With its new reform bill, Indonesia is essentially wagering that it can benefit by pursuing less sustainability in its trade and economic policies. The implicit calculation is that lowered labor and environmental standards will make Indonesia more attractive to foreign investors. There is ample evidence to suggest that this is an erroneous assumption.

Business and investors driving sustainability

Old, cliched notions about business being eager to exploit weak labor and environmental standards are rapidly falling out of sync with current day realities. More and more companies have recognized that such approaches simply don’t make good business sense over the longer term and run contrary to the values held by their customers, investors, and employees. In fact, business is frequently ahead of government in its commitment to sustainability.

Encouragingly, that seems to be the case with Indonesia’s reform bill. We’ve already heard voices in the international investor community speaking out against the weakening of labor and environmental standards. A group of thirty-five investment firms with over US$4.1 trillion in assets under management have written to the Indonesian government expressing their concerns in no uncertain terms: “We fear that proposed changes to the permitting framework, environmental compliance monitoring, public consultation and sanctioning systems will have severe environmental, human rights and labor-related repercussions that introduce significant uncertainty and could impact the attractiveness of Indonesian markets.”

Investors are telling the Indonesian government pointblank that reduced environmental and labor standards make the country less attractive for investment. This is profound.

Meanwhile, the World Bank has praised provisions which eliminate discrimination against foreign investors but has been sharply critical of the backward steps on sustainability, warning of adverse impacts on health, safety, natural resources, and labor protections. According to one official, “It’s going to move Indonesia’s environmental legislation further away from international best practice and this is not basically helping Indonesia.”