For green bonds, 1,696 instruments from 634 issuers came onto markets last year. The total value of green bond issuance was US$290 billion, and they were issued in 55 countries. Despite the fact that developed countries still dominate the market, we have see significant issuance growth from developing countries, including Indonesia. A recent issuance of $300 million in green bonds by Bank Mandiri was one of those cases, as the issuance was oversubscribed by more than 8.3 times in April of this year.

The total issuance of ESG-themed bonds in 2020 reached $698 billion, or almost double the 2019 figure. Of the three designations, social bonds experienced a significant jump, with a growth in value of more than 1,000 percent from 543 issuers. Again, we see that the rapid growth of social bonds is linked with post-pandemic recovery projects and spending driven by governments. Last year, government-backed entities and sovereign countries issued $117.8 billion and $41.7 billion in social bonds, respectively.

So, what is sustainable finance? We follow the high-level definition from the International Capital Market Association (ICMA), which incorporates climate, green, and social finance while also adding wider considerations concerning the longer-term economic sustainability of the organizations that are being funded. The definition also considers the role and stability of the overall financial system in which they operate. Sustainable finance can also be described as the general concept of ESG investing – green finance, social finance and climate finance. The interaction among all definitions is closely related to impact financing or investing.

Domestically, more private entities in real sectors and financial markets are following these ESG trends by issuing such instruments and launching ESG-related projects. The Financial Services Authority (OJK) has issued a road map and a framework to pursue the sustainable finance agenda. However, the lack of understanding about, and the broad definitions of, ESG could risk its implementation missing the target or going in the wrong direction. Thus, close collaboration between regulators and private players in defining ESG boundaries will be critical for the success of ESG investment in Indonesia.

Stakeholders in Indonesia may also take a look at what has been done in other countries to see what can be adopted domestically.

China can always be the example in this case. China’s government has been making efforts to expand green loans, bonds and insurance products to achieve carbon neutrality by 2060. It has also employed green credit policies with green incentives as their main feature since 2016. These consist of several specialized instruments, such as solar power loans, energy efficiency loans and green bonds. The incentives could be a 1 percent subsidy on total loans or a maximum 20 percent loss compensation for funded projects. The city of Guangzhou is one of the leading local governments in implementing this policy in China.  

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