Viewpoint: Indonesia’s sustainable finance energy is encouraging

Sidestepping the ESG backlash in the US and Europe, Asia is quietly emerging as the global leader in sustainable investment.

While in the US and Europe companies and investors find themselves in the throes of the anti-ESG backlash, the countries of Asia have recognised that sustainable investment is very much to their long-term advantage.

They can see that climate and nature present risks – and opportunities – that are not going away. And rather than blocking progress, they are enthusiastically wielding the tools of sustainable finance to attract the huge pool of global capital which continues to align with sustainability objectives.

It would appear that Asia is now leading the way.

The region is forging ahead with technological solutions that will power the transition to net zero, like solar, wind, batteries and electric vehicles. And the lower energy costs that are increasingly achievable with renewable energy generation can only work in Asia’s favour in leading the implementation of the transition.

It is no coincidence that the International Sustainability Standards Board (ISSB) standards have now been adopted by the region’s stock exchanges, including Japan, Malaysia, Hong Kong and Singapore, and by Indonesia within three years. The ASEAN Taxonomy for Sustainable Finance (already on version 3) showcases the region’s commitment to sustainable finance.

Of course, the challenges are large and will remain so for the foreseeable future.

Southeast Asia, in particular, remains heavily reliant on fossil fuels. Coal, oil and natural gas continue to dominate the region’s electricity mix – in Indonesia, they account for a full 80%. The region is already grappling with the impact of climate change, such as regular flooding in Jakarta. But the region is now moving into the energy transition with eyes wide open – and seeking to attract capital through initiatives like the Just Energy Transition Partnership (JETP).

“It was wonderful to witness all the effort going into the development of Indonesia’s sustainable finance roadmap”

Olga Hancock, head of responsible investment at Church Commissioners

On nature and biodiversity, the transition is already well underway.

Indonesia’s deforestation rates have decreased dramatically in the last decade due to decisive policies and corporate commitments. Forestry is key to meeting Indonesia’s Nationally Determined Contributions (NDCs) by 2030, since 60% of emissions reductions will come from this sector. And Indonesia has committed to making its forests a net carbon sink by 2030.

I was lucky enough to see the momentum and energy with which sustainable finance is being delivered in the region with my own eyes.

Last month, I helped lead an investor trip to Jakarta, Indonesia, with the Investor Policy Dialogue on Deforestation (IPDD). I was there alongside eight major investors and asset managers, representing 84 members with $11trn in assets under management. IPDD is an investor-led sovereign and policy engagement initiative that aims to halt deforestation in some of the world’s most biodiverse, carbon-absorbing biomes.

Set up in July 2020, IPDD’s goal is to coordinate a public policy dialogue on deforestation by engaging with government-related authorities and associations, industry and trade bodies and other stakeholders. In Indonesia, IPDD advocates for supporting Indonesia’s sustainable finance roadmap – with the goal of attracting foreign capital that prioritises sustainable investments.

It also works on strengthening disclosure of corporate and sovereign exposure to nature risks and opportunities, consistent with international standards, and pushes for policy priorities and sustainable finance ambitions that support the continuous reduction of deforestation.

During our week in Jakarta, we held 15 meetings with key stakeholders – including the central bank, the ministry of finance, and the ministry of national development planning. We spoke about why nature and biodiversity matters for global investors, and made clear that we supported all the positive steps taken to implement sustainable finance in the region.

For me, the highlight was presenting on ESG disclosures and implementation at the Indonesia Stock Exchange (IDX), alongside other investors and PLN, the national electricity utility. We also led a workshop for local banks with Perbanas, the Indonesian Banking Association, on how international investors integrate nature-related disclosures into their investment processes, and learning in turn about Indonesia’s financial sectors’ efforts in promoting the green economy.

Our hosts were very receptive to what we had to say. It was wonderful to witness all the effort going into the development of Indonesia’s sustainable finance roadmap, the local carbon market, blended finance initiatives, macro prudential monitoring of nature-related risks, the efforts to educate the corporate and banking sectors and support them with data gathering, to name but a few.

Most striking was the energy and positivity of the region’s stakeholders, who clearly see their role as taking part in an inevitable sustainability transition. This was refreshing, coming fresh from the jolt of political backlash in the US and Europe. It was also reassuring to see that the region, which is at the coalface of the transition to a sustainable future, has sought to embrace that vision of the future.

Olga Hancock is head of responsible investment at Church Commissioners, which manages the Church of England’s endowment fund