As the final implementation deadline of January 2025 has elapsed, the sustainable finance principles are now applicable to all categories of LJK as specified above. Accordingly, LJK in implementing sustainable finance is obliged to effectively prepare a sustainable financial action plan to be submitted to OJK, as well as to communicate the sustainable financial action plan to the shareholders and all organizational levels within the LJK. Moreover, the sustainable finance action plan shall be prepared based on the priority of the respective LJKs encompassing:

 

1. the development of its sustainable financial products and/or services including the increase of financing portfolio, investment or subscription at any financial instrument or project which is in line with the implementation of sustainable finance;

2. the development of the relevant LJKs’ internal capacity; or

3. adjustments to the organization, risk management, governance, and/or standard operating procedure of the LJKs in accordance with the principles of sustainable finance implementation.

 

To support activities in implementing sustainable finance, OJK Reg. 51/2017 further stipulates that LJKs obligated to carry out CSR shall allocate part of its CSR fund. These funds can be utilized as follows: (i) distribution of fund to viable micro business that lack access to funding from any LJK, with guidance toward development of sustainable business; (ii) provide training for prospective customers on sustainable business; (iii) conduct campaigns on sustainable production and consumption); and (iv) provide subsidies on insurance premiums for farmers, fishermen, as well as low-income society which is vulnerable to disasters. Meanwhile, issuers and public companies which are not an LJK but obligated to carry out CSR may allocate part of its CSR fund to support activities in implementing sustainable finance.

 

LJK, issuers, and public companies that implement sustainable finance effectively can be given incentives by the OJK.[7] Such incentives can be in the form of: (i) including LJK, issuers, and public companies in human resource competency development programs, (ii) awarding of the sustainable finance award, and/or (iii) other incentives.

 

Furthermore, LJKs, issuers, and public companies are required to prepare and submit a sustainability report to OJK annually, no later than the deadline for submitting annual reports applicable to each entity. Additionally, they must publish the report on their respective websites by no later than April 30 of the following year. The sustainability report itself must at least include the following information:

 

• sustainable strategies;

• summary of sustainability efforts (economic, social and environmental);

• brief company profile;

• BoD’s remarks;

• sustainable governance;

• sustainable performance;

• written verification of the report and its information from independent parties, if any;

• readers’ feedback, if any; and

• company response to feedback in previous year’s report.

 

ESG Provisions for Private Companies

 

• Business Entities’ Social and Environmental Responsibility
   

Companies engaged in activities related to or within the natural resources sector is obliged to fulfill social and environmental responsibility – a commitment to participate in sustainable economic development to improve the quality of life and the environment for the benefit of the company, the local community, and society at large. Social and environmental responsibility by the business entity is intended as a form of the company's participation in sustainable social development and aimed to: (i) address social issues and meeting the needs of social welfare services; and (ii) enhance the image and profitability, as well as ensuring the sustainability of the business entity. The implementation scope of social and environmental responsibility by business entity, at the very least, is in the following areas:

 

1. social welfare;

2. education;

3. health;

4. arts and culture;

5. religious affairs;

6. entrepreneurship;

7. infrastructure; and

8. environment.

 

The social and environmental responsibility targets are individuals, groups, or communities experiencing inhumane living conditions, such as poverty, disabilities, and victim of disaster. The BoD implements these responsibilities based on the company’s annual work plan following approval from the BoC or the GMS in accordance with the company's AoA, unless otherwise specified in the prevailing regulations. The business entities can carry out the social and environmental responsibility in several ways, such as: (i) directly by the business entity; (ii) through third parties; (iii) partnering with the community; and/or (iv) collaborating with other businesses in the form of a consortium, These responsibilities can be carried out both within and outside the business entity's environments as detailed below:

 

• Social and Environmental Responsibility within the Business Entity

 

This responsibility is related to the commitment and efforts of a business entity to meet the needs of its employees and their families as the specified targets. The scope within the business entity in this regard includes: (i) providing basic social services to employees and their families; and (ii) implementing social protection and guarantees for employees and their families.

 

• Social and Environmental Responsibility Outside the Business Entity

 

This responsibility is related to a business entity's commitment to enhance the social welfare of the community in the surrounding area of the business entity and on a national level. Responsibilities carried out outside the scope of the business entity include:

 

1. prioritizing employment opportunities for the local community around the business entity according to the needs and requirements of the business entity;

2. providing empowerment, guarantees, protection, or social rehabilitation to those in need of social welfare services around the business entity;

3. assisting in the environmental facilities and infrastructure of the community around the business entity; and

4. developing the potential of human resources surrounding the business entity.

 

• Role of Business Actors in Environmental Protection and Management
   

The aim of business actors’ role in environmental and forestry protection and management is to enhance business actors' awareness in empowering communities, protecting and managing natural resources. The implementation of environmental and forestry protection and management by business actors can be in the form of: 

 

1. providing assistance and facilitation to communities;

2. enhancing the capacity and strengthening the institutions of communities; and

3. engaging in guiding and leadership activities for the younger generation.

 

• Business Entities’ Social and Environmental Responsibility Forum

 

To encourage, coordinate, facilitate, and synergize the implementation of Social and environmental responsibility by business entities, a Social and Environmental Responsibility Forum is established by the virtue of MoS Reg. 9/2020. The Social and Environmental Responsibility Forum is responsible to:

 

1. build understanding and partnerships with businesses and communities to enhance social welfare.

2. provide data and information to businesses and stakeholders within the forum regarding the types and issues of social concerns related to their field and the programs addressing them.

3. encourage and invite businesses to actively contribute to the success of improving community welfare.

4. provide assistance, advocacy, recommendations, and facilitation to businesses in implementing social and environmental responsibility.

 

Related businesses are obliged to become members of the forum, which has 3 (three) levels: (i) a national-level forum based in the capital city and carried out by the national management; (ii) a provincial-level forum based in the provincial capital and carried out by the provincial regional management; and (iii) a district/city-level forum based in the district/city capital and carried out by the district/city regional management.

 

Decarbonization

 

Carbon Economic Value/Nilai Ekonomi Karbon (“NEK”) is a value attributed to each unit of greenhouse gas or Gas Rumah Kaca (“GRK”) emissions produced from human and economic activities. The implementation of NEK instruments and national GRK emission control shall be carried out through: (i) carbon allocation; (ii) preparation and determination of Nationally Determined Contribution/Kontribusi yang Ditetapkan secara Nasional (“NDC”); (iii) implementation procedures for NEK instruments; (iv) transparency framework; (v) monitoring and evaluation; (vi) guidance and funding; and (vii) formation of a steering committee.

 

Carbon allocation shall be implemented in synergy with the national low carbon and sustainable development policy and developing a national green economy and shall be prepared based on: (i) periodic data from sectoral GRK emission inventories within a certain period; (ii) RPJPN;  (iii) RPJMN; and (iv) economic aspects and climate change control.  Carbon reserves shall also be taken into account in the formulation of carbon allocation.

 

Furthermore, NDC shall be carried out through the implementation of climate change mitigation and climate change adaptation. The implementation of the NDC shall be carried out through the following strategies:

 

1. development of ownership and commitment;

2. capacity development;

3. creation of enabling conditions;

4. preparation of a framework and communication network;

5. one data policy on GRK emissions and climate resilience;

6. formulation of policies, plans, and programs;

7. formulation of NDC implementation guidelines;

8. implementation of NDC; and

9. monitoring and review of NDC.

 

With respect to carbon trading, Article 58 paragraph (1) PR 110/2025 stipulates that carbon trading shall be implemented without waiting for the achievement of the NDC target. In this case, carbon trading shall be carried out through: (i) carbon exchanges; and/or (ii) direct trading, both domestically and internationally. In light of the foregoing provisions, the following sections elaborate key concepts and mechanisms governing carbon trading:

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• Types of Carbon Trading
   

Detailed explanations on types of domestic carbon trading under PR 110/2025 as follows:

 

• GRK Emission Trading
   

GRK emission trading a shall be organized by the relevant ministers based on the respective sectors and sub-sectors through: (i) preparation and determination of regulated installations; (ii) preparation and determination of GRK emission upper limits based on carbon allocation; (iii) determination of GRK emission quotas; (iv) determination of the portion of GRK emission upper limits that can be compensated with GRK emission offsets; and (v) GRK emission quota trading.

 

Furthermore, the person responsible for a regulated installation must ensure that GRK emissions from its business and/or activities do not exceed the GRK emission upper limit in one period. To ensure that the GRK emission upper limit is not exceeded, the person responsible for the regulated installation must carry out:

 

1. climate change mitigation actions;

2. purchase of GRK emission quotas from other regulated installations; and/or

3. purchase of GRK emission offsets.

 

• GRK Emission Offset
   

Article 65 paragraph (1) PR 110/2025 regulates that the person responsible for a business and/or activity that is not included in the regulated installation may sell carbon units from the implementation of climate change mitigation actions through GRK emission offset trading. To obtain GRK emission offset carbon units, the responsible party shall:

 

1. submit Climate Change Mitigation Action Plan Document/Dokumen Rancangan Aksi Mitigasi Perubahan Iklim (“DRAM”) or Project Planning Document/Dokumen Perencanaan Proyek (“DPP”) to the relevant minister for recording;

2. validate DRAM or DPP through an independent validation institution;

3. implement climate change mitigation actions in accordance with DRAM or DPP;

4. verify the achievement of climate change mitigation actions through an independent verification institution; and

5. report the results of verification of the achievement of climate change mitigation actions to the relevant minister.

 

Furthermore, international carbon trading comprises 2 (two) type of trading activities. The first type covers trading activities that require authorization and corresponding adjustment, namely: (i) GRK emission trading linked to international mechanisms; (ii) offset GRK emission trading that complies with Articles 6.2 and 6.4 of the Paris Agreement; and (iii) voluntary offset GRK emission trading conducted to fulfill other international obligations. The second type includes trading activities that do not require authorization and corresponding adjustment, such as offset GRK emission trading carried out to fulfil NDC and/or other international obligations, whether under Article 6.4 of the Paris Agreement or other international standards, as well as voluntary offset GRK emission trading.

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The authorization referred to above shall be issued by the MoE upon recommendation from the relevant minister. In addition, offset GRK emission units traded under international carbon trading must be issued in accordance with national standards, the United Nations Framework Convention on Climate Change, or other international standards.

 

• Implementation of Carbon Trading through Carbon Exchange

 

• Prerequisites for Carbon Exchange Operators
   

Carbon Exchange is a system that regulates carbon trading and/or records ownership over carbon units. Party that can carry out business activity as a Carbon Exchange is a market operator that already obtained a business license as a carbon exchange operator from OJK. This operator must provide and utilize an electronic system that continuously facilitates carbon unit transactions, including: (i) matching buy and sell offers for carbon units; and (ii) settling carbon unit transactions, covering both fund transfers and carbon units, for participants within the same sector or across different sectors:

 

• Carbon Exchange Operators Obligations
   

In conducting the business activity, the obligations of Carbon Exchange operator must conduct the followings:

 

1. provide systems and/or facilities in support of trading and trading supervision of carbon units;

2. provide services in a fair, effective, and efficient manner to both prospective service users of the Carbon Exchange operator and service users of the Carbon Exchange operator without any discrimination;

3. have adequate internal control and risk management;

4. possess, implement, and develop standard operating procedures required to support business activities, at least regarding service users, trading, trading supervision, systems, regulations, information confidentiality, and business continuity;

5. administer, store, and maintain records of all service user activities and carbon unit trading data for a minimum period of 5 (five) years;

6. formulate regulations on service users, carbon units traded, trading, and trading supervision;

7. supervise the trading activities of carbon units conducted by service users;

8. take certain actions for any indication or violation of the laws and regulations related to carbon unit trading; and

9. provide access and support to OJK for the purpose of supervision of the Carbon Exchange operator and its service users, including real-time access to transaction data.

 

In regard to Carbon Exchange, Indonesia has taken significant steps in enhancing sustainability effort within the financial sector through the launch of IDX carbon on 26 September 2023 as Indonesia’s carbon exchange platform.

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• Carbon Units as Securities

 

Carbon trading is a market-based mechanism aimed at diminishing GRK emissions by facilitating the exchange of carbon units, as carbon units are classified as securities under the Law 4/2023. These securities, presented in negotiable instruments or investment contract formats, are applicable in both traditional and digital modalities, or any other structures that align with technological advancements. They confer on the proprietor the entitlement to derive economic advantages, either directly or indirectly, from the issuer or designated parties, on mutually agreed terms. This encompasses every derivative stemming from securities, thereby enabling their transfer and/or trade within the capital market.

 

The detailed explanations regarding categories of carbon units traded on the carbon exchange can be seen in Section 18.3.a above.

 

Climate and Energy Targets

 

With regards to energy, Indonesia’s Electricity Supply Plan for 2025-2034 states that the targets to be achieved in the future are the fulfillment of electricity capacity and energy needs, the utilization of new and renewable energy and the improvement of the efficiency and performance of the electricity system from the planning stage, which includes:

 

1. achieving GRK emission reduction targets in line with government targets; and

2. achieving the utilization of new and renewable energy in accordance with government programs, especially geothermal, hydroelectric, and other renewable energy such as solar, wind, biomass, waste, and so on.

 

In accordance with PR 112/2022, the development of new coal power plants is prohibited except for:

 

• coal power plants which has been determined in the Indonesia’s Electricity Supply Plan prior to the enforcement of PR 112/2022; or

• coal power plants which fulfills the following requirements:

1. integrated with built-in industries which are oriented towards increasing the added value of natural resources or are included in National Strategic Projects which have a major contribution to the creation of employment opportunities and/or national economic growth;

2. committed to reducing GRK by at least 35% (thirty five percent) within a period of 10 (ten) years from the operation of the coal power plants compared to the average coal power plants emissions in Indonesia in 2021 through the development of technology, carbon offset, and/or renewable energy mix; and

3. operate until 2050 at the latest.

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In an effort to increase the proportion of renewable energy in the electrical energy mix, PT PLN (Persero) shall accelerate the termination of: (i) self-owned coal power plants operation; and/or (ii) coal power plants PPA, which is developed by independent power producer, by considering the conditions of electricity supply and demand.

 

In implementing the development of electrical power plants with renewable sources of energy, business entities will be granted incentives in the form of fiscal and non-fiscal. The non-fiscal incentives will be granted by central government and/or regional government in accordance with the provisions of the laws and regulations. Meanwhile, the fiscal incentives may be in the form of: 

 

1. income tax facilities in accordance with the provisions of laws and regulations in the taxation sector;

2. import facility in the form of exemption of import duty and/or tax in the context of import in accordance with the provisions of laws and regulations in the sector of taxation and customs;

3. land and property tax facilities in accordance with the provisions of the laws and regulations in the taxation sector;

4. geothermal development support; and/or

support of financing and/or guarantee facilities through state-owned enterprises assigned by the government.

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