Journal of Accounting Auditing and Business – Vol.1, No.1, 2018 10.24198/jaab.v1i1.15656 The Development of Indonesia Environmental Performance and Environmental Compliance Sofik Handoyo Department of Accounting – Faculty of Economics and Business Universitas Padjadjaran Abstract: This study aims to analyze the development of Indonesia environmental performance and environmental compliance from the period 2011-2015 through the PROPER program. Statistic descriptive, along with trend analysis, was applied in this study. The result indicates that achievement of the environmental performance of the PROPER program is on adequate level (63,2%), Poor level (25,9%), good level (7,5%), very poor (2.8%) and excellent level (0.6%). Meanwhile, Indonesia environmental compliance level on average is 72%. There is still 28% of the PROPER participant not comply with environmental requirements determined by the Ministry of Environment (MOE). The achievement of environmental compliance consists of beyond compliance (12%) and adequate compliance (88%). Keywords: Environmental performance; Environmental compliance; Proper program, Compliance; Beyond compliance Introduction As a country with economy power a potential subject of receiving critics related continuously growing, Indonesia has turned to environmental issues. Environmental gradually to be an industrial country. It is issues are frequently lifted as argumentation indicated by Indonesia position on a list of 20 by developed country to ban developing countries that have a significant influence in countries in terms of their involvement in terms of their economy. However, international trading. Therefore, keeping Indonesia’s industrial expansion has brought business entities always complying to the with it mostly uncontrolled industrial wastes international standard of environmental and pollution, leading to severe protection is fundamental. In this case, the environmental degradation (Makarim and role of government is pivotal in order to Butler, 1996). Indonesia rapid maintain an image as an industrial country industrialization, population growth, and with the environmental friendly trademark. urbanization have created severe pollution Since environmental problems rose to problems (Blackman, 2004). As the structure prominence in the last third of the twentieth of Industrialization in Indonesia is very much century, the nation-state has been an active dependent on natural resources, Indonesia is scale of governance for addressing them http://jurnal.unpad.ac.id/jaab – ISSN: 2614-3844 69 Journal of Accounting Auditing and Business – Vol.1, No.1, 2018 10.24198/jaab.v1i1.15656 (Fiorino, 2011). Sustainability economy, significant factors made command and along with sustainability environment, is a control approach failed (Makarim et al., dream of a global society. The momentum of 1995, Afsah et al., 2009, Garcia et al., 2008 sustainability economy was triggered by the and 2009). Meanwhile, business entities World Commission on Environment and argue that complying to environmental issues Development in the late 1980s and Rio de is costly. Therefore, they need an incentive as Janerio Earth Summit of 1992 (Fiorino, a return of investment in any part of the 2011). Declining environmental quality, business process related to environmental global warming, climate changes, natural issues. Based on these circumstances, the disaster are considered as the impact of government needs a new alternative to cope irresponsible economic activities. Indonesia, ineffectiveness of command and control as part of the world community, has a environmental protection program. responsibility to make the world a better As a response to weakness command place for living along with economic and control environmental program and to development. As a member of G20 and support agenda sustainability economic Kyoto Protocol, Indonesia has a development and sustainability environment, responsibility to contribute in terms of in June 1995, Indonesia Ministry of preventing business activities that are the Environment (MOE) launched the PROPER damaging environment. Triple bottom line program. PROPER program is a program for agenda (People, Planet, and Profit) is in a pollution control, evaluation, and rating vision of the Indonesia government to be (Makarim et al., 1995). The Program was achieved. The concern of the Indonesia designed to use public disclosure, government to environmental issues was environmental awards, and reputational reflected by forming institution such as incentives as the motivating forces for BAPEDAL (Environmental Impact environmental improvement (Afsah et al., Management Agency) and issued several 2011). The basic idea of PROPER was to use environmental laws and regulations intended public disclosure of firms’ environmental to protect the environment from harmful indicators as a substitute for enforcement impact of business activities (Garcia et al., 2009). Under the PROPER The first policy of Indonesia in terms program, businesses entities are rated by the of action to prevent the negative impact of environmental impact agency of MOE, based industrialization was applying command and on clearly articulated criteria. The results of control approach. The government releases this rating are reflected in a single index that specific rules and regulation related to is widely publicized (Makarim and Butler, environmental protection, and the business 1996). entities were expected to comply with those The environmental authority rules and regulation. However, this approach understood that disclosing raw data could did not work effectively to make business create interpretation problems among the entities comply with environmental rules and public ( Garcia et al., 2008), therefore, the regulation. Countries such as Indonesia face color rating system was designed to be simple a tough challenge in choosing and designing enough to be easily understood by the public policy instruments to deal with industrial and still convey enough information to pollution (Garcia et al., 2008 and 2009). On influence behavior (Lopez et al., 2004, the side of government, weakness of law Makarim and Buttler, 1996). A color-coded enforcement, limited budget for controlling rating scheme was developed under the and monitoring were considered as PROPER program to grade factories’ http://jurnal.unpad.ac.id/jaab – ISSN: 2614-3844 70 Journal of Accounting Auditing and Business – Vol.1, No.1, 2018 10.24198/jaab.v1i1.15656 performance against the regulatory standards media. Due to extensive range stakeholder (Kanungo and Torres, 2003). Environmental involvement, the PROPER program is also performance of companies is mapped into a called as public disclosure for environmental five-color grading scale; gold for excellent, performance. For the companies involved in green for good, blue for adequate, red for the encasement of PROPER program, it can poor, and black for very poor. Based on be used as an image company building and PROPER color index, MOE classifies gold, expected can increase the value of the green and blue as environmentally comply. company. For MOE on behalf of the Meanwhile, the red and black color index is Indonesian government, the PROPER not complying to the environment program is a form of real action to create Furthermore, categorization of balancing both sustainability economy and environmentally comply itself is divided into sustainability environment. two forms, beyond compliance for gold and PROPER program is an innovative green color index and adequate compliance attempt to mitigate the problems associated for the blue color index. Adequate with pollution under the umbrella of the compliance criteria are a minimum standard government of Indonesia’s environmental to be achieved by PROPER participants in impact agency (Kanunggo and Torres, 2003). order to be awarded environmentally comply. The program’s objective is to act as a The criteria include environmental regulatory mechanism which can promote documents and reporting requirements, water and enforce compliance with pollution pollution control, management of hazardous control standards, encourage pollution and toxic waste, seawater pollution control, reduction, introduce the concept of “clean and potential of land degradation (MOE, technology,” and promote an environmental 2013). management system through the use of If adequate compliance criteria are incentives and transparency (Kanunggo and essential criteria to be called environmentally Torres, 2003). comply, the beyond compliance criteria is Indonesia’s program for pollution more dynamic because it is adapted to the control evaluation and rating (PROPER) was development of technology, the application the first significant initiative in the of best practices in environmental developing world that used information management practices and global disclosure to reduce industrial pollution environmental issues (Arsyad, 2012). (Garcia et al., 2009). The PROPER program Beyond compliance criteria includes; the was built on the premise that the mechanisms implementation of an environmental of public disclosure and accountability, management system, energy efficiency transparency in operations, and community efforts, efforts to reduce emissions, the participation will empower local implementation of reduce, reuse and recycle communities to achieve effective and of hazardous and toxic waste, the sustained pollution control practices implementation of reduce, reuse and recycle (Kanunggo and Torres, 2003). of solid non-hazardous