The opinions expressed here by Trellis expert contributors are their own, not those of Trellis.​

The Global South — home to most of the world’s population — is where most of the planet’s economic growth and greenhouse gas emission growth is taking place. In the runup to COP30 in Brazil later this year, we explore how a sample of these economies are shaping climate financing.

In recent years, Indonesia — the world’s largest archipelago made up of more than 17,000 islands — has made deliberate strides in climate action by reducing greenhouse gas emissions and improving livelihoods.

It’s the world’s largest producer of palm oil, which generates about $23 billion of export revenue annually. Yet, due to palm oil’s negative climate and biodiversity impact, the government announced a moratorium on permits for new palm oil plantations in 2018.

Three years after halting palm oil plantation permits, the government also announced that it wouldn’t approve the construction of any new coal-fired power plants. The country’s official goal is to generate 100 gigawatts of clean power generation capacity by 2040, which requires about $235 billion in investment for mostly solar, wind and geothermal energy.

Indonesia is also leading on low-carbon transportation. It’s home to Southeast Asia’s only high-speed railway, the Jakarta-Bandung High Speed Rail, completed in 2023.

Climate financing opportunities

The Indonesian Composite Price Index (IDX Composite) encompasses nearly 1,000 listed companies and features a collective market cap of over $880 billion. As listed by Carbon Collective, climate solutions companies in Indonesia include Pertamina Geothermal Energy, a pure-play developer of geothermal energy; PT Sky Energy Indonesia, a manufacturer of solar panels and solar equipment; and PT VKTR Teknologi Mobilitas, a manufacturer of electric buses, electric motorcycles and charging stations. Indonesian sustainable stock indices also support the market for climate-safe investing. For example, the Sri-Kehati Index tracks companies with strong ESG practices.

Overall, just over half of private climate finance in Indonesia is invested in renewable energy, especially in hydropower and geothermal energy; about 13 percent is dedicated to clean transportation and 14 percent to the land use sector. To incentivize climate-friendly investment, the government has put forth concrete measures for businesses. For example, companies can be granted a partial or full corporate income tax holiday depending on the amount of investment in geothermal, solar, wind and hydroenergy projects.

Indonesia has also led the way on several corporate sustainability regulations that offer the transparency and accountability needed to attract investors. Indonesian financial institutions and publicly listed companies must measure and disclose and disclose their ESG performance.

Nevertheless, one loophole in Indonesia’s green taxonomy regulation has deferred progress: companies are allowed to build and operate captive coal plants if they cut emissions after launch and shut them down by 2050. Many companies in Indonesia’s critical minerals industry that includes nickel and copper, which are important to the renewable energy transition, have thus built new coal plants with the backing of investors. In this way, Indonesia’s green taxonomy suffers from the same detrimental fate as the European Union’s green taxonomy by including fossil fuels.

Cultural and religious elements at play

One of the most innovative aspects of Indonesia’s sustainable investing scene is anchored in it being home to the largest Muslim population in the world. Indonesians have pioneered investment at the intersection of Islamic finance and climate finance.

The Green Sukuk initiative, for example, issues a certificate of ownership in a climate and clean energy-focused government project. Green Sukuk is innovative because Islamic financing prohibits the use of interest. Instead of purchasing financial instruments such as bonds or interest-bearing loans, retail and institutional investors can purchase Green Sukuk, which provide similar returns as debt instruments while being Islamic finance compliant. In other words, a potential barrier to green finance has been lifted by this model. Billions have been raised ($3.25 billion in 2024 alone) via Green Sukuk. The profit rates range from 5.10 percent to 5.50 percent depending on the duration.

In addition, Indonesia has a global diaspora (Indonesian) of more than 2 million Indonesian citizens living overseas and up to 9 million otherwise Indonesia-connected individuals. In 2024, the government announced a dual citizenship plan to entice Indonesians abroad to return, build and invest. An analysis by the Climate Policy Initiative shows that annually, Indonesia benefits from about $1.6 billion in foreign debt and $700 million in foreign equity for climate mitigation.

There’s a significant opportunity to increase foreign direct investments into Indonesia by leveraging both the diaspora and others who are made aware of its enormous potential. The GREEN Program is one example of an organization focused on this potential by organizing climate finance specific study tours to Indonesia.

Looking ahead

Like Jamaica, most of Indonesia’s energy supply still emanates from fossil fuels. PLN, the state-owned electric utility in Indonesia, has been slow to adopt solar and wind assets, especially those of independent power producers. “What would help accelerate renewable energy adoption in Indonesia is a concrete policy tool such as a renewable energy auction process,” notes Derek Campbell of FS Impact Finance, an investor in renewable energy.

Indonesia has many islands to service and these islands don’t yet share an electrical grid, making transmission between sources and optimization not yet possible. Enabling connectivity would cost approximately $20 billion and presents an attractive market for climate financing. Policy reforms, such as allowing for power wheeling, would support the investment in transmission and distribution across Indonesia’s islands.

In many ways, Indonesia has mimicked China in its ability to drastically decrease poverty levels in a short amount of time (from 40 perc%ent in 1970 to 9 perc%ent in 2024). The Archipelago’s potential to make similar significant strides for climate action is present. Retail and institutional investors would be wise to add Indonesia’s climate opportunities to their portfolio.