Beyond Indonesia’s Sustainable Finance: Building a Greener Future

As the world shifts toward sustainability, Indonesia is taking bold steps to align its financial systems with environmental and social goals. With a growing economy and ambitious climate targets—like achieving Net Zero Emissions by 2060—sustainable finance is becoming a cornerstone of the nation’s strategy. This article explores Indonesia’s efforts, from innovative frameworks to market trends, and highlights the challenges and opportunities ahead.

What Is Sustainable Finance?

Sustainable finance involves investing in ways that deliver financial returns while prioritizing long-term benefits for the environment, society, and governance—often referred to as ESG factors. For Indonesia, this means funding projects that tackle climate change, improve community well-being, and ensure ethical business practices, all while driving economic growth.

A Clear Guide: The Green Taxonomy

At the heart of Indonesia’s sustainable finance efforts is the Green Taxonomy, first introduced in 2022 and updated in 2024 as the Taxonomy for Sustainable Finance in Indonesia (TKBI). Think of it as a roadmap that helps businesses and investors identify environmentally friendly activities. It sorts projects into categories—green, yellow, and red—based on their sustainability impact, guiding funds toward initiatives like renewable energy and eco-friendly infrastructure.

Backed by regulations such as Law No. 25 of 2007 on Capital Investment and Presidential Regulation No. 16/2012, the taxonomy reflects Indonesia’s commitment to balancing prosperity with planetary health. It’s a practical tool that ensures investments support the country’s low-carbon future

Sustainable Bonds: Funding a Green Tomorrow

Indonesia’s sustainable bond market is booming, showcasing its dedication to impactful projects. Leading the charge are green bonds, which raise money for eco-conscious efforts like solar power plants and sustainable farming. Between 2017 and 2022, green bonds made up a large share of this market.

The government has been a trailblazer here, issuing USD 6.9 billion in Green Sukuk by 2023. These bonds fund projects that benefit both nature and people. Beyond green bonds, Indonesia has introduced sustainability bonds and sustainability-linked bonds, which tie financial outcomes to ESG goals, broadening the options for responsible investing.