At the dawn of the 28th Conference of the Parties (COP) events, it is no secret we are clearly about to breach the ominous and impactful 1.5-degree threshold agreed upon in Paris

James

<h2>Introduction</h2>
Climate change is a clear and demonstrable example of a <a href="https://ipmr.net/index.php/ipmr/article/view/175#:~:text=These%20problems%20are%20called%20%E2%80%9Cwicked,for%20solutions%20is%20open%20ended.">&lsquo;wicked problem&rsquo;</a>. Its cause may be well accepted, but its solution is still debated and mired in political ideology and short-termism. Global investment portfolios depend on fossil fuels for financial returns, major polluters such as India and China <a href="https://energyandcleanair.org/publication/china-permits-two-new-coal-power-plants-per-week-in-2022/">continue to erect coal-fired power stations</a> and rhetoric continues regarding the need for fossil fuels for grid firming, job prospects and national security - particularly in light of the Ukraine war.&nbsp;
What&rsquo;s more, the influence of special interest groups, lobbyists, industry moguls and financial actors stifle and confuse what best-practice science and engineering know are the sound and sensible solutions to this global problem. To a large extent, climate policy is caught in the cobwebs of democratic deliberation and obfuscation - with <a href="https://context-cdn.washingtonpost.com/notes/prod/default/documents/593066df-4c7d-4b9d-87b9-00802bdb0968/note/b6f3e5dc-a78c-448f-9226-e4740afe8289.">powerful actors and special interest groups</a> distorting the democratic process to suit their industry&rsquo;s needs. In countries such as the United States, politicians and presidential candidates still highlight the <a href="https://twitter.com/VivekGRamaswamy/status/1657118616330948628">&lsquo;climate cult&rsquo; </a>and &lsquo;globalist&rsquo; sentiments that remove the legitimacy of climate action.&nbsp;
<h2>2023: where do we stand? The good and the bad&nbsp;</h2>
At the dawn of the 28th Conference of the Parties (COP) events, it is no secret we are clearly about to breach the ominous and impactful 1.5-degree threshold agreed upon in Paris, 2015 (COP 21). There is a recognition of the inevitability of climate change impacts - which are blatantly demonstrable at the time of writing this article. <a href="https://www.ft.com/content/eac80a7c-0959-491e-bb63-938c1abcbd1a">Record-breaking floods</a> ravage Greece, Turkey, and China, to name a few, and <a href="https://www.aljazeera.com/news/2023/8/8/july-2023-hottest-month-on-record-as-heatwaves-scorch-earth">horrific heatwaves</a> and wildfires have consistently dotted the global landscape in summers across the last few years.&nbsp;
Juxtaposed to the elation and optimism of COP21, contemporary climate discourse has a notably more somber and pragmatic tone. We slowly but surely concede to the adverse impacts of climate change, and even discussions around &lsquo;<a href="https://www.un.org/en/climatechange/adelle-thomas-loss-and-damage">loss and damage&rsquo; </a>are becoming more ubiquitous - conceding to unstoppable climate change impacts. Movements such as the <a href="https://www.reuters.com/business/finance/what-is-bridgetown-initiative-asking-paris-financial-summit-2023-06-20/">Bridgetown Initiative</a> push for global financiers to redirect and reformulate financing toward the communities most affected by climate loss and damage. In itself, this represents a heavy critique of global financiers - having failed the world&rsquo;s most vulnerable if they choose to maintain a &lsquo;business as usual&rsquo; conduct and mandate.
And yet, despite these messy political and organisational barriers, the solutions for combating global climate change appear to be more promising than ever. Indeed, it is strange yet promising how despite the dire and pressing nature of climate change, there are promising and cutting-edge financial and technical solutions to the problem.&nbsp;
Typical bemoaning of &lsquo;the wind doesn&rsquo;t always blow&rsquo; or &lsquo;the sun doesn&rsquo;t always shine&rsquo; are squashed by some of the most promising <a href="https://www.iea.org/articles/batteries-and-hydrogen-technology-keys-for-a-clean-energy-future">hydrogen and battery storage capabilities</a> the world has ever seen. Battery technology is becoming <a href="https://ourworldindata.org/battery-price-decline">more cost-effective</a> and technologically capable than ever before, meaning we can store enormous levels of intermittent energy usage in our pursuit of a decarbonised world.&nbsp;
Private and public financial markets are demonstrating increasingly robust efforts and mandates to tackle climate change and fulfill their ESG criteria. <a href="https://www.linklaters.com/en/about-us/news-and-deals/news/2023/july/global-green-bond-issuance-reaches-record-high-of-351bn-in-first-six-months-of-2023#:~:text=Green%20bonds%20continued%20to%20dominate,year%20for%20green%20bond%20issuances.">For instance</a>, as of 2023, 935 global green bonds have been issued, raising $351 billion in H1 2023 alone, meaning 2023 will be a record year for green bond issuances. Large polluters also pulled their weight. The <a href="https://www.climatebonds.net/market/data/">USA was the largest country source</a> and priced the highest share of sustainability deals at US$21.5 billion, and China produced the <a href="https://www.climatebonds.net/market/data/">largest volume of green bonds</a> at US$85.4 billion. However, <a href="https://www.climatebonds.net/market/data/">only 23%</a> of global green bond issuances are from emerging markets, beckoning greater financial activity in emerging markets.&nbsp;
Global governments are also conducting net zero pledges at national and sub-national levels, creating a robust and promising regulatory environment for promoting a zero-carbon world. <a href="https://climateactiontracker.org/global/cat-net-zero-target-evaluations/#:~:text=As%20of%20November%202022%2C%20around,%25%20emissions%2C%20in%20May%202021.">As of November 2022,</a> about 140 countries had announced or were considering net zero targets, covering 90% of global emissions.&nbsp;
Likewise, in 2022, <a href="https://www.aljazeera.com/news/2023/6/5/visualising-the-growth-of-the-electric-car-industry">3 in 20 cars sold worldwide were electric</a>, with China accounting for more than half of those sales. In percentage terms, 29% of all electric vehicles sold in the world are in China, 21% in Europe and 8% in the United States. This signals marked improvements in electric car sales in recent years - particularly in the major polluting countries.
However, there is still cause for concern. Global energy CO2 emissions <a href="https://www.iea.org/news/global-co2-emissions-rose-less-than-initially-feared-in-2022-as-clean-energy-growth-offset-much-of-the-impact-of-greater-coal-and-oil-use">grew by 0.9% </a>in 2022 (321 million tonnes), reaching a new high of more than 36.8 billion tonnes. Carbon Dioxide emissions from coal <a href="https://www.iea.org/news/global-co2-emissions-rose-less-than-initially-feared-in-2022-as-clean-energy-growth-offset-much-of-the-impact-of-greater-coal-and-oil-use">grew by 1.6%</a>, especially driven by Asia. Furthermore, there is a 66% chance the world will have annual average temperatures of <a href="https://www.nature.com/articles/d41586-023-01702-w#:~:text=The%20planet%20is%20on%20track,cross%20the%20line%20much%20sooner.">1.5 degrees above pre-industrial levels in the next five years</a> - displaying a defeat to a major Paris Agreement pledge.
<h2>Where to from here?</h2>
One of the most promising aspects of the contemporary climate movement is the amount of youth involved. Movements such as <a href="https://fridaysforfuture.org/">Fridays for Future</a> are fantastic initiatives of youth-driven, grassroots movements shifting the conversation surrounding climate change.
Given the very intergenerational nature of climate change, youth involvement is not just promising, but absolutely necessary.
There is also a growing movement of climate risk assessment methods, including the <a href="https://www.fsb-tcfd.org/">Taskforce for Climate-related Financial Disclosures (TCFD)</a>, which focuses on &lsquo;Governance&rsquo;, &lsquo;Strategy&rsquo;, &lsquo;Risk Management&rsquo; and &lsquo;Metrics&rsquo; for climate risk. Having seen this also implemented in the work of the public sector, it is confidently stated that climate risk is now increasingly accepted as a legitimate and pressing threat. It is not just a nice-to-have, but a necessary-to-have.
COP28, as with other COPs, provides an opportunity to discuss the seriously &lsquo;wicked&rsquo; nature of global climate change. While there are competing &lsquo;push&rsquo; and &lsquo;pull&rsquo; factors stifling and promoting climate action, there is an air of change happening for climate action at different scales. From the grassroots, to Main Street, to Wall Street, and beyond, incrementally, and in a non-linear fashion, trends are shifting.&nbsp;
It is important to never let a good crisis go to waste, so may we never forget the lessons we&rsquo;ve learned from this climate crisis - before it&rsquo;s too late.
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Climate action: addressing a wicked problem

Leveraging its historical, cultural, and economic bonds with Asian nations, along with a proven history of developmental assistance and cooperation, Japan is well-poised to contribute to the regional shift towards sustainable energy

<h2>ASEAN and Japan in an increasingly contested Indo-Pacific</h2>
As ASEAN assumes an increasingly prominent role in both Indo-Pacific and global climate discussions, it is gravitating toward a more substantial engagement in climate and environmental diplomacy. In tandem with the region's economic expansion and its significance in geo-economic and geopolitical spheres, the call for robust climate and sustainability endeavors from ASEAN has grown stronger.
Among ASEAN's dialogue partners, Japan is displaying a mounting interest in supporting ASEAN's endeavors related to decarbonisation and climate resilience. This alignment finds resonance with Japan's commitment to <a href="https://www.japan.go.jp/kizuna/2023/05/new_plan_for_free_and_open_indo-pacific.html#:~:text=He%20proposed%20four%20new%20pillars,%E2%80%9D%20to%20the%20%E2%80%9Cair.%E2%80%9D">advancing a Free and Open Indo-Pacific (FOIP)</a>. Within this partnership, Japan aspires to construct a pragmatic framework for international collaboration by fostering close cooperation with its regional counterparts. Leveraging its historical, cultural, and economic bonds with Asian nations, along with a proven history of developmental assistance and cooperation, Japan is well-poised to contribute to the regional shift towards sustainable energy.
<h2>Existing efforts for climate and sustainability collaboration&nbsp;&nbsp;</h2>
Demonstrations of these efforts have been apparent over the past decade, highlighted by initiatives like the ASEAN-Japan Joint Statement on Environmental Cooperation (2010), the ASEAN-Japan Environmental Cooperation Initiative (2011), and the ASEAN-Japan Joint Statement on Climate Change (2014). However, recent years have seen a notable escalation and emphasis on Japan-ASEAN collaboration in sustainable development. This includes the elevation of ASEAN-Japan relations to a "<a href="https://asean.org/asean-japan-reaffirm-commitment-to-take-partnership-to-new-heights/">Comprehensive Strategic Partnership</a>" in 2023, underscoring the growing imperative and potential for both partners to combat climate change and achieve sustainable development goals.&nbsp;
These endeavours are contextualised within the broader framework of ASEAN-Japan climate cooperation. In January 2022, the Japanese government introduced the "<a href="https://www.meti.go.jp/press/2023/06/20230605003/20230605003-2.pdf">ASEAN-Japan Economic Co-Creation Vision</a>", a document that enhances economic connections and lays the groundwork for fundamental principles governing bilateral economic interactions.
Central to this vision is the propagation of a "<a href="https://www.lowyinstitute.org/the-interpreter/japan-seeks-improved-climate-relations-asean#:~:text=The%20key%20component%20of%20this,sustainability%20within%20the%20ASEAN%20region.">global value chain model of development</a>," embedding human rights, sustainability, and Environmental, Social, and Governance (ESG) considerations into their economic interplays. The vision further advocates for an expansion of sustainability endeavours in ASEAN through international entities like the Economic Research Institute for ASEAN and East Asia (ERIA). Notably, it accentuates the augmented role of <a href="https://www.eria.org/news-and-views/eria-launches-digital-innovation-and-sustainable-economy-centre-disc-to-drive-aseans-technological-and-economic-future/">ERIA's Digital Innovation and Sustainable Economy Centre</a>.
A <a href="https://www.meti.go.jp/press/2022/01/20230106001/20230106001-4.pdf">cornerstone of this vision is sustainable development</a>, encompassing technical and financial backing through initiatives like the "<a href="https://asiazeroemission.com/">Asia Zero Emission Community" (AZEC)</a>, a program aiding ASEAN nations in transitioning away from fossil fuels. Additionally, in February 2021, Japan and the Asian Development Bank (ADB) unveiled a Memorandum of Cooperation (MOC) for the <a href="https://unfccc.int/sites/default/files/resource/SBSTA56_A6.8_workshop_Japan.pdf">Cleaner Energy Future Initiative for ASEAN (CEFIA)</a>, a project focusing on knowledge transfer and financial support for ASEAN's journey towards clean energy.
The <a href="https://www.meti.go.jp/english/press/2021/pdf/20210528001_aetieng.pdf">Asia Energy Transition Initiative (AETI)</a>, launched in May 2021, stands as another pivotal element of this strategy. Its objective is to chart a pragmatic course for decarbonization by harnessing Japanese technology and expertise while carefully balancing Energy security, Environment, and Economic growth ("3Es"). Underpinned by a significant commitment of $10 billion, this initiative reaffirms Japan's determination to propel renewables, energy efficiency, and cleaner fuels. Investments have already been announced for projects in Thailand, Vietnam, Indonesia, and Malaysia, with more in the pipeline. Furthermore, Japan's homegrown technologies spanning renewable energy grids, mobility solutions, storage batteries, ammonia, and hydrogen, funded through the <a href="https://www.bakermckenzie.com/en/insight/publications/2022/04/green-innovation-fund">2 trillion yen ($14.5 billion) Green Innovation Fund</a>, will be disseminated across Asia.
In addition, at the launch of the ETM Southeast Asia Partnership during COP26 in November 2021, Japan unveiled a <a href="https://www.adb.org/news/japan-announces-25-million-adb-led-energy-transition-mechanism-southeast-asia#:~:text=GLASGOW%2C%20UNITED%20KINGDOM%20(3%20November,Asian%20Development%20Bank%20(ADB).">$25 million grant to the Energy Transition Mechanism (ETM) partnership</a> led by the ADB. ETM's purpose is to hasten the retirement of existing coal-fired power plants and replace them with clean energy capacity. This mechanism encompasses two multibillion-dollar funds: one dedicated to expediting the retirement or repurposing of coal-fired plants and the other concentrated on new clean energy investments. Financing for ETM is projected to originate from multilateral banks, private institutional investors, philanthropic contributions, and long-term investors.
<h2>Challenges to overcome&nbsp;</h2>
Amid these positive advancements, some notable challenges have surfaced in the Japan-ASEAN relationship. These include ASEAN's apprehensions about resource competition with Japan, particularly in domains like energy and raw materials, which has led to strategic considerations. Additionally, disparities in ASEAN countries' positions regarding relations with the United States and China, and how Japan's close alignment with the US and its allies could complicate these relations, have also posed challenges.
Moreover, ASEAN itself grapples with its own hurdles in catalysing climate initiatives and sustainable development. These encompass the divergent levels of economic development within ASEAN, giving rise to varying and sometimes conflicting priorities, especially between countries that have already embraced industrialization and service sectors versus those that remain reliant on primary industries like agriculture and logging. Certain ASEAN countries place greater emphasis on economic and social progress over environmental sustainability. These are hurdles Japan will need to reconcile with and address when collaborating with ASEAN on its climate ambitions.
Collaboration between ASEAN and Japan within the realm of climate action underscores a nuanced connection within the intricate policy landscape. Nevertheless, amidst this intricacy, positive breakthroughs are emerging, even if they proceed in incremental steps. Over the course of the next decade, as climate action becomes increasingly important, ASEAN must diligently and comprehensively reduce its emissions, particularly as its economic and political weight grows.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.

ASEAN-Japan climate ambitions: an underrated Indo-Pacific dynamic

For Indonesia to finance its 2030 climate goals, it requires an investment of USD 250 billion by 2030. However, the government can only meet about 34% of this goal

<h2>Indonesia&rsquo;s role in climate change &mdash; setting the scene</h2>
International climate discourse centres around the responsibilities of major emitters &mdash; often focused on the United States, China, India and the EU. Discussions regarding National Determined Contributions, loss and damage, and &lsquo;common but differentiated responsibility&rsquo; have often highlighted the unequal contribution of a handful of countries to climate change.
However, some countries are not typically represented in this discourse. Namely, Indonesia &mdash; the world&rsquo;s 4th most populous country &mdash; is projected to become the world&rsquo;s fourth-largest economy by the mid-21st century. In light of that, the climate ambitions of Indonesia strongly matter, particularly if ASEAN is to achieve its regional climate ambitions.
While Indonesia&rsquo;s economy is rapidly rising, it remains a prolific extractor, exporter and consumer of coal, and is the <a href="https://www.reuters.com/business/energy/indonesia-clings-coal-despite-green-vision-economy-2021-09-20/">world&rsquo;s 8th biggest emitter</a>, having emitted <a href="https://www.esdm.go.id/en/publication/handbook-of-energy-economic-statistics-of-indonesia-heesi">112 million metric tons of coal</a> in 2021. Combined coal resources in the Indonesian regions of East Kalimantan, South Sumatra, and South Kalimantan <a href="https://www.adb.org/sites/default/files/event/854081/files/p9-rv-financing-equal-net-zero-finalpresent-rev.pdf">equal 87 billion tonnes</a>, and coal contributed <a href="https://www.reuters.com/business/energy/indonesia-clings-coal-despite-green-vision-economy-2021-09-20/">$38 billion in export earnings</a> in the first seven months of 2021.
In alignment with its Paris commitments, Indonesia aims to reduce its greenhouse gas emissions by at least <a href="https://unfccc.int/sites/default/files/NDC/2022-09/23.09.2022_Enhanced%20NDC%20Indonesia.pdf">31.89 percent</a> by 2030 relative to its business-as-usual scenario. However, it is perfectly possible this could be upwards of <a href="https://unfccc.int/sites/default/files/NDC/2022-09/23.09.2022_Enhanced%20NDC%20Indonesia.pdf">43.30 percent</a> by 2030, particularly with support from the international community in technology and financing. However, the current climate ambition laid out by <a href="https://climateactiontracker.org/countries/indonesia/">Indonesia is deemed as &ldquo;highly insufficient&rdquo;</a>.
<h2>Sustainable financing &mdash; the Indonesian context&nbsp;</h2>
For Indonesia to finance its 2030 climate goals, it requires an investment of <a href="https://www.climatepolicyinitiative.org/indonesia-green-taxonomy-1-0-yellow-does-not-mean-go/">USD 250 billion </a>by 2030. However, the government can <a href="https://fiskal.kemenkeu.go.id/baca/2022/07/06/4353-pemerintah-semakin-fokus-kembangkan-green-sukuk-lewat-g20">only meet about 34% of the total investment</a> needed to achieve its NDC targets. Exacerbating this issue, in October 2021, <a href="https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1303068">Moody&rsquo;s</a> reported that 31% of the country&rsquo;s on-balance sheet loans are credited towards industries with significant carbon transition risk, the third highest percentage in the G20.
Fortunately, Indonesia is beginning to establish strong precedents for its sustainable finance future, especially in light of its recent G20 presidency. Of particular note, the country launched a US $20 billion <a href="https://www.reuters.com/business/cop/us-japan-partners-mobilise-20-bln-move-indonesia-away-coal-power-2022-11-15/">Just Energy Transition Partnership (JETP)</a> focused on the mobilisation of renewable energy, launched at the G20 with its global partners in November 2022. Likewise, the launch of <a href="https://www.ojk.go.id/keuanganberkelanjutan/en/publication/detailsflibrary/2352/taksonomi-hijau-indonesia-edisi-1-0-2022">Indonesia Green Taxonomy 1.0</a> in January 2023, paved the way for investor confidence in the characteristics and direction of Indonesia&rsquo;s net zero economy. This is complemented by the <a href="https://www.climatepolicyinitiative.org/indonesia-green-taxonomy-1-0-yellow-does-not-mean-go/">Sustainable Finance Roadmap Phase II (SFR II)</a>, which outlines how the financial sector will move towards a more sustainable trajectory over the next few years (2021-2025), with Indonesia&rsquo;s Green Taxonomy at the centre.
<h2>Key barriers to sustainable finance</h2>
However, there are still notable barriers to the uptake of decarbonisation finance in Indonesia. Importantly, Indonesia must grapple with its inadequate capital structure and composition &mdash; being relatively shallow, and with the banking sector <a href="https://www.brookings.edu/articles/how-to-fund-climate-agenda-in-indonesia/#:~:text=The%20Ministry%20of%20National%20Development,close%20this%20massive%20financing%20gap">accounting for 76%</a> of financial sector assets. Bank lending, focused on shorter term project cycles and returns, is not typically geared towards sustainable financing without adequate government guarantees, underwriting or regulatory architecture. To assist with this, the Asian Development Bank&rsquo;s <a href="https://www.adb.org/what-we-do/energy-transition-mechanism-etm">Energy Transition Mechanism</a> (ETM), focused on providing blended financing from public, private and philanthropic sources, to retire coal fired power stations across Asia. This has a focus on social safeguards, reducing adverse social outcomes from closing coal fired power stations.
Already, the ETM is <a href="https://www.adb.org/news/adb-and-indonesia-partners-sign-landmark-mou-early-retirement-plan-first-coal-power-plant">working closely</a> with Indonesia&rsquo;s Cirebon Electric Power (CEP) &mdash; a publicly owned power utility &mdash; to close Cirebon-1, a 660 megawatt (MW) coal-fired power plant in West Java. This is an early stage project, but it could provide precedent and scaffolding for future financing instruments and models for a just and sustainable energy transition in Indonesia.
However, much of Indonesia&rsquo;s electricity market is run by PLN, meaning political factors and government relations <a href="https://thediplomat.com/2022/08/the-asian-development-banks-energy-transition-mechanism/">matter substantially more</a> than engaging with market actors. PLN&rsquo;s buy-in for decarbonisation and the ETM is absolutely necessary in this context, meaning regulatory confidence and government stability must be achieved to ensure long term confidence in the management of sustainable finance funds.
Additionally, the renewables market is still relatively immature in Indonesia, dampening investor confidence. De-risking financial investments could lower financing costs, derived from the <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/app5.288">heightened market, credit, political and regulatory risks in investing in Indonesia</a>. The aforementioned JETP and ETM are good starts &mdash; consisting of concessional loans and guarantees necessary to de-risk investment and therefore, increase investment in green energy. However, to sustain and scale the uptake of green energy, there must be robust sustainable finance regulatory architecture in Indonesia, to avoid some of the <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/app5.288">previous regulatory ambiguity and risks </a>of investing in Indonesia.
<h2>Indonesia&rsquo;s green taxonomy &mdash; a way forward?</h2>
While Indonesia&rsquo;s Green Taxonomy is impactful and formative regulation, it has been designed <a href="https://www.climatepolicyinitiative.org/indonesia-green-taxonomy-1-0-yellow-does-not-mean-go/">mainly as a guidance</a>, rather than a mandatory instrument. It also experiences <a href="https://www.climatepolicyinitiative.org/indonesia-green-taxonomy-1-0-yellow-does-not-mean-go/">issues of interoperability</a>. As numerous other countries develop their own sustainable finance taxonomies, Indonesia must consider how its own green taxonomy interoperates with other global and importantly, regional, taxonomies. Doubts regarding the interoperability of Indonesia&rsquo;s green taxonomy will undermine trust, confidence and interest from sustainable financiers, in addition to adversely affecting Indonesia&rsquo;s ability to be a player in the regional and global green economy.&nbsp;
For example, the EU taxonomy, considered one of the world&rsquo;s leading, has far more stringent <a href="https://www.celsia.io/blogs/breaking-down-the-eu-taxonomys-technical-screening-criteria-what-you-need-to-know">Technical Screening Criteria (TSC)</a>, focused on particular, targeted economic activities and social and environmental safeguards &mdash; ensuring social and human rights. This contrasts with the Indonesian or even the ASEAN Taxonomy, focused on a<a href="https://ieefa.org/resources/indonesias-green-taxonomy-walks-tightrope-balancing-industries-past-and-future"> &lsquo;traffic light&rsquo; system</a>, similar to what is seen in Figure 1.&nbsp;
Figure 1. Taxonomies for sustainable finance in Asia
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://illuminem.b-cdn.net/articlebody/b9bd560a5df68a949924a45cf8576136ba556e81.jpeg?" alt="figure on taxonomies for sustainable finance in asia" />
This taxonomy focuses on 3 broad categories, including a yellow (transitional) category. In the case of Indonesia&rsquo;s taxonomy, <a href="https://www.climatepolicyinitiative.org/indonesia-green-taxonomy-1-0-yellow-does-not-mean-go/">919 sectors and sub-sectors are covered</a>, including:&nbsp;
<ul>
<li style="font-weight: 400;" aria-level="1">15 sub sectors currently meet the green criteria</li>
<li style="font-weight: 400;" aria-level="1">422 sub sectors are in transition (yellow), avoiding significant environmental&nbsp; harm but not yet fully aligned with the taxonomy&rsquo;s green criteria</li>
</ul>
Many critics<a href="https://ieefa.org/resources/indonesias-green-taxonomy-walks-tightrope-balancing-industries-past-and-future"> highlight the problematic nature </a>of the &lsquo;yellow&rsquo; (transitional) category. Indonesia&rsquo;s unabated oil and gas projects could be considered &lsquo;transitional&rsquo;, hence bringing into question the sustainability credentials of Indonesia&rsquo;s taxonomy. Furthermore, projects in this category can be considered &lsquo;not significantly harmful to the environment&rsquo; &mdash; at odds with scientific consensus towards the sustainability credentials of these types of projects.&nbsp;
Hence, this produces substantial market risk. There needs to be confidence in Indonesia&rsquo;s taxonomy from sustainable financiers and its ability to harmonise with other sustainable finance taxonomies. This is particularly in an era where more sustainable finance taxonomies are being created, and sustainable finance is proliferating at a regional and global level.&nbsp;
<h2>Conclusion</h2>
While Indonesia&rsquo;s green transition is gaining traction, there are still key regulatory and risk dimensions stultifying its net zero journey. Typical market concerns regarding credit, regulatory and political risks remain, with some possible hope on the horizon in light of the JETP, ETM and Green Taxonomy. However, it is still early days, and these initiatives are nascent and rather experimental. Over the next 5-10 years, as climate change becomes more damaging and Indonesia&rsquo;s role as a climate actor growing, it is imperative that Indonesia overcome the regulatory inadequacies and market risks that have stubbornly persisted in the country, hindering their transition to date.
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James Balzer

James Balzer

Climate action: addressing a wicked problem

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