Banks Unprepared to Provide Rp794 Trillion for Indonesia's Emission-Free Goal, Here Are the Challenges
Jakarta, CNBC Indonesia - The Institute for Economic and Social Research at the Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) has released the results of its major study on the funding needs for Indonesia to pursue the net zero emissions (NZE) target by 2060.
In its study titled ‘Green Transformation in the Banking Sector’, published since February 2026 and revisited through the Instagram account @lpemfebui in March 2026, the funding requirement for NZE 2060 amounts to Rp794.6 trillion.
“To achieve NZE by 2060, an annual budget of Rp794.6 trillion is needed, sourced from public, commercial, and concessional financing,” quoted from the LPEM FEB UI study, on Monday (30/3/2026).
According to LPEM, the financial sector, particularly banking, plays a crucial role through sustainable financing to meet these funding needs. Banks can provide long-term funding for green initiatives, including the development of renewable energy, energy efficiency, and sustainable infrastructure projects.
“This makes the readiness of the banking sector a determining factor in whether Indonesia can meet its climate targets and long-term development goals,” wrote the LPEM FEB UI economics team in their study.
Unfortunately, they consider that there are several obstacles preventing the Indonesian banking sector from meeting these financing needs, ranging from unsupported human resources to unconducive regulations.
Specifically on regulations, LPEM states that rules from Bank Indonesia, OJK, and the Ministry of Finance often overlap, leading to inconsistencies in implementation.
This uncertainty makes banks hesitant, especially when projects initially categorised as green change status later on.
Harmonisation efforts have actually been undertaken, including the formation of the National Task Force by OJK and the launch of the second version of the Sustainable Finance Taxonomy in 2025. However, inter-agency coordination challenges remain unresolved.
In addition, there are four other obstacles faced by the banking sector, as follows:
- Limited Technical Expertise and Cross-Sectoral Knowledge
The LPEM FEB UI economics team emphasises that every green project has different standards. For example, standards for renewable energy projects differ from those for energy efficiency in the industrial sector.
These differences demand cross-sectoral analytical capabilities.
However, many banks lack such capacity. As a result, the risk of errors in assessing project viability increases, opening the door to greenwashing, where projects are claimed to be environmentally friendly despite unclear impacts.
- Bankers Unfamiliar with Sustainability Issues
LPEM assesses that currently, only a small portion of banking staff understand sustainable finance agendas, making implementation suboptimal in many banks.
Other data shows a similar pattern:
Bappenas (2023) notes that the number of ESG professionals in Indonesia remains limited, and Sulistiawan et al. (2025) found that many banks lack comprehensive recruitment strategies.
Therefore, collaboration between the banking sector and universities is considered important to prepare graduates with sustainability competencies before entering the workforce.
- Lack of Standardisation
The LPEM FEB UI economics team found that each bank can use different standards to assess green projects, leading to inconsistencies and potential regulatory arbitrage, where debtors choose banks with looser requirements.
In response, OJK launched the Indonesia Green Taxonomy 2025, aligned with the ASEAN Taxonomy, to classify economic activities based on four main environmental objectives.
However, the banking sector considers these criteria still complex. Differences in understanding among banks, limited inter-agency coordination, and data limitations also make it difficult to apply these standards consistently.
- Large Amounts and Long Repayment Periods
Green projects generally require large capital and have long investment payback periods, making many banks, especially small and medium-sized ones, reluctant to get involved.
For this, green projects need additional support, such as credit guarantee schemes or blended finance.
International experience also shows that appropriate policies can accelerate the energy transition. For example, the feed-in tariff in the UK has proven effective in speeding up the adoption of renewable energy.