State Budget Only Covers 3%, Who Will Finance Indonesia's Green Transition?

Indonesia’s target of reaching net zero emissions by 2060 or sooner requires investment far exceeding the state’s fiscal capacity. The government has acknowledged that the state budget (APBN) cannot be the sole source of energy transition financing, making private sector involvement increasingly critical. Director General of Financial Sector Stability and Development at the Ministry of Finance, Herman Suryatman, stated that climate-related spending currently reaches only about 3% of the APBN, averaging more than IDR 70 trillion per year. According to Herman, this figure reflects the government’s commitment to the green transition agenda. However, the sheer scale of investment needed shows that fiscal space is insufficient to cover all financing requirements. Consequently, the government no longer positions the APBN as the primary funding source, but rather as a catalyst to reduce investment risk, boost investor confidence, and encourage private sector participation in green projects. “Public spending must be viewed as a catalyst that drives broader private sector participation,” Herman said in his remarks at the Maybank Indonesia Sustainable Finance Forum 2026 on Tuesday. The government estimates Indonesia’s investment needs in 2026 will exceed the state budget’s capacity, while the commitment to a low-carbon economy continues alongside higher economic growth targets. In this context, the government is developing various financing instruments, ranging from green sukuk, SDG bonds, and blue bonds to blended finance and carbon market development. However, financing instruments alone are deemed insufficient. The Financial Services Authority (OJK) believes the biggest challenge is no longer drafting commitments, but turning policy into real market action. OJK Board of Commissioners Chairperson Friderica Widyasari Dewi stated that climate change has become an economic reality affecting financial system stability, investment decisions, and long-term growth prospects. Her experience attending London Climate Action Week reinforced this view, where an extreme heatwave caused a building’s cooling system to fail and a ceiling to collapse, forcing participants to relocate. The incident served as a reminder that climate change is no longer a future threat. “Sustainability is no longer just an environmental agenda. It has become a strategic necessity to build resilient competitiveness and create long-term value,” Kiki said at the same forum. According to the OJK, building a financing ecosystem is key to attracting private capital into transition projects. The regulator is therefore strengthening four main pillars: refining the Indonesian Sustainable Finance Taxonomy (TKBI), strengthening climate risk management, enhancing sustainability disclosure standards, and developing Indonesia’s carbon market. For the OJK, a successful transition cannot be achieved by regulators alone. Collaboration between the government, financial institutions, investors, and businesses is a prerequisite for policy signals to truly transform into real investment. On the state investor side, Danantara Indonesia also acknowledges that Indonesia’s investment needs are too large to rely solely on government capital. Danantara Indonesia Managing Director of Finance Arif Budiman said Indonesia is the world’s fourth most populous country and the largest economy in Southeast Asia, a fact too significant for global investors to ignore. However, to pursue an 8% economic growth target, Indonesia requires a massive influx of investment. “Even though Danantara is large by Indonesian standards, it will not be enough to drive economic growth up to 8%. Therefore, we must be able to attract capital from other investors,” Arif said during a panel discussion. Danantara’s function is therefore not only to invest capital but also to invite private investment through various priority projects. One example is the development of waste-to-energy projects, which started in three cities and is now being expanded to 20 cities. In this project, the government prepares regulations, PLN provides power purchase certainty (offtake), and Danantara participates as an investor. However, Arif admitted that Indonesia still needs global partners who bring technology, experience, and capital for these projects to proceed. To date, around 85 companies have been engaged in discussions to support the project’s development. According to him, the energy transition is also no longer driven solely by environmental issues. Geopolitical tensions, the Russia-Ukraine war, and conflicts in the Middle East show that energy security is now a strategic interest for every country. The development of renewable energy is therefore no longer seen as a choice between the economy and the environment, but as part of maintaining sustainable economic growth. Arif also reminded companies not to view green financing merely as an obligation. Citing a World Economic Forum study, Arif revealed that companies implementing sustainability practices could potentially obtain funding costs 40 to 100 basis points cheaper, while public companies also have the opportunity to achieve valuations about 10% to 15% higher. “The important thing is to do the right thing, understand where the world is moving, and then diversify funding sources,” he said. A shift in the approach to ESG is also becoming visible among corporations. President Director of Maybank Indonesia Stefano Ridwan said companies are no longer implementing ESG just to meet compliance obligations, but as a business strategy to maintain competitiveness. According to Stefano, two main factors are driving this change.