ESG Safeguards as Regulatory Requirements: From Voluntary Standards to Legal Obligations in Forestry Carbon Projects
Authors
Background
Indonesia's forestry carbon framework has continued to evolve following the issuance of Minister of Forestry Regulation No. 6 of 2026 on the Procedures for Carbon Trading through Forestry Sector Emission Offsets ("MOF Reg 6/2026"). In our previous ARMA Update, we discussed how MOF Reg 6/2026 operationalizes the high-level framework under Presidential Regulation No. 110 of 2025 by introducing a more structured regime for project development, certification, and trading within the forestry sector.
One of the key developments under MOF Reg 6/2026 is the formal incorporation of environmental, social, and governance ("ESG") safeguards into the regulatory framework for forestry carbon projects. Historically, ESG safeguards in carbon projects were often driven by voluntary carbon standards, such as Verra's Verified Carbon Standard or Gold Standard, which require project developers to demonstrate safeguards, stakeholder engagement, and sustainable development contributions as part of certification. MOF Reg 6/2026 changes this position by embedding similar safeguards into domestic legal requirements.
ESG Safeguards Begin at the Project Design Stage
MOF Reg 6/2026 embeds ESG safeguards at the project design stage through the requirements for the Mitigation Action Design Document (Dokumen Rancangan Aksi Mitigasi Perubahan Iklim – "DRAM"). Such DRAM must include, among others, the mitigation action plan, proposed mitigation activities, applicable methodologies and standards, environmental impact analysis, sustainable development impact analysis, public consultation, and supporting data.[1]
Importantly, the supporting data must include elements that go beyond technical carbon accounting. These include identification of the project proponent, demonstration of additionality, community engagement planning across project planning, implementation, monitoring, and evaluation, carbon benefit-sharing arrangements agreed with local communities, biodiversity and reversal risk management plans, and the plan and achievement of the free prior informed consent known as "Padiatapa" (Persetujuan Atas Dasar Informasi Awal Tanpa Paksaan).[2]
This brings ESG-related safeguards into the project eligibility stage, rather than leaving them solely to voluntary certification processes. Project developers will need to treat social engagement, benefit sharing, biodiversity risk, and community consent as core project design components, rather than ancillary documentation prepared only for voluntary certification purposes.
Padiatapa as a Domestic Legal Requirement
MOF Reg 6/2026 defines Padiatapa as the process of disclosing all information relating to climate change mitigation actions in an open and complete manner to relevant stakeholders, as the basis for obtaining their consent or rejection without coercion with respect to such climate mitigation actions.[3]
This definition is important because it provides a domestic regulatory formulation of free, prior and informed consent ("FPIC") within forestry carbon projects. While FPIC has long been recognized under international sustainability standards and voluntary carbon market frameworks, MOF Reg 6/2026 now incorporates it directly into the Indonesian forestry carbon regulatory framework.
In practice, this means that project developers will need to ensure that community engagement is properly documented, traceable, and capable of being reviewed by the Ministry of Forestry ("MOF"). This may require comprehensive stakeholder mapping, records of disclosures and consultations, community approval documentation, and mechanisms to evidence that consent or rejection was given without coercion.
ESG Safeguards Extend into Project Implementation
Beyond the DRAM stage, MOF Reg 6/2026 requires forestry carbon project developers to apply social, environmental, and governance protection principles to prevent negative impacts on the environment, indigenous communities, local communities, and vulnerable groups around the carbon project area.[4]
These principles include legal compliance and consistency with national forestry programs, transparency and effective forest governance, protection of indigenous and local community rights, effective stakeholder participation, consistency with natural forest conservation and biodiversity protection, measures to address reversal risks, and actions to reduce emission leakage.[5]
This is a significant regulatory shift. Under voluntary standards, safeguards are typically tied to the certification process and market credibility. Under MOF Reg 6/2026, these safeguards become legally relevant obligations that attach to the implementation of forestry carbon trading activities. As a result, project developers cannot treat ESG safeguards as a separate certification requirement detached from regulatory compliance.
Reporting and Risk Management as Ongoing Compliance Obligations
MOF Reg 6/2026 also extends these safeguards into ongoing compliance obligations. Project developers are required to submit reports on the fulfilment of safeguard principles to the MOF.[6] Project developers conducting forestry carbon trading are further required to maintain a risk management system to manage climate mitigation actions and carbon trading activities, with such risk management forming part of the carbon trading implementation report to the MOF.[7]
This creates a continuing compliance framework. Project developers are not only required to demonstrate ESG readiness at the project design stage, but must also monitor, manage, and report ESG-related performance throughout project implementation.
Gap with Voluntary Standards: Alignment, but Not Full Substitution
Although MOF Reg 6/2026 introduces domestic ESG safeguard obligations, it does not necessarily replace the requirements under voluntary carbon standards. Standards such as Verra and Gold Standard may still impose separate requirements relating to stakeholder consultation, sustainable development contributions, grievance mechanisms, environmental and social safeguards, and monitoring.
The key difference is that, under MOF Reg 6/2026, ESG safeguards now operate on two levels. First, as a domestic legal requirement for forestry carbon projects in Indonesia. Second, as a certification and market-access requirement where projects seek issuance under international standards or target international buyers.
On one hand, the domestic framework may increase project credibility by aligning Indonesian regulatory requirements with international market expectations. However, on the other hand, developers may still need to conduct a gap analysis between MOF Reg 6/2026 and the relevant voluntary standard to avoid assuming that compliance with one automatically satisfies the other.
Closing Remarks
MOF Reg 6/2026 signals a clear shift in Indonesia's forestry carbon market. ESG-related safeguards are no longer only a matter of voluntary certification or buyer preference, but part of the regulatory requirements for developing forestry carbon projects.
For project developers and investors in forestry-based carbon projects, this means that safeguards must be built into the project from the outset, including through DRAM preparation, Padiatapa documentation, benefit-sharing arrangements, biodiversity and reversal risk management, and reporting to the MOF.
In practice, projects will need stronger legal documentation, technical planning, and community engagement from the early stages. While this may add to compliance costs, it may also support project credibility and improve alignment with international carbon market expectations.
- Article 12 paragraph (1) of MOF Reg 6/2026. ↩
- Article 12 paragraph (2) jo. Article 13 of MOF Reg 6/2026. ↩
- Article 1 paragraph (26) of MOF Reg 6/2026. ↩
- Article 28 paragraph (1) of MOF Reg 6/2026. ↩
- Article 28 paragraph (2) of MOF Reg 6/2026. ↩
- Article 28 paragraphs (3) and (4) of MOF Reg 6/2026. ↩
- Article 29 of MOF Reg 6/2026. ↩
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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