Assessing Indonesia’s Ecosystem Readiness for Sustainability Disclosure Based on IFRS S1 and IFRS S2

In the modern world, companies do more than just sell products or services; they operate within a complex web of environmental and social impacts. For decades, businesses have shared stories about their efforts to be good neighbors, protect the environment, and treat people fairly. These stories, often called sustainability reports, were once optional and varied wildly from one company to another. Some focused on recycling, others on community programs, making it nearly impossible for an outsider to compare how well one company was doing against another. Investors and lenders, who need to know if a company is a safe bet for the future, found this patchwork of information frustrating. They needed a single, clear language to understand how environmental and social risks might affect a company's financial health.

To solve this, international bodies created a new set of rules known as IFRS S1 and IFRS S2. Think of these rules as a universal grammar for sustainability. The first rule, S1, sets the general requirements for reporting any sustainability-related risks, while the second, S2, zooms in specifically on climate change. These standards demand that companies explain not just what they are doing, but how climate change and other issues could hurt or help their business in the future. The goal is to turn vague promises into hard, comparable facts that anyone can trust. However, writing a rulebook is one thing; making sure everyone can actually follow it is another. A rule is only as good as the people and systems behind it. If a company wants to report its carbon footprint but has no way to measure it, or if its auditors don't know how to check the numbers, the rule fails. This is where the question of "readiness" becomes critical. It is not enough to simply adopt a new standard; the entire ecosystem of regulators, companies, accountants, and schools must be prepared to make it work.

A team of researchers from Padjadjaran University in Indonesia set out to examine whether their country was ready for this new chapter. Indonesia is a significant emerging economy, and in July 2025, it officially adopted its own version of these global rules, known as PSPK 1 and PSPK 2, which are set to take full effect in January 2027. The researchers wanted to know if the ground was truly prepared for this shift. They did not look at this as a simple checklist for individual companies. Instead, they viewed the situation as a vast ecosystem, where the success of the new rules depends on how well different groups work together. To understand this, they spoke with ten key people representing seven different groups: the officials who write the rules, the regulators who enforce them, the companies that must report, the investors who read the reports, the auditors who check them, the professional groups that train accountants, and the universities that teach the next generation.

The researchers conducted a series of deep conversations and reviewed written responses from these experts between late 2025 and mid-2026. They listened for signs of readiness in four specific areas. First, they looked at governance and coordination: are the different groups talking to each other, and do they have a shared plan? Second, they examined the infrastructure: do companies have the right computer systems and internal controls to gather and report this data? Third, they assessed human capital: do the people involved have the necessary skills and training? Finally, they checked data availability: is the information actually there, and is it reliable enough to be trusted?

The findings revealed a landscape of mixed progress. On the surface, Indonesia appears quite ready. The officials who set the standards and the regulators who oversee the markets have done their homework. They have carefully translated the international rules into national law through a formal, step-by-step process that included public feedback and expert review. This top-down alignment is strong, and the legal framework is in place. However, the researchers found that this formal readiness does not automatically translate into practical readiness on the ground. The ecosystem is in a transitional stage, moving from having the rules to actually living by them.

The most significant gaps were found in the human and technical sides of the equation. While the rules are clear, the people tasked with following them often lack the specific skills required. Companies are struggling to find staff who understand both accounting and climate science, a combination that is essential for these new reports. Similarly, the auditors who are supposed to verify the information are still building their expertise. Many audit teams are trained to check financial numbers but are less familiar with measuring greenhouse gas emissions or analyzing future climate scenarios. The researchers noted that while some large companies have started to build the necessary systems, many others are still figuring out how to organize their data.

Data itself emerged as the most difficult hurdle. To report effectively, a company needs to gather information from every corner of its business, including its supply chain. The researchers found that while companies are collecting more data than before, it is often scattered, inconsistent, or hard to verify. For example, tracking emissions from suppliers or predicting how a changing climate might affect a business in ten years requires data that many organizations simply do not have yet. Without clean, integrated data, even the most well-intentioned reports can lack the reliability that investors need. The study suggests that without better data systems and stronger coordination between the different groups in the ecosystem, the new rules risk becoming a box-checking exercise rather than a tool for real transparency.

The researchers concluded that Indonesia's journey toward these new standards is not a simple switch that can be flipped on a specific date. It is a complex process that requires all parts of the ecosystem to move forward together. The government has laid the foundation, but the work now shifts to building the house. Companies need to integrate sustainability into their daily decision-making, not just their annual reports. Universities need to update their curriculums to teach the next generation of accountants about climate risk. Auditors need to develop new methods to check non-financial data. The transition period leading up to 2027 is not a time to wait, but a strategic window to strengthen these connections. If these pieces fall into place, the new standards can provide the clear, comparable information that the world needs. If they do not, the rules may exist on paper, but the trust and clarity they promise will remain out of reach.