Strengthening of the Indonesian Green Taxonomy to Accelerate Just Energy Transition

With the increasing level of public awareness toward environmental issues and aspects of sustainability, green financial instruments such as the green taxonomy became a crucial aid to help investors seek out which economic activities are harmful to the environment and which are not. Taksonomi Hijau 1.0 (Green Taxonomy 1.0), launched by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan/OJK) in January 2022, is expected to push Indonesia's commitment to achieve its net zero emission target further.

Yayasan Indonesia Cerah, in collaboration with the ResponsiBank Indonesia coalition, held a public and media discussion titled: "Taksonomi Hijau Indonesia dalam Mengakselerasi Pembiayaan Transisi Energi” (Indonesian Green Taxonomy in Accelerating Funding of Energy Transition) on 15th September 2022. It aims to enhance the knowledge of green taxonomy and discuss its importance in accelerating energy transition funding in Indonesia.

Three speakers from different backgrounds shared their thoughts on Taksonomi Hijau 1.0: 

• Istiana Maftuchah, OJK Secondee for the Organization for Economic Co-operation (OECD) Environment Directorate  
• Luthfyana Larasati, Senior Policy Analyst of Climate Policy Initiative
• Herni Ramdlaningrum, Program Manager of Perkumpulan PRAKARSA.  

The panelists provided an informative and fascinating take on the green taxonomy. One of the main points of the discussion is that Taksonomi Hijau 1.0 needs to evolve and adopt more robust environmental and social criteria to facilitate a just energy transition. Unfortunately, the current Indonesian Green Taxonomy, which uses the traffic light color classification system (red, yellow, green) still places coal and its derivatives under the yellow classification (do no harm/harmless to the environment).

Herni Ramdlaningrum, Program Manager of Perkumpulan PRAKARSA, said that the yellow sub-sector is a compromise and potentially misleading. "OJK must take a firm stance toward several sectors still labeled yellow because it will be counter-productive to its own energy transition agenda," she explained. She added that a clear timeframe is necessary for deciding which sector must change color. "Hopefully, what is labeled as yellow (such as coal) can turn red soon," said Herni.

Luthfyana Larasati, Senior Analyst of the Climate Policy Initiative, said that the green taxonomy needs to bolster its sub-sector inclusion matrix and threshold for its labeling. It is to make the green taxonomy in line with net zero commitment. By doing this, the green taxonomy could attract investments in the green sector and reduce the costs of verification and due diligence.

Istiana Maftuchah, OJK Secondee for the OECD Environment Directorate, explained that the green taxonomy is an instrument that will nurture sustainable finance and is used to measure progress in implementing sustainable finance in the financial services industry. After the release of the POJK (Peraturan OJK/OJK Regulation), the financial industry has started to focus (on sustainable finance). But the majority is still at the level of awareness and capacity building.