One of the key challenges that is being faced in the implementation of sustainable development goals (SDGs) is its financing. These challenges were exacerbated by the economic setback and fiscal stresses created by the Covid-19 pandemic.

In a panel discussion, “Unlocking Finance for the SDGs: Rising to the Challenge to Build Back Better”, during the Asian Development Bank’s third Southeast Asia Development Symposium, Luky Alfirman, Director General, Budget Financing and Risk Management, Ministry of Finance, Indonesia, discussed the various initiatives undertaken by Indonesia to finance sustainable development in the country and its future outlook. Excerpts…

SDGs progress in Indonesia

Indonesia is strongly committed to achieving the SDGs and has made substantial progress in adopting the SDGs into its national agenda of planning, budgeting as well as financing since 2017. By pledging to mainstream the SDGs into the national development agenda, the country now has strong fundamentals for SDG implementation. Proper finances and investments serve as the key driver of progress in the implementation of SDGs as part of climate action. It is estimated that Indonesia will require investments to the tune of $4.7 trillion by 2030 to achieve the SDGs.

Further, in order to achieve the climate change targets under the Nationally Determined Contributions (NDCs), the country will require investments of approximately $300 billion. This implies that the financing requirement to achieve the SDGs is huge. The target of achieving the SDGs was always financially challenging; however with the outbreak of the pandemic, the financial challenge has been made more daunting. All countries around the globe, including Indonesia, have been forced to revisit their financial resources to address the climate crisis and achieve the SDGs.

In the present scenario, the key requirement is to expand the fiscal resources to ensure that there is smooth recovery towards green and inclusive growth. In order to reduce the financing gap, the Government of Indonesia observes both the potential and the urgency in leveraging and trying to find the right innovative financing instrument to accelerate and push Indonesia’s transition towards a low-carbon economy and enable sustainable development.

Initiatives undertaken for sustainable economy

Starting 2016, the Government of Indonesia undertook the implementation of the climate budget tagging mechanism at the national level.This was the first step that the country took towards addressing the climate change crisis and moving in the direction of achieving the SDGs. It is an innovative tool to identify and track how much the government has spent on climate change mitigation and taking actions by tagging the spending that fits into the Government of Indonesia’s climate objectives. It is considered a breakthrough step because it attracted significant funding dedicated to green and sustainable projects towards Indonesia. The success of the climate budget tagging initiative led to the issue of the world’s first Green Sukuk (Islamic bond) in 2018. With the help of these initiatives, Indonesia has successfully mobilised around $4.2 billion from both global and domestic Green Sukuk issuances in the last four years. Indonesia is also the first country to issue a sovereign Green Sukuk. It has also started with the establishment of a green bonds and Green Sukuk framework to enable Indonesia to issue global green bonds and global Green Sukuks.

The next step as a part of the commitment to enable transparent reporting is to publish the annual Green Sukuk reports. The publishing of the report signifies accountability and transparency of the working mechanism. These annual Green Sukuk reports, therefore, will have to be reviewed by credible auditors such as Klynveld Peat Marwick Goerdeler, PricewaterhouseCoopers, EY, etc. According to the framework, there are nine sectors eligible to receive the proceeds of Green Sukuks/bonds. However, so far only five sectors have received the proceeds from the bonds. These are renewable energy, energy efficiency, improving climate resilience for vulnerable areas, sustainable transportation, and waste management and waste-to-energy. The country continues to innovate new means to raise sustainable finance.

Even during the pandemic, in September 2021, Indonesia published the SGDs Government Securities Framework. This was to depict how Indonesia not only intends to issue green bonds but also SDG securities to finance environmental and social projects contributing to the 2030 National Developmental Agenda. The framework is primarily an expansion of the previous Green Bond and Green Sukuk framework. The second-party opinion for the new framework was also positive and the framework received a high level of assurance on the holistic approach being undertaken.It is expected that the framework will help finance national sustainable development and meet the commitment to enable sustainability and climate change mitigation. The proposed eligible social project credibly aimed to enable sustainable development supported by the proposed comprehensive reporting of impacts. With the finalisation of the framework and its subsequent review, it gave the country the issuance of the Indonesia SDG bond in September 2021. The debut issuance marks a historic milestone for Indonesia for being the first SDG euro bond issuance by an ASEAN sovereign. The size of the issued bond is 500 million euros and the coupon rate is around 1.3 per cent.

The road ahead

Going forward, a report on the SGDs Government Securities Framework is going to be prepared. Further, the Government of Indonesia has started working on mainstreaming environmental, social and governance aspects in the provision of government support towards infrastructure projects, particularly those involving private financing.This is expected to be another breakthrough and it is hoped that the support facilities provided by the government will also be deploying the environmental, social and governance principles in projects. The aim is to start implementing this initiative soon. Indonesia is also working on preparing a carbon pricing instrument to support action towards net zero emissions, and in the process securing a just and affordable transition towards low-carbon, resilient development. The types of carbon pricing instruments being explored include non-trading instruments such as emission training systems, cap and trade mechanisms, emission offset or crediting mechanisms, carbon tax, resource payment, etc