Heaptalk, Jakarta — Green investment has emerged as a critical focus for pursuing sustainable economic growth. According to Fahmi Arya Wicaksana, Vice Chairman of Indonesia’s Association of Carbon Emission Experts (Acexi), green investment in Indonesia has seen noteworthy progress in recent years, particularly with several state-owned enterprises issuing green bonds.
In 2023, for example, Bank Mandiri issued green bonds worth Rp5 trillion, which were oversubscribed three times, demonstrating robust demand for environmentally focused financial instruments. Similarly, BRI issued Rp6 trillion in green bonds, further solidifying investor interest.
Nevertheless, despite these successes, the broader market for green investments, such as the IDX Carbon platform, remains underdeveloped. Transactions on the platform barely reach the targeted range, highlighting a significant gap between investor demand and the supply of credible green investment projects.
Fahmi explained that one of the most significant barriers to green investment is the high cost of issuing environmentally friendly financial instruments. Private companies face substantial expenses related to audits, credit ratings, and certifications to classify their projects as “green.” While necessary for ensuring credibility, these requirements complicate the competition with conventional investment options for companies.
Fahmi also pointed out that insufficient government incentives exacerbate this issue. While state-owned enterprises are mandated to issue green bonds, private companies are deterred by the financial burdens involved.
Another critical challenge is Indonesia’s high interest rates. Companies engaged in green projects frequently lack the operational profitability to absorb the financial strain of high coupon rates, which currently range between 6% and 7% for five-year bonds.
Strategies for overcoming Green Investment hurdles
He suggested several measures to resolve the existing challenges, including:
- Enhancing ecosystem collaboration to foster green investment. He said stakeholders like the government, private sector, financial institutions, and NGOs can cooperate more effectively. For instance, international organizations such as the World Bank could provide grants or other monetary incentives to bolster green projects in Indonesia.
- Government incentives by introducing tax relaxations and subsidies for companies issuing green financial instruments. Fahmi highlighted the accomplishment of similar strategies in boosting the sukuk (Islamic bond) market a decade ago and suggested replicating this model for green investments.
- Innovative instruments development. Fahmi proposed creating modern, engaging financial instruments such as tokenized green investments or crypto-based assets to attract rising generations, particularly Gen Z investors.
- Energy purchasing policies revision. Fahmi pointed out that adjusting purchasing strategies could incentivize investment in the energy sector. For example, the government could adopt a pricing structure that offers higher rates during the initial stages of a green energy project, helping developers achieve their break-even point.
- Market access expansion. Despite their potential, green energy solutions like solar panels face limited domestic demand. Fahmi suggested leveraging rural development programs to create new markets for green energy providers.
Roles of social impact in attracting investors
Fahmi highlighted an essential shift in investor priorities, particularly among rising generations. “Today’s investors are not solely focused on ROI or profits. They are also deeply concerned about the social contributions their investments can make,” he explained on the Forum Carbon Indonesia YouTube channel.
He perceived that Indonesian Gen Z wants to feel that their investments are making a difference—for the Earth and their communities. Thus, he urged all stakeholders to seize this opportunity by creating instruments that align with these values.
Despite the challenges, Fahmi remains optimistic about the future of green investment in Indonesia. He believes the sector can grow significantly with the right policies, incentives, and innovations.
“We can’t wait until 2030; it will be too late. The time to act is now,” he urged.
As green investment continues to gain momentum, stakeholders must collaborate to ensure its success. By addressing supply-side issues, fostering ecosystem integration, and introducing innovative instruments, Indonesia can unlock the full potential of green investment and pave the way for a more sustainable future.