What to Expect: Bill on Conservation of Living Natural Resources and Its Ecosystems, and Detailed Regulations Anticipated to Affect M&A

Passing the Bill on Conservation of Living Natural Resources and Its Ecosystems (Rancangan Undang-Undang Konservasi Sumber Daya Alam Hayati dan Ekosistemnya – “KSDAHE Bill“) into law is a landmark milestone in Indonesia’s conservation law. Passed into law on July 9, 2024, the KSDAHE Bill is an amendment to Law No. 5 of 1990 on the Conservation of Living Natural Resources and Its Ecosystems (“KSDHAE Law”). Although the KSDAHE Bill has been enacted, it is important to highlight that it has yet to be formally promulgated. Its primary objective is to enhance conservation efforts beyond protected areas, emphasizing multi-stakeholder engagement and imposing stricter compliance measures. The law mandates higher environmental standards and sustainable practices for companies with severe sanctions for non-compliance, highlighting Indonesia’s commitment to biodiversity conservation and sustainable development.

Background and Importance of Enacting KSDAHE Bill

The Indonesian House of Representatives passed the KSDAHE Bill to update and strengthen the KSDAHE Law. Although the KSDAHE Law laid the foundation for conservation, for over 3 decades it lacked specific sanctions for companies that failed to comply. The KSDAHE Bill addresses this by introducing clear penalties and urging businesses to act more carefully and responsibly. This legislative update aims to enhance conservation efforts, resolve overlapping authorities, and promote community involvement. The KSDAHE Bill engages central and regional governments as well as communities by expanding conservation efforts beyond traditional protected areas.

Key changes in the KSDAHE Bill include enhanced cross-sector coordination, expanded conservation networks, improved animal welfare, and better funding mechanisms. These provisions are designed to ensure effective and sustainable conservation of biological resources, support community welfare, and mitigate the impacts of climate change. By emphasizing corporate accountability, the KSDAHE Bill requires companies to dilligently adhere to conservation regulations or face significant penalties. This reflects Indonesia’s commitment to biodiversity conservation and sustainable development.

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General Changes to the KSDAHE Law

Addition of Corporation as A Legal Subject
The KSDAHE Bill introduces crucial changes requiring companies to adjust their operations to meet new standards. Article 1 Number 24 of the KSDAHE Bill explicitly includes corporations under the term ‘Everyone.’ This recognition means corporations are subject to specific regulations, including prohibitions and sanctions. Companies must re-evaluate their operations to ensure environmental protection, efficient waste management, and biodiversity conservation.
Expansion of the Scope of Conservation Areas
While, previously, the KSDAHE Law only included Nature Reserve Areas and Nature Conservation Areas as Conservation Areas, the scope of conservation areas now expands with the enactment of the KSDAHE Bill. The scope of Conservation Areas in the KSDAHE Bill is expanded to include a) Nature Reserve Areas and Nature Conservation Areas, b) Conservation areas in waters, coastal areas, and small islands, and c) Preservation Areas.
Conservation Funding
The KSDAHE Bill requires both the central and regional governments to ensure adequate and sustainable funding for the conservation of living natural resources and their ecosystems. The funding may come from various sources, including the state budget, regional budgets, and other lawful sources as regulated. ¹ The government can also gather conservation funds from these sources, which will be managed as trust funds to finance conservation activities by the central and regional authorities. ² This comprehensive approach to financing conservation also includes equitable benefit-sharing from the sustainable use of natural resources and provides incentives for conservation efforts, which ensures a robust and sustainable funding mechanism.
Criminal Sanctions for Non-Compliant Companies
The KSDAHE Bill significantly increases penalties for violations compared to that of the previous law. Companies failing to comply may face severe administrative sanctions, including warnings, business activity suspensions, site closures, license revocations, and fines. Criminal sanctions have also been intensified, with harsher penalties for companies involved in conservation violations.

Type of Violation

Criminal Sanctions

Individuals

Corporations

Nature Reserve Area

Introducing non-native plants and animal species

Article 40 paragraph (2) imprisonment of at least 2 (two) years up to 9 years, and a fine of at least Category III and at most Category VI.

Article 40 paragraph (3)

imprisonment of at least 4 (four) years up to 20 (twenty) years, and a fine of at least Category IV and at most Category VIII.

Removing or relocating any objects, living or dead, from the Nature Reserve Area

Article 40 paragraph (2)

imprisonment of at least 2 (two) years up to 9 (nine) years, and a fine of at least Category III and at most Category VI.

Article 40 paragraph (4)

imprisonment of at least 4 (four) years up to 20 (twenty) years, and a fine of at least Category IV and at most Category VIII.

Protected Plants and Animals

Taking, cutting, possessing, damaging, destroying, maintaining, transporting, and/or trading protected plants in a living state

Article 40A paragraph (1)

imprisonment of at least 3 (three) years up to 15 (fifteen) years, and a fine of at least Category IV and at most Category VII.

Article 40A paragraph (4)

imprisonment of at least 4 (four) years up to 20 (twenty) years, and a fine of at least Category IV and at most Category VIII.

Taking, possessing, damaging, destroying, transporting, and/or trading protected plants in a dead state

Article 40A paragraph (2)

imprisonment of at least 3 (three) years up to 10 (ten) years, and a fine of at least Category IV and at most Category VI.

Article 40A paragraph (5)

imprisonment of at least 4 (four) years up to 20 (twenty) years, and a fine of at least Category IV and at most Category VIII.

Trading and/or conducting conservation activities without a permit via electronic media

Article 40A paragraph (3)

imprisonment of at least 2 (two) years up to 4 (four) years, and a fine of at least Category III and at most Category IV.

Article 40A paragraph (6)

imprisonment of at least 3 (three) years up to 10 (ten) years, and a fine of at least Category IV and at most Category VI.

Hunting, capturing, injuring, killing, storing, possessing, maintaining, transporting, and/or trading protected animals in a living state

Article 40A paragraph (3)

Imprisonment of at least 3 years up to 15 years, and a fine of at least Category IV and at most Category VII

Article 40A paragraph (6)

Imprisonment of at least 4 years up to 20 years, and a fine of at least Category IV and at most Category VIII

Storing, possessing, transporting, and/or trading protected animals in a dead state

Article 40A paragraph (3)

Imprisonment of at least 2 years up to 4 years, and a fine of at least Category III and at most Category IV

Article 40A paragraph (6)

Imprisonment of at least 3 years up to 10 years, and a fine of at least Category IV and at most Category VI

Nature Conservation Area

Reducing the area of the Nature Conservation Area

Article 40B paragraph (1)

imprisonment of at least 2 (two) years up to 10 (ten) years, and a fine of at least Category III and at most Category VI.

Article 40B paragraph (3)

imprisonment of at least 4 (four) years up to 20 (twenty) years, and a fine of at least Category IV and at most Category VIII.

Eliminating or degrading the function of the Nature Conservation Area

Article 40B paragraph (2)

imprisonment of at least 2 (two) years up to 10 (ten) years, and a fine of at least Category III and at most Category VI.

Article 40B paragraph (4)

imprisonment of at least 4 (four) years up to 15 (fifteen) years, and a fine of at least Category IV and at most Category VII.

Conducting burning activities in the Nature Conservation Area

Article 40B paragraph (2)

Imprisonment of at least 2 years up to 10 years, and a fine of at least Category III and at most Category VI

Article 40B paragraph (4)

Imprisonment of at least 4 years up to 15 years, and a fine of at least Category IV and at most Category VII

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Assessing the KSDAHE Bill: General Obligations and the Future of M&A Compliance

The KSDAHE Bill lays out a general framework for conservation duties affecting individuals and companies. While specific provisions will be detailed in future regulations, companies should prepare for stricter compliance with conservation standards.

General Obligations in the KSDAHE Bill

General Conservation Responsibilities
The KSDAHE Bill establishes broad conservation duties on individuals and companies. Specific oversight bodies will be determined in future regulations, likely the government authorities in the forestry sector. Companies must prepare to comply with conservation mandates, including maintaining area protection functions and funding. Non-compliance could lead to land relinquishment with compensation, fines, or permit revocations.

Land Rights and Preservation Areas
Landholders in Preservation Areas are required to maintain conservation functions or relinquish their land for compensation. They must also manage the licensing areas and face administrative fines for non-compliance. Detailed rules governing these obligations will be established in forthcoming Government Regulations.

Management of Protected Areas
The management of National Parks and Nature Tourism Parks falls under the Government’s authority, while Grand Forest Parks are managed by Local Governments. These authorities include issuing permits for environmental services, with specific guidelines to follow.

Funding for Conservation
The KSDAHE Bill mandates that both the Government and Local Governments provide adequate and sustainable funding for conservation activities. This funding may come from national and regional budgets or other lawful sources. Additional provisions regarding the management and allocation of these funds will be specified in future Government Regulations.
Community Involvement
The KSDAHE emphasizes the need for local and indigenous communities to be involved in conservation efforts. Companies should anticipate engaging with these communities and supporting conservation initiatives as part of their compliance strategy.

The Future of M&A Compliance

Given these general obligations, the KSDAHE Bill indirectly impacts M&A transactions by introducing considerations that companies must factor into their due diligence processes. Even though the KSDAHE Bill has yet to specify detailed requirements for companies, it sets the stage for future regulations that will likely demand stricter compliance with conservation standards.

Ensuring Compliance Through Thorough Due Diligence
Due diligence is one of the crucial steps in M&A transactions, and the KSDAHE Bill underscores its importance, requiring companies to:
- Evaluate Conservation Compliance: Ensure that the target company has implemented the necessary conservation measures and has provided the required funding.
- Identify Environmental Risks: Assess potential environmental risks associated with the target company’s operations.
- Involve Local Communities: Involve local communities in the due diligence process by providing transparent information about the acquisition plan and its environmental impact as emphasized in Article 35 of the KSDAHE Bill.Through thorough due diligence, M&A lawyers can help companies understand the level of compliance required by the KSDAHE Bill and identify any potential risks.
Post-M&A Corporate Responsibility
Following an M&A transaction, the acquiring company must continue upholding the conservation responsibilities. Article 33 of the KSDAHE Bill allows the central government to suspend activities or close conservation areas if necessary. Therefore, companies must:
- Ensure Compliance: Align their operations with conservation regulations to avoid actions that could lead to the closure of conservation areas.
- Show Commitment: Demonstrate a strong commitment to maintaining environmental sustainability and adhering to all applicable provisions.

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Future Expectations

While the KSDAHE Bill establishes general obligations, at the moment it does not specify exact actions for companies. We expect that this will be further regulated comprehensively in the implementing regulation to the KSDAHE Bill. Companies should stay updated on these developments and prepare to integrate conservation principles into their strategies and M&A processes. The anticipated regulations will offer specific guidelines on managing conservation obligations, including administrative measures and compliance expectations. Proactively aligning with these future requirements will help companies build stronger stakeholder relationships, including with local communities, and enhance their public and investor reputation.

For further information or consultation on this matter, please contact us at ADCO Law.

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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.