). Given the broad nature of sustainability
issues, the appointment of the SO reflects a voluntary commitment of firms intended to meet the needs of a wide
variety of stakeholders (Peters & Romi, 2015).

SO can be found in every level of organization. On the top-level, SO is recognized as Environmental Committee (Rodrigue
et al., 2013), who has roles to educate the board on sustainability issues and in demonstrating corporate sustainability
commitment at the highest levels (Eapen, 2017). Also, there is Chief of Sustainability Officer or CSO (Kanashiro and
Rivera, 2017; Wiengarten et al., 2017; Miller and Serafeim, 2014), who has responsibility to oversee firm’s environmental
strategy and directly report to CEO (Miller and Serafeim, 2014). Sustainability staff are coordinators, conveners and
communicators for sustainability-related activity across functions and departments (Ruedig & Metzger, 2013). At the
middle management level, some environmental managers have duties related to sustainability in their specific regions
or production lines (Kanashiro & Rivera, 2017).

The appointments of chief officers of corporate social responsibility or SO has an association to the improvement
of operating financial performance as measured by change in return on assets (Wiengarten, Lo, & Lam, 2017). The
presence of an environmental committee or SO and a Chief Sustainability Officer (CSO) is positively associated with
sustainability performance which is measured by the likelihood of GHG disclosure and that CSOs are associated with
disclosure transparency (Peters & Romi, 2013). That is because the corporate sustainability officer plays an critical role
in the modern corporation by integrating sustainability activities, firm’s strategy, and governance practices within the
organization and executive suite (Peters & Romi, 2015).

144 International Conference on Sustainability
(5 Sustainability Practitioner Conference)
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