How the New PROPER Environmental Program Rewrites Indonesia ESG Environmental Regulation?

Indonesia’s corporate landscape is undergoing a massive shift with the transformation of the PROPER environmental program. Backed by the new Environmental Control Agency, this reform marks a tough new era of environmental law enforcement and sustainable business practices.

Introduction

Environmental governance in Indonesia has progressively shifted from a reactive enforcement paradigm towards a preventive and performance-based model. Historically, environmental law enforcement relied on administrative sanctions, civil liability, and criminal prosecution, largely imposed after environmental harm had occurred. Although such mechanisms remain central under Law No. 32 of 2009 on Environmental Protection and Management as amended by Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (“Environmental Law”), their reactive nature has prompted the development of a complementary instrument aimed at early detection and prevention.

One of the most prominent instruments is the Company Performance Rating Assessment Program in Environmental Management (“PROPER”), a government-led environmental performance assessment program administered by the Ministry of Environment/Environmental Control Agency that evaluates and publicly discloses corporate environmental performance. Initially designed as a reputational assessment mechanism for participating companies, PROPER is now mandatory for companies whose activities directly affect the environment. This regulatory shift reflects a broader trend toward a hybrid governance model that combines law enforcement, administrative supervision, and market-based pressure.

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This article examines two central arguments. First, it discusses key changes in the Minister of Environment/Environmental Control Agency Regulation Number 7 of 2025 on PROPER compared to Minister of Environment and Forestry Regulation Number 1 of 2021 on PROPER. Second, the transformation of PROPER has measurable legal and environmental impacts, particularly in enhancing compliance, preventing environmental harm, and promoting sustainability practices. Through normative and comparative analysis, this article demonstrates that the new PROPER regime represents a fundamental evolution in Indonesia’s environmental regulatory architecture.

Environmental Protection and Management Regulatory Framework

Indonesia’s environmental legal regime is anchored in the Environmental Law, which establishes key principles such as sustainable development, the precautionary principle, and strict liability for environmental damages. These principles are operationalized through Government Regulation Number 22 of 2021 on the Implementation of Environmental Protection and Management (“GR 22/2021”), which governs environmental approvals, compliance standards, and monitoring obligations.

In order to implement the mandate of the Environmental Law and GR 22/2021, the government issued PROPER to evaluate corporate environmental compliance. PROPER has been significantly restructured under the Minister of Environment/Environmental Control Agency Regulation Number 7 of 2025 on PROPER (“MoE/ECA Reg. on PROPER”), replacing the earlier framework under Minister of Environment and Forestry Regulation Number 1 of 2021 on PROPER (“MoEF Reg. on PROPER”).

MoEF Reg. on PROPER established PROPER, a formal system designed to evaluate and rank the environmental management performance of various businesses and industries. It outlines a structured assessment process involving planning, implementation, and final assignment of performance based on legal compliance and voluntary sustainability efforts.

MoE/ECA Reg. on PROPER was issued to strengthen the PROPER instrument as a public mechanism for assessing environmental compliance and innovation in companies required to participate. This new regulation strengthens the mandatory compliance criteria for target companies, introduces new standards for companies seeking beyond compliance ratings, encourages innovation and strengthens environmental compliance, and directly links corporate environmental performance to law enforcement.

Within this legal framework, the government is tasked not only with enforcement but also with supervision and guidance. PROPER functions as a regulatory instrument that bridges these roles by providing a structured mechanism for evaluating and influencing corporate behavior.

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Not all companies are required to participate in PROPER, but the program is mandatory for businesses whose products are intended for export, are listed on the stock exchange, are of regional or national public interest, and/or whose operations significantly impact the environment. Therefore, companies whose businesses meet these criteria are required to participate in PROPER.

PROPER implementation is divided into three stages: mentoring, assessment, and rating determination. Mentoring for PROPER participants is conducted by the PROPER implementation team through information dissemination, consultation, and collaborative facilitation. Then, PROPER participants’ environmental compliance is assessed through direct and indirect methods. Direct performance assessment is conducted through field verification, while indirect assessment is conducted through the evaluation of company documents.

Following the assessment of PROPER participants, a rating of their performance is conducted, divided into five rating categories: gold, green, blue, red, and black. The gold and green ratings, as the highest ratings, are awarded to companies that exceed compliance standards. This is followed by the blue rating, which indicates that PROPER participants have implemented environmental management efforts in accordance with laws and regulations. The final two ratings are red, which indicates that environmental management efforts do not comply with legal standards, and black, for participants whose negligence has led to environmental pollution and damage.

The legal framework regarding PROPER has undergone a significant transformation from the MoEF Reg. on PROPER, which was considered to only evaluate and serve primarily as a reputational assessment mechanism for corporations’ environmental performance, to a stricter program that encourages substantive corporate compliance with environmental protection and management obligations based on the MoE/ECA Reg. on PROPER.

Key Changes in MoE/ECA Reg. on PROPER

Institutional Restructuring and Legal Basis

During the administration of President Prabowo Subianto, the institutional structure in the environmental sector underwent a restructuring, changing from being previously under the Ministry of Environment and Forestry (“MOEF”) to the Ministry of Environment/the Environmental Control Agency (“MoE/ECA”).

The MoE/ECA Reg. on PROPER marks a significant institutional shift from the MoEF to the Environmental Control Agency (“ECA”). Under the previous regulation, governmental duties relating to environmental protection and management were performed by the MOEF through the Minister of Environment and Forestry.

In the new regulation, ECA was introduced to act as a non-ministerial government institution which performs government duties relating to environmental control. Meanwhile, the Ministry of Environment (“MoE”) administers governmental affairs relating to environmental protection and management.

With the enactment of the new regulation, there is now a separation of functions between the regulator and the implementing body in relation to environmental control, whereby the MoE acts as the governmental authority and regulator, while ECA serves as the implementing agency for environmental control.

This change reflects a restructuring of government organizations responsible for environmental control. The regulation was introduced on the basis that the previous regulatory framework was no longer considered adequate to address current legal and environmental governance needs. The establishment of the ECA is intended to strengthen and centralize governmental oversight of corporate environmental compliance.

Expansion of Mandatory Compliance Criteria for PROPER Participants

MoEF Reg. on PROPER and MoE/ECA Reg. on PROPER both stipulate that companies are evaluated on their ability to meet environmental standard criteria (compliance aspects). The standard criteria contained in the two regulations include:

1. water pollution control;
2. water source maintenance;
3. air pollution control;
4. hazardous and toxic waste management;
5. non-hazardous and toxic waste management;
6. hazardous and toxic materials management;
7. land degradation control; and
8. waste management.

MoE/ECA Reg. on PROPER adds specific new areas of assessment, such as:

1. environmental approvals;
2. peat ecosystem damage control; and
3. environmental audits.

These additional assessments strengthen corporate environmental compliance obligations. In particular, periodic environmental audits are now required for companies seeking to obtain or maintain a blue rating under PROPER. Failure to maintain environmental audit documentation may result in a company receiving a red rating under PROPER and being subject to sanctions upon two consecutive failures. Furthermore, controlling peat ecosystem damage for businesses operating on peatlands represents a significant addition to this regulation, as the previous regulation did not address this issue.

This expansion indicates a regulatory shift from pollution-control compliance toward integrated environmental governance, particularly by incorporating preventive oversight mechanisms such as environmental audits and peat ecosystem protection.

Standards of Environmental Excellence (Beyond Compliance)

To achieve the green and gold ratings, companies must exceed mandatory requirements. The following mandatory requirements are:

1. life cycle assessment;
2. environmental management system;
3. implementation of an environmental management system for resource utilization in several areas, such as energy efficiency, emission reduction, water efficiency and wastewater load reduction, reduction and utilization of hazardous and non-hazardous waste, and biodiversity protection;
4. community empowerment;
5. disaster response; and
6. social innovation.

The MoE/ECA Reg. on PROPER introduces several modern elements to the beyond compliance framework:

1. green leadership; and
2. eco-innovation.

Thus, companies are assessed not only on formal compliance but also on their concrete contributions to community empowerment and the achievement of sustainable development goals aligned with the government’s vision for Environmental, Social, and Governance (“ESG”).

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One crucial aspect of the beyond compliance framework is the concept of green leadership, which assesses company leaders who demonstrate a long-term vision for environmental management. This concept emphasizes that sustainability depends not only on government policies but also on the leadership within a company or organization.

Administrative Mechanism

MoEF Reg. on PROPER stipulates that the PROPER implementation team consists of a central PROPER implementation team (“Central Team”) and a provincial PROPER implementation team (“Provincial Team”). The Central Team consists of elements from echelon I units responsible for controlling environmental pollution and damage, waste management, and hazardous and toxic materials. Meanwhile, the Provincial Team comes from environmental work units at the provincial level.

The PROPER implementation team is tasked with assessing corporate performance in complying with environmental standards and exceeding mandatory compliance standards, as well as ranking the performance of the company in environmental management. The PROPER implementation team consists solely of the implementation teams at the central and provincial levels under this regulation.

MoE/ECA Reg. on PROPER further adds a PROPER implementation team, which includes not only the implementation team at the central and provincial levels, but also a PROPER implementation team at the district/city level, consisting of regional apparatuses that manage government affairs in the environmental sector in the district or city. The inclusion of district/city-level implementation teams reflects a broader decentralization of environmental supervision and is intended to strengthen regional monitoring capacity over environmentally sensitive business activities.

Legal Implications of MoE/ECA Reg. on PROPER

The issuance of the MoE/ECA Reg. on PROPER brings significant changes to the relationship between corporate compliance evaluation and environmental law enforcement in Indonesia. While PROPER was previously understood primarily as an instrument for evaluating corporate reputation, this new regime creates a direct linkage between PROPER ratings and potential environmental law enforcement measures.

One of the most significant legal implications is reflected in Article 45 of the MoE/ECA Reg. on PROPER, which provides that PROPER participants receiving red ratings for two consecutive periods and/or black ratings shall be subject to administrative enforcement and other legal measures in accordance with prevailing laws and regulations. This provision indicates that PROPER ratings are no longer merely administrative or evaluative in nature but increasingly function as trigger mechanisms for supervision, inspection, and environmental sanctions under the Environmental Law, particularly administrative sanctions under Article 76 of the Environmental Law.

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Furthermore, the MoE/ECA Reg. on PROPER establishes a form of reputational sanction against companies failing to comply with environmental obligations. Pursuant to Article 46 of the MoE/ECA Reg. on PROPER, the Minister of Environment/Head of ECA may publicly announce PROPER ratings through print and/or electronic media. Such disclosure creates transparency and accountability-based pressure upon companies, particularly those receiving red or black ratings. In modern business practice, such reputational exposure may affect investor confidence, commercial relationships, and corporate sustainability.

The strengthening of PROPER’s function demonstrates that the government is beginning to implement a system that connects administrative evaluation, public oversight, and law enforcement within a single environmental control mechanism. Thus, PROPER no longer serves solely as a tool for assessing corporate reputation but has evolved into an instrument with practical implications for corporate legal position and governance.

Environmental Implications of MoE/ECA Reg. on PROPER

MoE/ECA Reg. on PROPER represents a significant shift in environmental governance in Indonesia, moving from a reactive approach to a preventive and performance-based approach. While previous environmental legal instruments focused more on law enforcement after pollution or environmental damage occurred, the new PROPER regime positions compliance monitoring and evaluation as an early prevention mechanism for environmental risks. This approach aligns with the principles of prevention and sustainable development as stipulated in the Environmental Law, particularly Article 2 letters b and f, on the principle of sustainability and the precautionary principle.

One of the most significant environmental implications is the expansion of the PROPER assessment criteria by adding environmental audits and peatland ecosystem damage control aspects, as stipulated in Article 17 paragraph (2) letter a of the MoE/ECA Reg. on PROPER. The addition of environmental audits strengthens the early identification mechanism for potential pollution and non-compliance by companies, while peatland damage control demonstrates the integration of climate protection and environmental sustainability issues into the company’s compliance system. This is important considering that peatland damage has been a major cause of forest fires and increased carbon emissions in Indonesia.

Furthermore, the introduction of the concepts of green leadership and eco-innovation approach within the beyond compliance mechanism reflects that companies are no longer solely assessed based on formal compliance with environmental quality standards, but also on their actual contributions to environmental and social sustainability. Thus, PROPER has begun to function as an instrument that encourages the integration of ESG principles into corporate business practices.

Innovations produced by PROPER participating companies have demonstrated a significant impact on the environment and society. During the 2024-2025 PROPER assessment period, 1,806 environmental and social innovations were recorded, contributing to greenhouse gas emission reductions, energy and water efficiency, circular economy-based waste management, and biodiversity. These efforts also have a direct impact on communities through empowerment programs valued at Rp1.01 trillion and tens of thousands of activities supporting the achievement of the Sustainable Development Goals (SDGs). (Press Release No. SR.57/HUMAS/KLH-BPLH/4/2026)

Conclusion

The transformation of PROPER under the MoE/ECA Reg. on PROPER reflects a fundamental shift in Indonesia’s environmental governance approach. Whereas PROPER previously functioned primarily as a corporate evaluation and reputational mechanism, the new regime expands its role into a supervisory instrument directly linked to environmental compliance and law enforcement. Through the expansion of compliance criteria, the strengthening of supervisory mechanisms, the integration of sustainability and ESG principles, and the linkage between PROPER ratings and enforcement measures, the government is gradually establishing a more preventive, integrated, and performance-based environmental control system.

The MoE/ECA Reg. on PROPER further illustrates that modern environmental governance no longer relies solely on formal legal sanctions imposed after environmental harm has occurred, but increasingly depends on preventive supervision, public transparency, and reputational pressure to influence corporate behavior. In this context, the public disclosure of PROPER ratings creates a form of market-based and reputational enforcement that complements administrative, civil, and criminal environmental enforcement mechanisms under Environmental Law.

The new PROPER regime reflects Indonesia’s policy direction toward a more modern environmental governance model aligned with global sustainability and ESG developments. Accordingly, PROPER no longer serves merely as an environmental assessment program, but increasingly functions as an integral part of Indonesia’s environmental regulatory architecture that shapes corporate compliance, corporate governance, and sustainable business practices.

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Sources:

• Law No. 32 of 2009 on Environmental Protection and Management as amended by Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (“Environmental Law”)
• Government Regulation Number 22 of 2021 on the Implementation of Environmental Protection and Management (“GR 22/2021”)
• Minister of Environment/Environmental Control Agency Regulation Number 7 of 2025 on PROPER (“MoE/ECA Reg. on PROPER”)
• Minister of Environment and Forestry Regulation Number 1 of 2021 on PROPER (“MoEF Reg. on PROPER”)
• Press Release No. SR.57/HUMAS/KLH-BPLH/4/2026
• Pernyataan Menteri LH/Kepala BPLH, Hanif Faisol Nurofiq