The Importance of Environmental, Social, and Governance (ESG) Principles in Public Works and Housing Infrastructure

Abstract

In 2020-2024 period, it is estimated that the total investment needed to achieve infrastructure development targets in the public works and housing sector is approximately IDR 2,058 trillion. Meanwhile, the state budget can only cover around 30% of that amount, leaving the rest to be dependent on creative financing schemes such as Public-Private Partnerships (PPP). On the other hand, the public works and housing sector is a major contributor to greenhouse gas emission production. It means that infrastructure projects especially in the PWH sectors need to be safeguarded in terms of Sustainable Development Goals (SDGs) and climate change adaptation. In the recent development, there is a significant rise in changing priorities of investors in supporting investment, which is to incorporate Environmental, Social, and Governance (ESG) principles. To foster ESG in infrastructure financing, the Ministry of Finance (MoF) Republic of Indonesia has launched ESG Framework and Manual to be applied by the Government Contracting Agency (GCA) as well as Special Mission Vehicles (SMVs) under MoF in undertaking the PPP project which receives government support and facilities. The Ministry of Public Works and Housing is currently preparing numerous PPP projects to achieve the funding gap, one of which is the Maintenance of Bintang Bano Dam and Build Operate, Transfer (BOT) of Mini Hydro Power Plant. As the first unsolicited PPP Project in the water resources sector, the project can be embedded with ESG principles. However, since ESG had not been incorporated since the preparation, the corrective action plan toward required Environment and Social aspects are needed to be applied. Keywords: Public-Private Partnership, greenhouse gas, ESG, Bintang Bano Project, corrective action plan