Indonesia prepares climate finance reforms to attract foreign investment

A US$472.6 billion need puts investment rules in focus

Indonesia is preparing a white paper and a new Sustainable Finance Committee to attract foreign investors and banks into projects that cut emissions and help communities withstand climate change. Its latest Nationally Determined Contribution, the national climate plan filed with the United Nations, estimates that at least US$472.6 billion is needed to meet its climate goals.

The government reports spending 702.9 trillion rupiah on climate programs between 2018 and 2023. That is a fraction of the investment required through the next decade, leaving private capital and international partners with a large role to play. Indonesia has limited room in its public budget to fund the expansion alone.

As of November 28, 2025, the proposed reforms focus on a practical problem: investors need to understand which rules apply, which incentives they can use and whether projects can move from approval to construction. Regulations spread across agencies, lengthy approvals and inconsistent reporting standards have made those decisions harder.

The Just Energy Transition Partnership illustrates the gap between promises and delivery. Partner countries pledged US$20 billion to support a cleaner power sector, while around US$3 billion in financing and four projects have been approved. The approved amount is approximately 15% of the original pledge. The United States withdrew from the partnership in March, weakening its momentum.

President Prabowo Subianto has set a target to transition Indonesia's economy, which depends heavily on coal, to renewable energy by 2035. Attracting the money needed for that ambition will require clearer policy signals, faster permits and tools that make lenders more confident they will be repaid.

Indonesia's latest climate plan expects emissions to peak around 2030 under key economic growth scenarios. The investment push therefore brings together two demands: financing cleaner development and making projects easier to carry out within the country's climate timetable.

A committee to connect rules across agencies

The government has finalized the governance structure and implementation plan for a Sustainable Finance Committee under the Ministry of Finance. Its legal foundation was signed into law in 2023, and its membership is expected to be in place by the first quarter of 2026.

The committee will likely have about 20 members drawn from senior officials at the Finance Ministry, the Financial Services Authority, known as OJK, and Bank Indonesia. A secretariat and working groups will support its work.

Authorities want the body to give investors a clear view of sector regulations, available incentives and a pipeline of credible projects. It is also intended to map and expand instruments that reduce financial risk, including credit guarantees, blended finance platforms involving multilateral banks and tools to manage currency risk.

A credit guarantee gives lenders additional protection if a borrower cannot pay. Blended finance combines public or development funding with private investment. Currency risk arises when a project's income and its financing are exposed to changes in exchange rates. Addressing those issues can help lenders judge the cost of financing an Indonesian climate project.

Standard documents and procedures are another priority. Proposed measures include model power purchase agreements for renewable energy, clearer guidance on viability gap support and transparent schedules for permitting and land acquisition. Viability gap support helps cover a financial shortfall that would otherwise prevent a project from proceeding.

The committee is expected to reduce duplication, improve coordination between national and local authorities, and align standards and disclosures used by institutional investors. Policy analysts have identified fragmented rules, slow approvals and limited standardization of environmental, social and governance reporting as obstacles. Those reporting requirements, often shortened to ESG, concern how projects affect the environment and communities, and how they are managed.

How the changes fit earlier investment reforms

Indonesia's proposed committee builds on reforms intended to make investment easier. The 2020 Omnibus Law on Job Creation reduced barriers to entry. In 2021, Indonesia liberalized most sectors and introduced an online single submission system that bases licensing requirements on risk.

The Indonesian Investment Authority, the country's sovereign wealth fund, was created to invest alongside partners in infrastructure. Special economic zones continue to provide incentives. The new committee is intended to connect these measures with the rules and financial standards that climate investors need.

Several dates show how the investment and climate agendas have developed:

• 2018 to 2023: The government spent 702.9 trillion rupiah on climate programs.
• 2020: The Omnibus Law on Job Creation reduced barriers to investment.
• 2021: Indonesia liberalized most sectors and launched its licensing system based on risk.
• 2023: The legal foundation for the Sustainable Finance Committee was signed into law.
• March 2025: The United States withdrew from the Just Energy Transition Partnership.
• First quarter of 2026: Membership of the Sustainable Finance Committee is expected to be in place.
• Around 2030: The latest national climate plan expects emissions to peak under key economic growth scenarios.
• 2035: Prabowo's target year for the transition to renewable energy.

The reforms address different stages of investment. Opening sectors and simplifying licenses help investors enter the market. Financing rules, reliable contracts and coordination between agencies help projects secure funding and proceed. Indonesia's current push focuses on connecting those stages so that an attractive opportunity can become an executable project.

Where Indonesia needs the climate money

Indonesia's latest national climate plan puts investment needs at at least US$472.6 billion. An earlier estimate was roughly US$247 billion for 2018 to 2030. The public budget can cover only part of either amount, while government climate spending has averaged the equivalent of several billion dollars a year.

The power sector needs cleaner electricity generation, stronger grids and the early retirement or repurposing of coal plants. Heavy industry must move toward production that releases less carbon. Those changes require investment in both new assets and the treatment of existing ones.

Forestry and land use programs are another major destination for funding. Restoring peatlands and mangroves can support emissions reductions and adaptation, meaning preparation for the effects of climate change. Urban transport, water security and health systems also need investment as rising heat, heavier rain, drought risks and changing disease patterns put pressure on communities.

The Just Energy Transition Partnership remains a test of whether international commitments can become functioning projects. Its early work includes grid upgrades and clean power, alongside difficult transactions involving the early retirement of coal plants. The departure of a major donor has complicated delivery.

Closing a coal plant before the end of its expected operating life creates a financial gap compared with keeping it running. Partnership transactions can require concessional loans, guarantees and sometimes carbon revenue to close that gap. Concessional loans offer more favorable terms than ordinary commercial lending, while guarantees provide additional protection for those supplying finance.

Carbon trading offers another route to investment

Indonesia has restarted international carbon credit trading after a pause of four years. A new presidential decree permits trading in carbon units that comply with national rules or United Nations standards, and calls for a transparent registry updated in real time to prevent double counting.

A carbon credit connects an emissions reduction to a unit that can be sold. For project developers, that creates a possible income stream from activities such as preserving rainforests, protecting peatlands, improving energy efficiency or reducing emissions from industry. Preventing double counting means keeping track of each reduction so it is not counted more than once.

Indonesia has signed mutual recognition arrangements with international crediting programs. Those arrangements give developers a clearer route to foreign buyers. The policy is intended to attract investment into forest protection as well as energy and industrial projects that reduce emissions.

The domestic carbon exchange has nevertheless seen modest trading. Indonesia's approach combines a cap and trade framework with a fallback carbon tax, creating uncertainty for participants. Under cap and trade, emissions limits and the trading of allowances or credits are intended to create demand for reductions.

Emission thresholds for coal power that are set too high can weaken that demand. The carbon tax has still not been implemented, and its operation remains undefined. Overlapping responsibilities among ministries have also slowed decisions and confused market participants.

A recent update to the national carbon regulation aims to improve integration, strengthen transparency and bring the system closer to international practice. Its effect will depend on timely implementation and clear operating rules.

Indonesia used its national pavilion at COP30 to present dozens of projects and reported interest from prospective buyers involving millions of tons. A working carbon market with access to international customers could allow developers to pledge future carbon revenue to lenders, making conservation, mangrove restoration, renewable energy and efficiency projects easier to finance.

International investors will also look for reliable monitoring and verification of emissions reductions, fair sharing of benefits with communities, and protections for biodiversity and local rights. Those safeguards are central to confidence in the credits being sold.

Development banks, public funds and private partners

Public development banks and climate funds remain essential to Indonesia's financing effort. The Green Climate Fund has supported readiness programs that strengthen coordination, build capacity among accredited entities and prepare a pipeline of better proposals.

The Asian Development Bank and the World Bank can help attract private money through grants and concessional loans paired with guarantees and funding that absorbs initial losses. Such arrangements share some of a project's financial risk, allowing other investors to consider commitments they might otherwise avoid.

Indonesia's National Designated Authority and the Indonesian Environment Fund have central roles in aligning these funding flows with domestic priorities. The Indonesian Investment Authority provides another route by investing alongside international partners in infrastructure, including clean energy.

Gulf and Asian funds have signaled interest in green assets. Australia is expanding regional financing through a facility worth A$2 billion for clean energy and infrastructure in Southeast Asia, while its export credit agency has increased its exposure to the region.

A specific project shows how that support can reach Indonesia. Through the Australian Climate Finance Partnership, a concessional loan of US$15 million is helping expand the Muara Laboh geothermal plant in West Sumatra.

Surveys of Australian firms point to growing interest in Indonesia as a priority market for expansion. Partnerships can bring technical knowledge in mining services, battery supply chains and project management alongside capital. Australian agencies are also encouraging large pension funds to consider Indonesian clean energy and infrastructure investments.

Bonds, sukuk and protection for foreign lenders

Indonesia has become a regular issuer of sovereign green bonds and green sukuk. These instruments connect financing with demand for investments aligned with climate goals and, in the case of sukuk, Sharia requirements. They provide another channel beyond direct project lending.

OJK's sustainable finance taxonomy, guidance on green bonds and stronger disclosure rules are helping banks and companies issue their own instruments. A taxonomy is a classification system that helps investors identify which activities meet specified sustainability criteria.

Blended finance platforms and guarantees from the Indonesia Infrastructure Guarantee Fund can also help reduce the risks that private lenders face. Currency hedging facilities address exposure to changes in exchange rates, a concern for foreign investors financing projects with income in local currency.

The financing package matters as much as the choice of instrument. A project may need a combination of private lending, development funding, guarantees and currency protection to address policy uncertainty and repayment concerns. The proposed committee's work on mapping these tools is intended to make that combination easier for investors to understand and arrange.

Investors need reliable policies and workable projects

Foreign investors place policy clarity near the top of their requirements. Prabowo's target for a shift to full renewable energy by 2035 needs a transparent roadmap explaining how coal plants will be retired, how new capacity will be procured and how electricity grids will be reinforced.

Changing signals about international partnerships can also make cautious investors hesitate. Analysts warn that mixed messages can slow transactions even when a market has strong underlying opportunities. Indonesia's task is to connect announced ambitions with rules and schedules that investors can use when deciding where to put money.

The state electricity utility PLN is central to another concern because it buys power from projects. Lenders therefore need power purchase agreements they can rely on, together with credible arrangements that protect payment. A project with promising technology still needs a dependable customer and a contract that supports repayment.

Land acquisition, local permits and environmental impact assessments can take longer than investors expect. Uneven contract enforcement, bureaucratic delays and corruption risk can add costs. Many investors seek partial risk guarantees, political risk insurance or lending alongside multilateral institutions before committing.

Large foreign investors also follow strict ESG requirements and need dependable data. Their checks include greenhouse gas accounting that follows international norms, safeguards for communities and transparent sharing of benefits in forestry projects. The committee could reduce friction by aligning national standards with global frameworks and publishing templates and disclosure expectations for projects seeking foreign capital.

Regional partners compete for transition opportunities

Australia and Indonesia have seen growth in trade and investment in both directions, supported by the Indonesia Australia Comprehensive Economic Partnership Agreement. Companies see opportunities in renewable power, grid equipment, education and skills, technology services and agrifood supply chains needed by an economy reducing its carbon emissions.

China remains a major participant in Indonesia's energy transition and industrial policy. Cooperation extends from electric vehicle manufacturing and the processing of critical minerals to solar deployment.

Indonesian policymakers are also engaging Japan, Europe, the Gulf and the United States to diversify partnerships. The aim is to balance costs, access to technology and the country's ability to make its own policy choices.

More banks and funds are adopting policies that exclude coal, while moves by countries to join alliances that rule out coal point toward a growing focus on clean projects. Indonesia can attract more of that capital through clear regulations, credible schedules and investments that deliver jobs and local value.

The next tests are practical milestones

The white paper and the formation of the Sustainable Finance Committee are the immediate developments to watch. No publication date for the white paper has been given. Committee membership is expected by the first quarter of 2026.

Early priorities include a practical guide to permits and incentives for green projects, a catalog of tools that reduce financial risk, a list of priority projects and a process for aligning national standards with leading international frameworks.

Implementing the updated carbon market rules and clarifying the carbon tax would help investors understand the financial value of emissions reductions. Better data and reporting, including alignment with international sustainability disclosure standards, would also reduce uncertainty for institutional investors.

Project milestones will matter alongside policy changes. Early coal retirement transactions combining concessional finance and carbon revenue, new geothermal and solar projects at utility scale, and stronger transmission networks that connect islands and open access to renewable resources will show how the reforms work in practice.

A steady flow of projects able to secure finance, backed by guarantees and transparent contracts, is the government's central test. Indonesia has substantial investment needs and several routes to international capital. The next stage is turning those routes into projects that lenders can fund and developers can deliver.

Key Points

• Indonesia is preparing a white paper and a Sustainable Finance Committee to coordinate climate investment rules.
• The committee is expected to have about 20 senior members, with membership in place by the first quarter of 2026.
• The latest national climate plan estimates investment needs of at least US$472.6 billion.
• Government climate spending totaled 702.9 trillion rupiah between 2018 and 2023.
• The US$20 billion Just Energy Transition Partnership has approved around US$3 billion in financing and four projects; the United States withdrew in March.
• International carbon credit trading has resumed after a pause of four years, while domestic trading remains modest and the carbon tax is not implemented.
• Development banks, climate funds, sovereign investors, green bonds, sukuk and regional partnerships offer funding routes.
• Clear policies, reliable contracts, faster approvals, financial protection and trusted reporting will shape investor decisions.