PT Semen Indonesia Persero Tbk : Sustainability-Linked Finance Framework

PT Semen Indonesia (Persero) Tbk

Sustainability-Linked Finance Framework

October 2022

About PT Semen Indonesia (Persero) Tbk.

PT Semen Indonesia (Persero) Tbk. ("SIG", "Company", "we", "us", "the Group"), is a strategic holding company with businesses in the field of cement, non-cementand service producers throughout Indonesia. The Company, which was formerly known as PT Semen Gresik (Persero) Tbk., was inaugurated in Gresik, on 7 August 1957.

As a State - Owned Enterprise (BUMN), the share portion of PT Semen Indonesia (Persero) Tbk. Currently, 51.01% belongs to the Government of Indonesia and 48.99% belongs to the public. The Company is the first state-owned Company to go public on the Indonesia Stock Exchange (IDX) in 1991. As of the publication of this framework, the Company has 15 subsidiaries across Indonesia - including PT Solusi Bangun Indonesia ("SBI"), PT Semen Gresik ("SG"), PT Semen Padang ("SP"), PT Semen Tonasa ("ST"), and others. Dominating the national market share and regional market reach, SIG strives to be the leading provider of building material solutions in the region by providing a variety of complete and high quality products and services.

SIG is committed to implementing sustainable development and providing solution for both product and services that are not only fostering the recovery of national economy but also to the aspect of climate change and creating mutual benefits with the surrounding communities.

Our ESG Strategy

SIG has set three pillars as a basis for the Group's sustainability strategy and looks to embed these into our corporate strategy. The three sustainability pillars can be realized by implementing Good Corporate Governance, in which the Group upholds legal compliance, ethics, and integrity. These pillars are:

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These sustainability pillars laid the foundation for SIG's Sustainability Roadmap 2020-2030, and has been signed in April 2021 by the Board of Directors and all Group Department Heads. The Sustainability Roadmap signifies SIG's commitment in implementing sustainability in all aspect of its operations.

The implementation of the Group's Sustainability Roadmap is aligned with the Sustainable Development Goals (SDGs) launched by the United Nations, and adapted by the Indonesian government to provide added value to stakeholders, especially in economic, environmental, social, and governance aspects.

Please refer to our Sustainability Report for the detailed risk analysis and mitigation relating to each of these pillars.

Governance of ESG Matters in SIG

The Sustainability Office is a department under President Directorate which leads, directs, determines, and develops all activities related to sustainability within the scope of the Group, including the preparation of strategies, targets, and policies related to the sustainability roadmap.

SIG has Sustainability Steering Committee which task and responsibility as below:

No	Position		Task & Authority
1	Steering Commitee	1.	Lead the Chair of the Committee Sustainability Meeting.
		2.	Provide strategic direction related to the Company's
			sustainability strategy.
		3.	Determine the Company's sustainability policies and
			strategies.
		4.	Ensure that the sustainability aspects is part of the Company's
			culture and strategy.
		5.	Provide input and suggestions to the Organizing Committee.
		6.	Giving approval and/or rejection of each strategic initiative of
			the Company's sustainability.
		7.	Evaluate the achievement of each indicator of the Company's
			sustainability strategy.
		8.	Approve the Company's annual Sustainability Report.
		9.	Report the achievement of the Company's sustainability
			performance through the Sustainability Report.
2	Organizing Committee	1.	Support every aspect of the sustainability strategy to be part
			of the Company's culture and strategy.
		2.	Analyze and evaluate the Company's sustainability strategy in
			line with every development and trend of the global
			sustainability strategy.
		3.	Ensure that every initiative of the Company's sustainability
			strategy is in line with the applicable laws and regulations.
		4.	Monitor and evaluate the achievement of all performance
			indicators of the Company's sustainability strategy.
		5.	Do cascading of the targets of the Company's sustainability
			strategy to the Subsidiaries of the Cement Group.

Please refer to our Sustainability Report for more detailed description of our Sustainability Steering and Organizing Committee.

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PT Semen Indonesia (Persero) Tbk. Commitment to Climate Change Mitigation

Cement is the basic ingredient of concrete, which is the second most widely used material in the world after water. There are no substitutes for the key attributes of concrete (strength and resilience). In line with the rise of global population and urbanization, global cement production is expected to grow 12-23% by 2050 from current levels.

Climate change mitigation is considered a key ESG issue faced by the Construction Materials sector according to key ESG standards for reporting (SASB, TCFD, etc). Companies in this sector are highly energy-intense, namely in the process of producing construction materials, and thus a highly CO2 emitting industry. The sector has the second largest share of total direct industrial CO2 emissions, and represented approximately 7% of CO2 emissions worldwide1.

Cement production involves the decomposition of limestone to form clinker, which represents about 70% to 90% of the total CO2 emissions generated in the process, with the remainder of CO2 emissions being due to energy consumption of the cement plant, as well as transport and logistics to a lesser extent. Reduction of CO2 emissions in cement production requires substitution of a significant amount of cement clinker by other materials, e.g. fly ash, blast furnace slag, and synthetic gypsum, on top of the usage of renewable energy and substitution of fossil fuel, without sacrificing the high-quality standards of its products.

Climate transition strategy

SIG is committed to mitigation of climate change and supporting the transition to low-carbon economy. Efforts made by the Group to reduce Greenhouse Gas (GHG) emissions include a reduction in the clinker ratio, technological innovation, replacement of fossil fuels with alternative fuels, reduction of energy consumption, and utilization of alternative materials that are more environmentally friendly.

SIG considers the reduction of Scope 1 carbon emission to be one of the most material ESG matters which especially represented by major contribution of 5 companies located in Indonesia (SIG, SBI, SG, SP, and ST). In the past, SIG has stipulated by 2030 it will reduce Specific Net CO2 Scope 1 emissions by 18% from 2010 baseline, a figure of 580 kgCO2/tonne cement equivalent. In 2021, the Group has brought down the Specific Net Scope 1 emission to 594 kgCO2/tonne cement equivalent, which is approximately 16% from the 2010 baseline. This represents a higher annual rate of reduction of ~1.5%, compared to SIG's initial target of 0.9%.

The Group has subsequently revised its targets for 2032 to [520] kgCO2/tonne cement equivalent, aligned with the Below 2o Celsius Scenario prescribed in The Transition Pathway Initiatives in the Cement Industry, and a stretch target of [493] kgCO2/tonne cement equivalent. The target and stretch target are within the TPI's National Pledge and B2DS respectively.

• Technology Roadmap - Low-Carbon Transition in the Cement Industry, IEA 2018

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The reduction of scope 1 emissions is very much supported by SIG's target to reduce clinker factor, the improvement of heat substitution from alternative fuels, and the optimization of specific thermal energy consumption (STEC).

Chart 1 - SIG Specific Net CO2 Emission Intensity Scope 1 (Kg CO2/Tonne Cement Eq.)

kg CO2/Tonne Cement Eq.

1. 708

650	630	601
600		594		SIG Historical Scope 1 Emission
550				520	Scope 1 stretch target
			Scope 1 Target
500				493
450
2010	2019	2020	2021	2032

Reduction of Clinker Factor (%)

The Group's biggest direct GHG emission source is from limestone decomposition and use of coal in the process of making clinkers. SIG is committed to controlling the source of emissions from clinker use, e.g. by substituting fly ash and bottom ash for clinker, without having to reduce cement production capacity.

The Group has developed technology to produce cement with low clinker factors, i.e. the eco- friendly non-OPC products such as MaxSTRENGTH, PowerMax cement etc, resulting from the green innovation of the products produced for the first time in Indonesia. We will continue investing in technology and innovation to make environmentally-friendly products. The Group's clinker factor stood at 0.70 in 2021, which represents approximately 15.7% reduction from the 2010 baseline.

SIG is working towards reducing its clinker factor to support its target to lowering the Specific Net CO2 Scope 1 emission. The achievement of the target can be challenged by the floor stipulated in the National Standard of clinker factor in the production of Portland cement (SNI 7064:2014 Semen Portland Komposit/PCC). The Group continues to actively engage with the various ministries and public agencies to lower the floor on the clinker factor, and to allow a higher proportions of clinker substitute in cement production.

Circular Economy and the Use of Renewable Energy

Started in 2007, the Group operates its Waste Management Service Business Unit, which focuses on industrial waste services from its Narogong plant. In this facility, solid waste is transformed into Refuse-Derived Fuel (RDF), to be used by SIG as an alternative energy source. At the same time, this business unit also produces waste-management solution for more than 400 clients, advancing the agenda of Circular Economy in Indonesia.

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