Will the Indonesian Taxonomy for Sustainable Finance benefit their nation?

TLDR:

• Indonesia’s new Taxonomy for Sustainable Finance (TKBI) complicates national objectives and risks green credentials.
• The lenient approach to defining sustainable activities introduces financial risks to projects and the public.

The Indonesian Financial Services Authority (OJK) updated the TKBI on February 20, 2024, aiming to align it with other taxonomies and national interests. However, the current design of the TKBI raises concerns as it allows new coal-fired power plants to be classified as “green,” potentially undermining Indonesia’s climate commitments. The classification of coal plants as transitional assets poses financial risks to investors and the public if the plants do not meet emission reduction targets within a decade.

The TKBI’s loose criteria for sustainable activities and reliance on carbon offsets may not align with international standards, making Indonesia less attractive for investments. The leniency in defining sustainability could lead to increased financial risks and may not serve Indonesia’s long-term national interests. Despite efforts to support green transitions and enhance mineral resources, the TKBI’s approach may hinder desired emission reductions and financial investments in Indonesia.