Indonesia’s new capital and indigenous peoples: harmonizing investment with environmental, social and governance principles in Indonesia 2023




In line with Indonesia’s desire to move its capital to East Kalimantan, infrastructure construction for the new capital is currently underway.[2] Adhering to the concept of a green and sustainable city, the new capital aims to devote 75% of its area to green open spaces.[3] Residential, institutional and commercial buildings aim to be constructed using environmentally friendly construction methods.[4] Indonesia aims to implement environmental, social and governance (“ESG”) principles in the development of Nusantara Capital (“IKN”) through green and sustainable urban concepts and infrastructure.[5]

However, building a new capital will be expensive, with costs estimated at $35 billion.[6] The government will provide 20% of the funding, but the company aims to get the remaining 80% from foreign investors.[7] The five priority industries for the development of IKN are natural resource-based industries, basic industries, medium and high technology industries, sustainable consumer goods industries, and innovation and research-based industries.[8]

However, building IKN is not without some potential problems. The construction of IKN has several implications for the rights and engagement of indigenous communities, particularly the potential land conflicts that may arise. Measures to address these potential issues must also be based on ESG principles.

Mitigating potential issues of land disputes against indigenous peoples in IKN

The sustainability and ethical impact of investments in companies is measured by a set of criteria commonly known as environmental, social and governance (ESG).[9] Environmental aspects concern the study of a company’s impact on the environment. Environmental risks considered include biodiversity loss, pollution, resource scarcity, and potential climate change impacts, including increased frequency and severity of floods, hurricanes, and forest fires.[10] The social dimension concerns the company’s impact on its stakeholders: consumers, employees, suppliers, contractors, and local and broader communities. Social risks include the possibility of violating the rights of others, discrimination based on gender or ethnicity when recruiting or promoting employees, and access to fields or projects that may be viewed as undesirable by certain segments of society. This may include investments, etc.[11] Finally, the governance dimension relates to corporate self-governance and integrity in business operations. This includes the policies and controls that a company has in place and can impact various stakeholders.[12]

The application of ESG is important in the development of IKN. The reasons are: (i) it could attract more investors to finance the development of IKN and reduce the use of state budget; (ii) His application of ESG in building IKN improves people’s welfare, as ESG prioritizes environmentally friendly principles, social management and good governance.

When implementing ESG principles in the infrastructure development of a new capital, many factors need to be taken into account. Government Regulation No. 22 No. 23 of 2022 replacing Law No. 2 of the Republic of Indonesia on Employment Creation (“GRLL 2/2022”) Amending Article 63 of Law No. 32 of 2009 on Environmental Protection and Management (“Law No. 32 of 2009”), national, state and local governments must pay attention to the rights of indigenous peoples when building infrastructure for priority industries. In addition, investors in the above-mentioned priority industries shall comply with the provisions of Article 28, Paragraph 1 and Paragraph 2 and Article 32b of Government Regulation No. 22 of 2021 on Implementation, when preparing an environmental impact analysis through public consultation. need to involve indigenous communities. Protection and Environmental Management (“GR 22/2021”).

Furthermore, the rights of indigenous peoples are critical to the implementation of any ESG principles, as any development project often has a negative and undesirable impact on the interests of indigenous peoples who have long occupied an area. Regarding the construction of IKN, data from the Alliance of Indigenous Peoples of the Archipelago (Aliansi Masyarakat Adat Nusantara – “Man”) 2021 data shows that 21 indigenous communities live in the New Capital Development Area. namely, 19 indigenous communities in Penajam Paser Utara Regency and two indigenous communities in Kutai Kartanegara Regency. In 2020, there will be at least 11 indigenous community areas that will serve as core zones for new capital development.[13]

The best way to predict land conflict risks is to engage indigenous peoples in two-way dialogue and gather their feedback and concerns. The dialogue should involve actual representatives of indigenous peoples and include cultural aspects and the implementation of rights to land and indigenous territories in the discussion, taking into account that some of the IKN locations are affected. Free, Prior and Informed Consent (FPIC) must be ensured to ensure that the It’s not a vacant house or state-owned land. They have overlapping land rights with indigenous peoples.

The above-mentioned dialogue shall be led by (i) the IKN authorities and IKN management as the ministry-level institutions organizing activities for the preparation, construction and relocation of the capital, and (ii) in cooperation with special bodies. can. A team formed by the Ministry of Agriculture and Spatial Planning/National Lands Agency to identify indigenous peoples and their land rights as a way to identify the presence and land occupation of indigenous peoples in the IKN.

Apart from that, the rights of indigenous peoples should be enshrined in law, both in the Indigenous Peoples Act (draft currently being debated in the House of Commons). and Law No. 3 of 2022 on the Capital of Indonesia (“March 2022 Law”). The various aspects that are important to regulate are: (i) recognition of the rights of indigenous peoples, including mechanisms of free, prior and informed consent (FPIC);[14] (ii) mechanisms for enforcing indigenous rights; (iii) the choice of in-court and out-of-court dispute resolution mechanisms;


As the construction of IKN supports the concept of a sustainable city that practices ESG principles, it is important to pay particular attention to indigenous land rights. Indigenous peoples’ land rights are closely linked to their cultural remains and the right to manifest, develop and teach their customs and traditions. Two-way dialogue with representatives of indigenous peoples and the more detailed provisions of Law No. 3 of 2022 on the Rights of Indigenous Peoples will help IKN while protecting one of the world’s last remaining biodiversity areas. There are several important aspects in construction.

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