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James Byrne headshot

Indonesia's Labor Rights and Sustainability Now at Risk, Say Critics of a Massive 'Jobs' Bill

Indonesia's landmark stimulus bill has left investors and companies concerned about future of the country's environmental sustainability and labor rights.
By James Byrne
Labor Rights

(Photo: Commuters on their way to work in Bandung, Indonesia. The nation’s federal government has passed a bill that critics say would result in setbacks for both labor rights and environmental sustainability.)

In what critics say is a step backward for both the environment and labor rights, Indonesia’s government has approved its new Omnibus Bill on Job Creation, receiving support from seven out of the nation’s nine political parties. Its passage occurred despite vehement opposition from citizens, labor unions and foreign investors.

The new stimulus bill, which supporters say is designed to boost jobs and increase foreign investment, cuts environmental regulations contained within 79 laws. The bill’s passing was controversially moved forward by the federal government's legislative body, after news reached officials of a planned three-day strike by workers opposing the bill.

A struggling economy is determined to save jobs, but at what price?

With Indonesia being one of the nations hardest hit by the COVID-19 pandemic, and its economy set to shrink for the first time since the Asian economic crises of the late 1990s, the pressure is on to create jobs. The bill’s passing, said the country’s President Joko Widodo, was a product of the need to cut red tape and to boost economic growth. Widodo also insisted that the amended bill will create 3 million new jobs for young people.

Indonesia’s reputation for how it manages its economy has taken a hit in recent years, partially reflected in the nation's ranking in the World Bank’s ease of doing business index. Indonesia had been climbing the index over recent years, but its rank stagnated at 73rd place as of 2019. On this point, officials have said the regulatory easing within the new bill will attract companies wishing to relocate from China. However, an article in the Chinese Journal of Environmental Law has called the amended bill a “setback,” stating that the lack of transparency during the bill’s drafting process contradicted the purpose of the bill itself.

Labor unions have also expressed indignation at the bill, highlighting that the new legislation cuts mandatory leave and reduces severance pay while allowing longer work hours. Amnesty International, the human and labor rights campaign group, is also a vehement critic of the bill. The group’s Indonesian executive director, Usman Hamid, called the bill “catastrophic,” considering the amendments contradict Indonesia’s position as a signatory of the International Covenant on Economic, Social and Cultural Rights.

With similar intensity, Phelim Kine, senior campaigns director at the environmental organization Mighty Earth, accused the government of making a “ruinous” and erroneous choice between environmental sustainability and economic growth. Kine went on to warn that the bill would lead to the legitimization of uncontrolled deforestation.

Concerns over labor rights fester

Other critics include Asfinawati Ajub, the chairwoman of the Indonesian Legal Aid Foundation, who stated that the act of moving the bill forward, ahead of protests, was an attempt at “ignoring the will of the people.” This has not stopped protests in the country from going ahead, however, with tens of thousands of workers camping out for days around the nation in support for labor rights. In the capital Jakarta, protests have intensified, with over 400 protesters having been detained so far, the BBC reported

Just days before the bill was passed, an open letter signed by 36 investors representing $4.1 trillion in assets under management had been sent to Indonesia’s legislative branch (the People’s Consultative Assembly, or MPR), expressing deep concerns about the bill’s effect on labor rights and the environment. The letter specifically addressed proposed changes to the permitting framework for land uses, environmental compliance monitoring, public consultation and sanctioning systems.

The letter stated that the proposed changes would cause severe environmental, social and governance (ESG) “repercussions," affecting investor confidence in Indonesian markets. These repercussions would pose “systemic and material risk” to the signatories’ portfolios and the wider economic landscape, the authoring investors asserted.

General areas of concern in the letter were human rights issues, labor rights, and the degradation of ecosystems, including widespread biodiversity loss. The investors also reminded officials of the role of land use emissions reductions in achieving the Paris climate agreement. Indonesia has a “pivotal role” to play, stated the investors, arguing that concessions for clearing land for palm oil within the bill fly in the face of the rise of ESG investing and capital allocation.

With palm oil on their minds, food companies speak out

In the United Kingdom, another letter affirming these sentiments was signed recently by 21 leading food companies, including Tesco, Nestlé and Unilever, urging the U.K. government to get tougher on deforestation and related labor rights abuses found in global supply chains. The signatories called for an extension of rules to cover all deforestation, not just where it is illegal, since governments have discretion when deciding what is deemed legal. In Europe, a framework is currently being drawn up after similar concerns regarding supply chain deforestation were highlighted by 250 global investors representing $17.2 trillion in assets.

Deforestation to make way for palm oil plantations and other commodities has plagued Indonesia for many years. Promising progress to reduce deforestation and the removal of peat (an important sequester of carbon) had been made, with deforestation falling up to 2018, according to the World Resources Institute. However, land clearing has since spiked during the COVID-19 pandemic. Deforestation is also a major public health concern, with a 2016 study linking the burning of forests and peatlands in Indonesia to the deaths of 100,000 people. Lastly, the economic cost is huge, with forest fire damage and related economic losses costing Indonesia $5.2 billion in 2019, according to the World Bank.

Organizations like the Roundtable on Sustainable Palm Oil (RSPO), along with the Rainforest Action Network (RAN), WWF and others, are trying to tackle these issues through plantation certification. However, with the RSPO only certifying less than 20 percent of the global palm oil supply, there is still much to be done. Worryingly, even areas that are externally certified are still the target of illegal logging and clearing, an issue that will surely increase with weakened environmental laws. Controversies already abound, with companies like Korindo accused of talking the talk on sustainable land and labor practices, but not walking the walk.

Despite growing awareness of the environmental, economic, and social costs of burning or clearing land to make way for palm oil plantations, the pressure to grow hugely popular commodities like palm oil remains high. That being said, with enthusiasm growing for truly sustainable supply chains untainted by deforestation, Indonesia seems to have missed a vital opportunity to lead on sustainable land use practices and labor rights. If its aim to attract foreign investment does backfire, as investors have warned, this would exert even more pressure on plantation owners to maximize profits. With time ticking on reversing the long-term impacts of deforestation, Indonesia may have just set the clock back considerably.

Image credit: Fikri Rasyid/Unsplash

James Byrne headshot

James has been writing about investing and sustainable finance and development for over ten years. With a background in sustainability consulting, his book 'Green your business now', was used as the basis for a sustainable business accreditation scheme in the U.K. He also helped PepsiCo with branding and investment strategy for its Tropicana product line as part of its Performance with Purpose agenda. His views on sustainable development and responsible investing have been featured in Morningstar magazine and the UKs Urban Design Journal, an organization that promotes sustainable development. He has an active interest in ESG having written for ESG investor platform Curation, where he helped curate content used in environmental risk briefings for FTSE100 companies. Topics James has covered include governance issues, renewable energy adoption, accessible design, sustainability reporting and climate related financial risk disclosures.

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