SRI KEHATI

Give an overview of your sustainability outcome targets and explaining the methodology for establishing them. This should include information on:

• The sustainability outcomes, positive or negative, that you are seeking to shape.
• The specific targets you have set, and relevant related policies you have established to implement action on sustainability outcomes.
• Any additional context relevant information – that have influenced your choice of sustainability outcomes and targets – including links to global goals and thresholds.
• % of AUM to which these targets apply.

The KEHATI Foundation believes in the critical role of financial investors, as the ultimate providers of capital to economic activities, in advancing the sustainability agenda. In 2009, KEHATI Foundation, a leading environmental NGO, pioneered ESG in Indonesia’s capital market by launching the SRI KEHATI Index, the first ESG equity index in Indonesia. Its goal is to raise awareness of sustainable investment in Indonesia and help channel financial resources to address socio-environmental challenges in the country.

Its activities related to ESG and sustainability in the capital market are two-fold. First, it aims to encourage investors in Indonesia to embrace sustainability. Second, it helps to connect investors with social and environmental projects across Indonesia.

On the first objective, the foundation approaches and encourages asset managers to start their ESG journey. This includes by providing the SRI KEHATI index, which was first benchmarked to an ESG fund product (an Index ETF), launched by Indopremier Investment Management, in 2014. Since the appointment to the foundation in 2018 of executive director Riki Frindos, the former CEO of an asset management company, it has been more aggressively promoting ESG principles among fund managers.

Over the last three years, it has signed agreements with nine asset managers, helping them launch their first ESG funds by benchmarking to its SRI KEHATI Index. The total AUM of SRI KEHATI-based funds has grown around tenfold since 2018, from an admittedly very low base.

However, the foundation also provides opportunities to investors to make real-world impacts. As part of the collaboration with fund managers, it uses the index licensing fees to support its conservation projects, especially in Flores island, in the second poorest province in Indonesia and where child malnutrition is among the highest in the country. To help the local people adapt to the impacts of climate change, the foundation is re-introducing sorghum, which used to be the main staple food for the indigenous people for many generations until it was replaced by rice. Sorghum can tolerate the dry climate much better than other crops. The programme works with more than 500 farmers in over 30 villages, strengthening food security and increasing household income. As many as 60% percent of the farmers that it engages are female. As well as addressing climate adaptation, the programme also “rediscovered” 14 local seeds, helping to further improve food security.

The programme in Flores island focuses on SDG 2: Zero hunger and, specifically, 2.1: Universal access to safe and nutritious food; 2.2: End all forms of malnutrition; 2.3: Double the productivity and incomes of small-scale food producers; 2.4: Sustainable food production and resilient agricultural practices; and 2.5: Maintain the genetic diversity in food production. The programme targets the entire sorghum production and consumption supply chain, from developing seeds, cultivation, post-harvest management, developing various sorghum-based foods, developing local markets, promoting sorghum consumption locally and helping farmers to export excess production (e.g. to Bali, Java island, etc.).

Explain how you have sought to shape sustainability outcomes through investment allocations, stewardship of investees and/or engagement with policy makers and key stakeholders. This should include information on:

• Which levers you have used to achieve your targets, and why you have chosen them.
• If and how you are working collectively with other investors or collaboratively with other stakeholders to achieve your targets.

The SRI KEHATI project is a collaborative programme which engages a variety of stakeholders. On ESG investing, the KEHATI Foundation works with the Indonesian Stock Exchange (IDX). Officially, the SRI KEHATI Index is maintained by both KEHATI and IDX. In practice, the KEHATI foundation controls the index construction process. Given that the foundation is an environmental NGO, the collaboration with IDX brings credibility to its standing in the financial markets. However, its reputation as a leading environmental NGO also plays an important role in gaining market acceptance.

In addition, the foundation leverages the capital markets background of its executive director to reach out to the financial markets. It also cooperates with a local university (Universitas Prasetiya Mulya) to maintain the index, undertake research and develop new ESG products. It also engages with OJK (the Indonesian financial regulator) and other stakeholders to promote ESG investing in Indonesia.

On the impact side, using the index fees to help local communities strengthen their food security and adapt to climate change, the foundation works closely with local organisations, especially the local Catholic church network. (The majority of Flores islanders are Catholic.) Most of the foundation’s programmes there are executed via a local foundation established by the Catholic church. From there, it also cooperates with community groups and other local organisations. The collaboration with and endorsement from the Catholic church are critical to the success of the programme.

The foundation also works closely with government institutions. For instance, it cooperates with a government research centre to discover and develop local seeds. It works with local Puskesmas (government-owned health clinics) to promote sorghum consumption to local children from an early age and help combat widespread malnutrition. It also helped to persuade the head of the local district to issue a regulation that supports food security strength by diversifying away from rice to locally produced sorghum.

Describe how you are tracking performance against your sustainability outcomes targets (short, medium and longer term). Include details of any progress achieved to date, any lessons learned, and how strategies or implementation approaches have shifted as a result of experience thus far.

On the ESG investing side of the programme, the foundation monitors a number of target indicators:

• The number of asset managers partnering with KEHATI Foundation, which currently stands at 11;
• Total AUM of ESG funds benchmarking to its SRI KEHATI Index, which has grown to around IDR2.5trn.

Given that ESG was a relatively new concept in Indonesia three years ago, and the KEHATI Foundation was barely known among investors, few big asset managers were interested in working with the foundation. However, it has since secured partnership with two top-10 firms in the local markets, including BNP Paribas Asset Management.

While the programme does not operate on a commercial basis, it does target sufficient index licensing fees to make a real-world impact, i.e. by funding its socio-environmental projects. With the recent surge in the number of asset manager partners, it now receives around $0.5m fees for its various projects, particularly the one in Flores island. It aims to increase this amount in the future, although it does not expect significant growth because, as ESG investing becomes more popular in Indonesia, commercial players are starting to enter the market.

To promote ESG further and to deliver potential growth for its programme, the foundation is working to develop new ESG indices. It plans to launch new indices in the third-quarter of 2021, along the same model of channelling any fees received to impact projects.

On the impact side of the programme, the foundation monitors and evaluates its outcomes against targets within SDG 2 (see above). These include:

• The number of farmers enrolled in the programme, which is currently more than 500 and growing;
• The percentage of female participants, which is currently around 60%. (The project manager and the field manager are both female.);
• Hectares of new sorghum planted, currently around 233 hectares and growing;
• The numbers of areas/district covered, which stands at 33 villages in five districts in Flores island and smaller nearby islands (Adonara, Lembata, and Solor island). The programme is also expanding to the neighbouring large island of Sumbar; and
• The number of local sorghum seeds (re)discovered and redeveloped (currently 14).

The foundation also tracks, as secondary impacts, the increase in household income from selling excess production (around a 20% increase to participants that have joined the programme for one full cycle), as well as the child malnutrition rate and sorghum mix in local consumption. On these latter two indicators, the programme is still collecting data.