Climate-Aligned Investments and Policy Nexus in Indonesia

The report identifies a substantial investment gap of approximately USD 146.4 billion to meet Indonesia's 2030 Enhanced Nationally Determined Contribution (ENDC) targets. While the government budget provides about one-third of the necessary funding, private financial institutions' contributions remain low, representing only 3% of their total investments. Key barriers include contradictory policies, such as fossil fuel subsidies outweighing climate spending, and a financing mismatch where commercial banks rely on short-term deposits for long-term, capital-intensive climate projects. The report recommends harmonizing sustainable finance policies through the Indonesia Taxonomy for Sustainable Finance (TKBI), enabling alternative instruments like sustainability-linked loans and carbon finance, and enhancing transparency via IFRS S1 and S2 disclosure standards.

• Indonesia faces a significant climate investment deficit, with a gap of approximately USD 146.4 billion (a 51% deficit) to meet its 2030 ENDC targets. Between 2015 and 2021, public and private financial institutions contributed only USD 41.7 billion, which is roughly 15% of the total needs.
• Private financial institutions have significant untapped potential for climate finance; although their investments grew from USD 1.2 billion in 2015 to USD 4.0 billion in 2021, climate-aligned investments represent only 3% of their total investment portfolios.
• Contradictory government policies create market disincentives for decarbonization. Specifically, from 2015 to 2020, fossil fuel subsidies accounted for 9% of total state expenditure, while climate spending was only 6%.
• A structural financing mismatch exists because climate projects are capital-intensive with long life-cycles, while commercial banks are constrained by a reliance on short-term deposits and debt instruments with tenors of only three to five years.
• The Indonesia Taxonomy for Sustainable Finance (TKBI), with Version 2 launched in February 2025, aims to align with the ASEAN Taxonomy and national goals by categorizing activities as 'green', 'transitional', or 'does not meet the criteria'.
• Carbon finance infrastructure in Indonesia is currently underutilized; the Indonesia Carbon Exchange (IDX Carbon) saw extremely low trading volumes in 2024, with fewer than one trade per week and only three voluntary projects listed.
• Indonesia is moving toward international sustainability reporting standards, with the Institute of Indonesia Chartered Accountants (IAI) issuing a roadmap on December 3, 2024, for the adoption of IFRS S1 and S2.

APA

Larasati, L., Rospriandana, N., Mafira, T., & Akbar, K. (2025). Climate-Aligned Investments and Policy Nexus in Indonesia. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2025/02/Climate-Aligned-Investments-and-Policy-Nexus-in-Indonesia.pdf

Chicago

Larasati, Luthfyana, Naufal Rospriandana, Tiza Mafira, and Khalifa Akbar. Climate-Aligned Investments and Policy Nexus in Indonesia. Climate Policy Initiative, 2025. https://www.climatepolicyinitiative.org/wp-content/uploads/2025/02/Climate-Aligned-Investments-and-Policy-Nexus-in-Indonesia.pdf.

Wikipedia

{{cite report |last1=Larasati |first1=Luthfyana |last2=Rospriandana |first2=Naufal |last3=Mafira |first3=Tiza |last4=Akbar |first4=Khalifa |title=Climate-Aligned Investments and Policy Nexus in Indonesia |publisher=Climate Policy Initiative |date=February 2025 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2025/02/Climate-Aligned-Investments-and-Policy-Nexus-in-Indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{larasati2025climatealigned, author = {Larasati, Luthfyana and Rospriandana, Naufal and Mafira, Tiza and Akbar, Khalifa}, title = {{Climate-Aligned Investments and Policy Nexus in Indonesia}}, institution = {Climate Policy Initiative}, year = {2025}, month = feb, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2025/02/Climate-Aligned-Investments-and-Policy-Nexus-in-Indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }