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Environmental, Social, and Governance (ESG) Considerations

An introduction to the components of structured preparation.

Environmental, Social, and Governance (ESG) Considerations

  • An Environmental, Social, and Governance (ESG) assessment is holistic and offers a lens to ensure the project preparation process is responsible, sustainable, and inclusive. ESG stands for:

    • Environmental – how does the infrastructure project affect the environment?
    • Social – how does the infrastructure project affect – and potentially benefit - people, especially those near the project site and the most vulnerable?
    • Governance – how will the project be managed and how ethical and transparent are the decision-making processes?

    Institutionalisation of ESG practices carries strategic importance for Indonesia’s Ministry of Finance (MOF) because it can help to:

    • enhance the quality and sustainability of infrastructure investments
    • attract green and responsible financing, and
    • minimise environmental and social risks while maximising long-term benefits.

    • The Directorate General of Budget Financing and Risk Management, MOF, has developed the ESG manual and framework. The manual and its framework focus on six sectors: water, waste management, public housing, gas distribution, hospitals, and urban transportation

  • The MOF’s ESG manual helps to:

    • Identify ESG potential impacts and risks including those related to the environment and climate change, land acquisition and resettlement, social inclusion of vulnerable groups (especially women, people with disabilities and indigenous communities), and gender equality related to the infrastructure sector.
    • Develop a risk mitigation framework to reduce risks and maximise benefits.
    • Guide on recommended activities implemented under government-supported facilities to improve the ESG risk and impact management of PPP infrastructure projects.
    • Guide on the use of tools to carry out the recommended activities in preparing projects to comply with ESG standards.

    The current version of the ESG manual (as at October-2025) addresses environmental and social issues which are considered more pressing than governance issues, at present in Indonesia.

    The manual helps GCAs include ESG considerations during project planning in the Preliminary Study (PS). The manual also addresses other stakeholders of PPP across the PPP lifecycle and their roles in ESG considerations for PPP projects.

  • The MOF’s ESG framework outlines the scope and objective of 10 ESG standards. Of these standards, four relate to the environment, four to social aspects, and two to governance. The GCA and/or its Technical Assistance (TA) Consultant shall use these standards from the ESG Framework as reference when seeking support from the Project Development Facility (PDF), Government Guarantee, Viability Gap Fund (VGF), or Availability Payment schemes.

  • The ESG Manual includes nine tools that can be used by the GCA and/or its TA Consultant to fulfill their responsibilities related to ESGs standards. Of the nine tools, five are applicable in the preparation stage. The GCA and/or its TA Consultant shall use the following tools from the ESG Manual while developing the Pre-Feasibility Study in the Pre-FS components and sub-components indicated.

    These tools and all others can be used by all other stakeholders including the MOF, PDF Implementers supporting GCAs in preparing PPP projects, Bappenas, IBE, and lenders during the PPP lifecycle including in transaction and project operations as required and relevant.

    SN Tool Description Pre-FS Component and sub-components Manual page no.
    1 ESG Risk Register and Materiality Assessment Tool (MAT)
    In the context of ESG, materiality assessment or risk screening is a process of evaluation and identification of key issues related to ESG enabling prioritisation of actions. It serves to enhance project preparation by the GCA by informing steps to influence design and prepare technical documents at an early stage. For example: assess whether fundamental changes are needed in the project design (e.g., site location, route etc.)
    Materiality assessment aims to improve the overall project delivery by incorporating sustainability, responsibility and inclusion as essential elements of the project preparation process.
    Materiality assessments are holistic and important because they influence risk management (manage overall project risks to achieve a more successful and resilient project outcomes), help with prioritisation (prioritises efforts towards issues that can deliver highest material impact and reduce ESG risks to safeguard stakeholder interest) and promote long-term sustainability with practices for improved infrastructure project delivery.
    MAT is used to assess the risk of individual assets and asset pools within a system. The risk register template in the MAT covers ESG risks and impacts that are common to all sectors, as well as sector-specific risks. The MAT also considers gender equality and social inclusion (of vulnerable groups, especially indigenous communities and people with disabilities) as cross-cutting issues that need to be linked to each of the two factors (environmental and social), the sector, and the PPP project life cycle (including gender equality and social inclusion issues within institutional arrangements).
    The MAT tool covers risk mapping during the preparation stage, while risk mitigation actions happen in subsequent stages (transaction & project operations).
    Results of the MAT tool assessment are strongly recommended to be integrated with the Pres-FS document so that ESG risks are integrated with other aspects and can support comprehensive decision-making.
    Sub-components that may benefit from the results of the MAT:
    • Strategic Suitability - Needs Analysis and Compliance Assessment - Needs review of the project - Alignment with the Spatial Plan (RTRW) or Detailed Spatial Plan (RDTR)
    • Strategic Suitability – Regulatory Assessment - Updating the acquisition of Environmental Approval
    • Commercial Review - Technical Preparation - Technical preparation assessment - Preparation of environmental approval / permit as per legal regulations
    • Commercial Review - Technical Preparation - Technical preparation assessment – Review of social aspects
    • Commercial Review - Technical Preparation - Technical preparation assessment - Determination of output specifications - Indicative schedule for construction work and equipment provision
    • Management Review - Technical and Administrative Requirements
    • Supporting Activities - Public Consultation – Implementation of public consultations
    • Supporting Activities - Public Consultation - Outcome of public consultations
    • Supporting Activities - Other Supporting Activities Conducted by GCA - Environmental permit receipt, including completion of the ESIA (Environmental and Social Impact Assessment) process.
    		94-129
    2 Potential Socio-Economic Benefits of Infrastructure Projects to SDGs
    Helps articulate how a project contributes to the Sustainable Development Goals (SDG), including economic upliftment (SDG 8), gender equality (SDG 5), and disability and social inclusion (SDGs 10 16).
    The tool helps demonstrate potential benefits of the project during the development of the ESIA (Environmental and Social Impact Assessment) or AMDAL (Environmental Impact Analysis) document, as a reference in assessing the positive impacts of the project.
    • Commercial Review - Technical Preparation - Technical preparation assessment - Preparation of environmental approval / permit as per legal regulations
    		130-148
    3 ESG Project Categorisation Tool
    Classifies projects based on ESG risk levels (e.g., low, medium, high) to guide mitigation strategies.
    GCA can use the tool early in the project preparation stage to understand the overall project risk level and the extent of efforts needed to mitigate risks.
    • Strategic Suitability – Regulatory Assessment - Updating the acquisition of Environmental Approval and List / Matrix of legal risks, description of the risks and proposed mitigation strategy.
    		153-157
    4 Diversity, Equality, Inclusivity, and Access Considerations Tool
    Ensures gender equality and social inclusion (of vulnerable groups especially indigenous communities and people with disabilities) are addressed in project design and implementation.
    GCA can use this tool as a reference in developing gender equality and social inclusion assessments as part of the ESIA/AMDAL. They can use several methodologies such as gender analysis and a Gender Action Plan (GAP) during project planning and include gender/ social assessment in the Pre-FS to ensure the implementation of gender equality and social inclusion requirements in project transactions and implementation stages.
    • Commercial Review - Technical Preparation - Technical preparation assessment – Review of social aspects.
    • Supporting Activities - Public Consultation – Implementation of public consultations.
    • Supporting Activities - Public Consultation - Outcome of public consultations.
    		158-163
    5 Project Document Checklist
    Verifies that all required ESG-related documents are prepared and submitted.
    GCA can use this tool at the beginning of the project preparation stage to understand whether the available documents meet national and international standards.
    • After Commercial Review and before or in parallel to financial review and
    • Management Review - Plan for a master list of records/evidence of work.
    		164-165