Foreign Investment in Green Economy Sectors are Invited


Indonesia was one of more than 40 countries that signed the Global Coal to Clean Power Transition declaration at the 26th World Leaders Summit on Climate Change (COP26). Southeast Asia’s largest economy pledged to reach net-zero by 2060 or possibly as soon as 2040s, on the condition that it receives international financial and technical assistance

“Indonesia will be able to contribute more quickly tothe world’s net-zero emissions. The question is, how big is the contribution of developed countries to us? What technology transfer can be provided? What programs are supported to achieve the SDGs targets that have been hampered by the pandemic?” stated President Joko Widodo.

On top of his appeal, he also ensured that Indonesiawould continue to mobilize climate finance and innovative financings such as hybrid financing and green bonds. He also added that climate finance with developed country partners is a game-changer in mitigation and adaptation to climate change in developing countries.

The impacts of climate change on lives and livelihoods in developing countries and especially archipelagos and small island nations have been clearly stated by the Intergovernmental Panel on Climate Change (IPCC) Report. It impacts food production, increases the risk of climate-related disasters, and hits the poorest nations the hardest. Therefore, immediate action to transition to a green economy is crucial for the future of Indonesia.

A green economy is a key to boosting economic growth without sacrificing environmental sustainability and social inclusivity. Indonesia has Indonesia’s Green Growth Program. It is a joint multistakeholder program that aims to develop bankable projects based on Nationally Determined Contributions (NDC) and SDGs assessment. It also connects suitable sources of finance, incorporates green growth enablers for investments into the sectoral, district, provincial, and national plans; and last but not least, design innovative economic and policy instruments to reduce risk and enable capital flows into the sector.

So far, it has implemented several successful programs.

The Climate Budget Tagging (CBT), initiated by the Ministry of Finance, has been able to develop into an innovative nationwide financing instrument such as the Green Sukuk (Sharia- bond). Furthermore, the CBT has been expanded to the sub-national level since 2020.

The Indonesian Stock Exchange (BEI) has also supported Indonesia’s sustainable investment development. It joined the United Nations Sustainable Stock Exchange (SSE) initiative in 2019 and became a supporter of the Task Force on Climate-related Financial Disclosures (TCFC) on June 15, 2021. BEI has also provided green investment products such as Green Bond, Green Sukuk, and Mutual Fund.

Indonesia has used carbon pricing instruments consisting of the carbon tax and carbon trading, regulated through the Tax Regulation Harmonization Law. The government is currently drafting a Presidential Regulation on Carbon Economic Value to regulate the carbon trading mechanism.

Furthermore, the Ministry of Investment and the Ministry of Foreign Affairs have created a Memorandum of Understanding to strengthen Indonesia’s economic diplomacy in foreign direct investment (FDI). Both ministries are committed to targeting green investment opportunities to encourage investment in the health sector, attract green and environmentally-friendly FDIs, and target strategic partners in Sovereign Wealth Fund (SWF) framework.

Luhut Binsar Pandjaitan, Indonesia’s Coordinating Minister for Maritime Affairs and Investment, recently stated that Indonesia focuses on foreign investment in green economy sectors. The foreign investors must meet these requirements to invest in Indonesia: environmentally-friendly, committed to educating the local workers, and willing to transfer technology as well as provide added value for Indonesia in mineral resources management.

The green economy benefits the country significantly. According to the Ministry for Development Planning (BAPPENAS), a low-carbon development path towards net-zero emission in 2045 can deliver a GDP growth rate of 6 percent a year on average, an above current business-as-usual projection. It is estimated to create 15.3 million jobs and, most importantly, place the country as a leading destination for green investment.

Naturally, progress can be achieved faster with strong support. During COP26, Indonesia’s Ministry of Finance hoped that developed countries would realize USD 100 billion in climate-change-related funding for developing countries. With the assistance of international financing, Indonesia’s potential to lower carbon emissions will become a reality.