Green Bond Market Survey for Indonesia

Insights on the Perspectives of Institutional Investors and Underwriters

This publication provides an overview of institutional investors’ interest in green bonds issued in Indonesia,
along with an assessment of the perspectives of local arrangers and underwriters on their clients’ interest
in green bond issuances. It presents the results of a survey to help identify drivers, impediments, and
development priorities for Indonesia’s sustainable finance market. The findings and insights presented in
this publication are intended to inform how the Asian Development Bank and other partners could further
support the market’s development.

About the Asian Development Bank

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific,
while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members
—49 from the region. Its main instruments for helping its developing member countries are policy dialogue,
loans, equity investments, guarantees, grants, and technical assistance.

GREEN BOND MARKET SURVEY

FOR INDONESIA
INSIGHTS ON THE PERSPECTIVES OF
INSTITUTIONAL INVESTORS AND UNDERWRITERS
NOVEMBER 2022

ASIAN DEVELOPMENT BANK

6 ADB Avenue, Mandaluyong City
1550 Metro Manila, Philippines ASIAN DEVELOPMENT BANK
www.adb.org
 GREEN BOND MARKET SURVEY
FOR INDONESIA
INSIGHTS ON THE PERSPECTIVES OF
INSTITUTIONAL INVESTORS AND UNDERWRITERS
NOVEMBER 2022

ASIAN DEVELOPMENT BANK

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 CONTENTS

Table, Figures, and Boxes iv

Acknowledgmentsvi
Abbreviationsvii
Summary and Key Findings viii

INTRODUCTION1
Background and Objective 1
Methodologies1

OVERVIEW OF THE INDONESIAN SUSTAINABLE BOND MARKET 2

RECENT INITIATIVES IN SUSTAINABLE FINANCE 5

SURVEY RESULTS  8
Institutional Investors 8
Advisors, Underwriters, and Issuers 17

WHAT ADB CAN DO TO HELP  27

As a Knowledge Partner 27
As an Investor, Issuer, and Guarantor 27

FINAL WORD FROM SURVEY RESPONDENTS  29

NEXT STEPS 31
 TABLE, FIGURES, AND BOXES

TABLE
Most Promising Sectors for Green Bonds in Indonesia ix

FIGURES
1 Sustainable Bonds Outstanding by Issuer Type 2
2 Sustainable Bonds Outstanding as a Share of the Sustainable Finance Market 3
3 Issuance Currency of Sustainable Bonds Outstanding 4
4 Annual Issuance of Sustainable Bonds by Bond Type 4
5 Interest in Investing in Green Bonds 8
6 Share of Green Investments in Portfolio  9
7 Optimal Investment Size 9
8 Share of Investor Portfolios with an Investment in the Following Sectors 9
9 Key Motivations for Investing in Green Bonds 11
10 Main Obstacles to Investing in Green Bonds 11
11 Key Considerations for Investing in Green Bonds 12
12 Policy Mechanisms That Would Increase Green Bond Investments 13
13 Level of Local Investor Interest by Issuer Type 14
14 Sectors with the Most Potential for Green Bond Investments 14
15 Policy Options for Green Bond Market Development 15
16 Capacity Building—Who Should Be Trained? 15
17 Interest in Regional Investment 16
18 Preferred Underlying Currencies Among Investors 16
19 Interest in Other Types of Thematic Bonds 16
20 Interest in Issuing Green Bonds from Advisors’ and Underwriters’ Perspective 17
21 Interest in Issuing Green Bonds from Issuers’ Perspective 17
22 Breakdown of Issuer Respondents by Industry Sector 18
23 Optimal Issuance Size 18
24 Most Promising Sectors for Green Bonds Issuance 19
25 Key Motivations for Issuing Green Bonds from Advisors’ and Underwriters’ Perspective 19
26 Key Motivations for Issuing Green Bonds from Issuers’ Perspective 20

iv
 TABLE, FIGURES, AND BOXES v

27 Main Obstacles to Issuing Green Bonds from Advisors’ and Underwriters’ Perspective 20
28 Main Obstacles to Issuing Green Bonds from Issuers’ Perspective 21
29 Key Drivers for Green Bond Issuance from Advisors’ and Underwriters’ Perspective 21
30 Key Drivers for Green Bonds Issuance from Issuers’ Perspective 22
31 Preferred Investors in Green Bonds from Advisors’ and Underwriters’ Perspective 22
32 Preferred Policy Options for Green Bond Market Development from Advisors’  23
and Underwriters’ Perspective
33 Preferred Policy Options for Green Bond Market Development from Issuers’ Perspective 24
34 Capacity Building—Who Should Be Trained? (Advisors’ and Underwriters’ Perspective) 24
35 Capacity Building—Who Should Be Trained? (Issuers’ Perspective) 25
36 Interest in Issuing Other Types of Thematic Bonds from Advisors’  25
and Underwriters’ Perspective
37 Interest in Issuing Other Types of Thematic Bonds from Issuers’ Perspective 26

BOXES
1 United Nations Development Programme Assistance in the Indonesian Green Sukuk  7
and Sustainable Development Goal Bond Market
2 Indonesian Environmental, Social, and Governance Indices 10
3 ADB’s and United Nations Development Programme’s Technical Assistance  28
to Potential Indonesian Issuers
 ACKNOWLEDGMENTS

T
he lead authors—Kosintr Puongsophol, Cedric Rimaud, Oth Marulou Gagni, and Alita Lestor,
all from the Economic Research and Regional Cooperation Department (ERCD) of the Asian
Development Bank—would like to particularly thank Satoru Yamadera, advisor, ERCD, and
Richard Supangan, senior economics officer, ERCD for their support and contributions. Editing by
Kevin Donahue. Design and layout by Prince Nicdao.

The lead authors would also like to thank the Global Green Growth Institute team—comprising
Srinath Komarina, Hien Tran, Thinh Tran, Minh Tran, and Ha Nguyen—for their inputs and
suggestions.

We would like to express our appreciation to the United Nations Development Programme team—led
by Muhammad Didi Hardiana, Ralista Haroen, Nila Murti, Achmad Nasution, and Garnadipa Gilang, all
from United Nations Development Programme Indonesia—for their support and contributions.

Finally, we would like to express our heartfelt gratitude to the Financial Services Authority, the
Indonesia Stock Exchange, and local industry associations, as well as to all respondents for their
assistance with and participation in the survey.

vi
 ABBREVIATIONS

ABMI ASEAN+3 Asian Bond Markets Initiative

ADB Asian Development Bank
ASEAN Association of Southeast Asian Nations
ASEAN+3 ASEAN plus the People’s Republic of China, Japan, and the Republic of Korea
ESG environmental, social, and governance
GSS green, social, and sustainability
OJK Otoritas Jasa Keuangan (Financial Services Authority)
SDG Sustainable Development Goal
USD United States dollar

vii
 SUMMARY AND KEY FINDINGS

SURVEY HIGHLIGHTS

ff The survey was conducted in March 2022 via an online platform and received a
total of 154 responses from 108 local institutional investors, mainly comprising
pension funds, insurance companies, and asset management companies; 6 local
underwriters and rating agencies; and 40 securities issuers.
ff While most local institutional investors expressed interest in investing in
green bonds, a substantial proportion of respondents indicated that they lack
the resources and capacity to develop and implement environmental, social,
and governance (ESG) investment policies. In the meantime, all underwriters
indicated that they are willing to explore the possibility of underwriting green
bonds for their clients. However, almost half of issuers responded that they are
not yet interested in issuing green bonds, but with a majority of respondents
indicating an interest in issuing green bonds in the next 3 years.
ff Renewable energy, energy efficiency, and clean transportation were regarded as
the most promising sectors for green bond market growth in Indonesia among
all respondents. Underwriters identified green buildings as another promising
sector in terms of potential issuance.
ff A majority of investors cited a lack of a green project pipeline as a major
impediment to the development of the green bond market in Indonesia.
Meanwhile, most underwriters mentioned a lack of awareness of green bonds
and not understanding their clear benefits as the two primary barriers. While
issuers agree that a lack of knowledge is a major impediment, they also stated
that the additional procedures required to issue a green bond, as well as the
additional issuance costs, are significant disadvantages.
ff A majority of investors believe that greater policy clarity from the government
and regulators is critical for the development of the green bond market,
followed by tax incentives for green bond issuers and investors. Underwriters
believe that preferential buying by institutional investors and an increased
pipeline of green projects are critical to increasing the green bond supply in
Indonesia. Tax incentives and policy clarity from the government are also
important, according to issuers.

viii
 SUMMARY AND KEY FINDINGS ix

T
he green bond market in Indonesia has the potential to expand further. The majority of
respondents are interested in green bonds but lack the necessary resources and capacities
to invest in or issue green bonds. While a significant number of green bonds have been
issued in offshore markets, Indonesia has enormous potential to develop a domestic green bond
market denominated in the local currency, given the strong interest among domestic capital
market stakeholders.*

Renewable energy, energy efficiency, clean transportation, and green buildings are considered
the sectors with the most potential. Investors and underwriters identified renewable energy, energy
efficiency, clean transportation, and green buildings as the main sectors that can drive green bond
market growth in Indonesia (Table). Meanwhile, a majority of local investors are already investing in
ESG indices that comprise companies with an outstanding ESG performance (Box 1).

Table: Most Promising Sectors for Green Bonds in Indonesia

(share of respondents indicating agreement, %)
Investors Underwriters
Energy
Renewable Clean Energy Renewable Efficiency and Clean
Energy Transportation Efficiency Energy Green Buildings Transportation
23 17 16 33 20 13

Source: Authors’ compilation based on survey results.

The benefits of green bond issuance must be more clearly articulated. There is still a relatively
high share of potential issuers that remain unconvinced of the benefits of green bonds. In particular,
there appears to be a lack of awareness of green and other thematic bonds, a lack of knowledge of the
regulatory advances made by the Financial Services Authority (OJK) to spur the market, as well as a
belief that green bonds do not carry substantial benefits. The market appears to be waiting for more
concrete incentives such as subsidies or tax benefits. In terms of timing, a large portion of the market
appears to think that the issuance of green bonds is a medium-term objective, not an immediate one.
The majority of investors cited the absence of a pipeline of green projects as a significant barrier to
the development of the green bond market in Indonesia. To meet the increasing demand of investors,
it is necessary to increase the supply of domestic green bonds, and this is an area where development
partners could play a role.

There is an urgent need for more capacity building among advisors, underwriters, and potential
issuers. A large portion of market practitioners indicate that they lack awareness and knowledge of
the green bond market. They also recognize that the issuance of thematic bonds is more complex than
conventional bonds and that they do not yield substantial added benefits.

* Climate Bonds Initiative. 2021. ASEAN Sustainable Finance Market 2021. London.
x SUMMARY AND KEY FINDINGS

Greater policy clarity from the government and regulators is needed. A majority of investors believe
that greater policy clarity from governments and regulators is necessary for the growth of the green
bond market, like for example some guidelines for issuers and investors on the definition of thematic
bond issuance, as well as some indication of what support governments and regulators can provide to
the market. This could be why there is not yet a sufficient supply of green bonds in the local market.
Meanwhile, underwriters believe that preferential purchasing by institutional investors could be a
significant factor in getting potential issuers to consider a green bond issuance. If there is no obvious
demand for green bonds, issuers may be hesitant to sell them. From the perspective of issuers,
government tax incentives and policy clarity are also essential.
 INTRODUCTION

Background and Objective This survey report, conducted in collaboration

with the Global Green Growth Institute, aims
The Asian Development Bank (ADB) is to assess institutional investors’ interest in
collaborating closely with the Association of green bonds issued in Indonesia, as well as the
Southeast Asian Nations (ASEAN), the People’s perspectives of local arrangers and underwriters
Republic of China, Japan, and the Republic of on their clients’ interest in green bond
Korea—collectively known as ASEAN+3—to issuance. The survey assessed market drivers,
promote the development of local currency impediments, and development priorities for
bond markets and regional bond market Indonesia’s sustainable finance market to assist
integration through the Asian Bond Markets development partners in identifying potential
Initiative (ABMI). The ABMI was established areas of support to accelerate the development
in 2002 to bolster the resilience of ASEAN+3 of Indonesia’s sustainable finance market.
financial systems by developing local currency
bond markets as an alternative source to foreign-
currency-denominated, short-term bank loans Methodologies
for long-term investment financing.
In March 2022, ADB and the Global Green
ADB, as Secretariat for the ABMI, is implementing Growth Institute conducted the survey via
a regional technical assistance program to an online platform and received a total of
promote sustainable local currency bond 154 responses from 108 local institutional
market development with support from the investors, mainly comprising pension funds,
People’s Republic of China Poverty Reduction insurance companies, and asset management
and Regional Cooperation Fund. This technical companies; 6 local underwriters and rating
assistance was developed and is being agencies; and 40 securities issuers.
implemented with guidance from ASEAN+3
finance ministers and central bank governors,
and in accordance with the ABMI Medium-Term
Road Map for 2019–2022.

1
 OVERVIEW OF THE INDONESIAN
SUSTAINABLE BOND MARKET

I
ndonesia’s sustainable bond market has The total outstanding amount of GSS bonds
been supported by the strong commitment in Indonesia was approximately USD7.0 billion
of the government and the issuance of at the end of March 2022, with public sector
eight sovereign green sukuk (Islamic bonds) since issuances leading the way (Figure 1).
2018, both in the offshore and onshore markets;
well-developed green, social, and sustainability Green bonds are the most common type
(GSS) and Sustainable Development Goal of sustainable bond in the Indonesian
(SDG) bond frameworks; and the active role market, followed by sustainability bonds
played by the Financial Services Authority and sustainability-linked bonds (Figure 2).
(OJK). Outside of the sovereign issuances, other The majority of green bonds in the Indonesian
sustainability bond issuances include those by market have been issued by the central
both financial and nonfinancial corporates. This government and other state-owned enterprises.
has made Indonesia the second-largest green Private sector entities, including financial
finance market in the ASEAN region. institutions, have also issued green bonds for
renewable energy projects and nature-based
solutions.

Figure 1: Sustainable Bonds Outstanding by Issuer Type

8,000

7,000

6,000
3,007 3,007
5,000
USD million

4,000 2,217
3,000
1,155
2,000 4,069 4,053
653 2,750
1,000 2,000
49 1,250
0
2017 2018 2019 2020 2021 Mar-2022
Government Bond Corporate Bond

USD = United States dollar.

Note: All data as of 26 July 2022. Data were obtained using Bloomberg LP’s SRCH function. The SRCH criteria included
green bonds, social bonds, sustainability bonds, sustainability-linked bonds, and transition bonds.
Sources: AsianBondsOnline and Bloomberg LP.

2
 OVERVIEW OF THE INDONESIAN SUSTAINABLE BOND MARKET 3

Figure 2: Sustainable Bonds Outstanding as a Share of the Sustainable Finance Market

8,000

7,000 350 350

6,000 1,519 1,503

5,000
USD million

500
4,000

3,000 500
5,207 5,207
4,467
2,000
2,655
1,000 1,903
49
0
2017 2018 2019 2020 2021 Mar-2022
Green Bonds Social Bonds Sustainability Bonds Sustainability-Linked Bonds

USD = United States dollar.

Note: All data as of 26 July 2022. Data were obtained using Bloomberg LP’s SRCH function. The SRCH criteria included
green bonds, social bonds, sustainability bonds, sustainability-linked bonds, and transition bonds.
Sources: AsianBondsOnline and Bloomberg LP.

The sustainability bond market in Indonesia The first sustainability-linked bond was issued
emerged following the issuance of a by PT Japfa Comfeed Indonesia Tbk. in March
USD500 million sustainability bond by Bank 2021. The bond, which was listed on the
Rakyat Indonesia in March 2019. The bond, Singapore Stock Exchange, was also the first
with a coupon of 3.95%, was very successful, environmentally friendly USD-denominated
attracting a demand that was 8.2 times the size bond in the agri-food industry in Southeast Asia.1
of the offer. The proceeds were targeted at social
projects (e.g., affordable basic infrastructure, In terms of currency, almost all sustainable
access to essential services, affordable housing, bonds from Indonesian issuers were issued
employment generation, and socioeconomic in offshore markets in US dollars (Figure 3).
advancement and empowerment), as well Only around 0.25% of outstanding sustainable
as environmental projects (e.g., renewable bonds have been issued in Indonesian rupiah.
energy, green buildings, pollution prevention This demonstrates the importance of the
and control, environmentally sustainable foreign currency bond market in attracting
management of living natural resources and offshore capital for the financing of projects
land use, clean transportation, sustainable by domestic corporations and in meeting the
water, and wastewater management). This was government’s need to raise funds, particularly
followed in 2021 by issuances from Bank Mandiri as the country seeks to achieve the SDGs in the
(USD300 million), PT Indonesia Infrastructure aftermath of the coronavirus disease pandemic.
Finance (USD150 million), and the Government
of Indonesia (EUR500 million).

1
IDN Financials. 2021. Japfa Issues a Sustainability-Linked Bond Worth USD350 Million. 19 March.
4 GREEN BOND MARKET SURVEY FOR INDONESIA

Figure 3: Issuance Currency of In 2021, the volume of sustainability bonds

Sustainable Bonds Outstanding issued (USD1.03 billion) surpassed the volume
of green bonds issued (USD750 million) for
0.25% the first time (Figure 4). It is notable that no
Indonesian entity has issued a social bond.
This may be due to the fact that issuers prefer
sustainability bonds in which bond proceeds
can be allocated to both green and social
projects, allowing issuers more flexibility.
99.75%
In addition, corporate issuers may believe that
FCY Bonds LCY Bonds social projects are not bankable, thus the social
bond market’s development should initially be
FCY = foreign currency, LCY = local currency.
Notes: All data as of 26 July 2022. Data were driven by the government.
obtained using Bloomberg LP’s SRCH function.
The SRCH criteria included green bonds, social bonds,
sustainability bonds, sustainability-linked bonds, and
transition bonds.
Sources: AsianBondsOnline and Bloomberg LP.

Figure 4: Annual Issuance of Sustainable Bonds by Bond Type

2,500

350
2,000
USD million

1,500 1,029

1,855 500 1,860

1,000
750 750
50
0
2017 2018 2019 2020 2021
Green Bond Social Bond Sustainability Bond Sustainability-Linked Bond

USD = United States dollar.

Note: All data as of 26 July 2022. Data were obtained using Bloomberg LP’s SRCH function. The SRCH criteria included
green bonds, social bonds, sustainability bonds, sustainability-linked bonds, and transition bonds.
Sources: AsianBondsOnline and Bloomberg LP.
 RECENT INITIATIVES IN
SUSTAINABLE FINANCE

I
ndonesia started its sustainable finance of the SDGs. New initiatives are expected to
journey in 2017 with the implementation be launched soon to create a more vibrant
of the Sustainable Finance Roadmap in sustainable finance market. Among them,
Indonesia, 2015–2019 (Phase I).2 According to a sustainable finance taxonomy is needed to
POJK 51/POJK.03/2017 on the Implementation further clarify the types of financing that would
of Sustainable Finance and Circular Letter fall in that category.
No. 16/SEOJK04/2021 on the Format and
Contents of Annual Report, financial services Phase I of the Sustainable Finance Roadmap was
companies, issuers, and public companies must followed in early 2021 by the Sustainable Finance
implement sustainable finance and submit Roadmap in Indonesia, 2021–2025 (Phase II).3
to the OJK a sustainable finance action plan Its objective is to develop new incentives and
and a sustainable report. Specific guidelines harmonize regulations.
were issued to help them implement the
new regulations. In 2017, the OJK also issued On the supply side, the roadmap seeks to
Regulation No. 60/POJK.04/2017 to provide increase the resilience and competitiveness of
guidance on the issuance process and terms financial institutions, raise their contributions to
for green bonds, making Indonesia among the the attainment of the SDGs and climate change
first countries in ASEAN to issue a green bond resilience, enhance their capacity, and improve
regulation. In addition, the Ministry of Finance their literacy in the field of sustainable finance.
and the OJK jointly drafted a National Strategy
for Financial Market Development, 2018–2024 On the demand side, the roadmap aims to
to create a more active financial market, increase demand for sustainable products,
including GSS instruments. support industries offering sustainable
products, and develop a certification scheme for
The coronavirus disease pandemic created new sustainable products and related professions.
challenges to the development of the financial Other notable additions to Phase II of the
service sector. In December 2020, the OJK Sustainable Finance Roadmap included new
released the Indonesian Financial Services plans to further develop the sustainable finance
Sector Master Plan, 2021–2025, building on ecosystem, raise awareness among financial
Phase I of the Sustainable Finance Roadmap. services firms, and support the development of
Included in the master plan was a focus on the necessary skill set.
sustainable finance toward the achievement

2
OJK. 2015. Sustainable Finance Roadmap in Indonesia, 2015–2019. Jakarta.
3
OJK. 2021. Sustainable Finance Roadmap in Indonesia, 2021–2025. Jakarta.

5
6 GREEN BOND MARKET SURVEY FOR INDONESIA

The issuance of sovereign green bonds and an In its current form, the taxonomy includes
SDG bond signaled the strong commitment of 919 sectors mapped into subsectors, groups,
the government to using labeled instruments as and business activities aligned with Level 5 of the
part of its national financing strategy. Some of Indonesian Standard for Industrial Classification,
the government’s green sukuk issuances which is the most specific level of Indonesia’s
have gained international recognition and Central Bureau Statistics. Three categories are
the response from investors exceeded the included: (i) green, (ii) yellow, and (iii) red. For a
usual demand for Indonesian government subsector to qualify as “green,” it must do no
securities (Box 1). significant harm, apply minimum safeguards,
and have a positive impact on the environment.
A dedicated website was launched to support Subsectors complying with the “do no significant
the implementation of environmental, social, and harm” principle are otherwise classified as
governance (ESG) policies across Indonesian “yellow,” while harmful activities are branded as
financial institutions.4 Four local green indices “red.” The 904 sectors and subsectors that were
were created to signal ESG leaders among not included in the first draft of the taxonomy
Indonesian listed companies. In 2021, the did not meet the government’s prerequisite for
Indonesian Stock Exchange came out publicly green classification. Subsequently, additional
in support of the Taskforce for Climate-Related publications by the OJK indicated that the other
Financial Disclosures, which breaks down 15 sectors could meet the green category.5
climate-related risks into acute and chronic
risks, and identifies four primary transition risks: Indonesian companies must also comply
policy and regulatory, market and economic, with Indonesia-specific certifications, such
technology, and reputational. as the Ministry of Environment and Forestry’s
Greenhouse Gas Emissions Reduction
In January 2022, the Indonesia Green Taxonomy Certification and its Company Performance and
1.0 was launched by the OJK. It was a significant Management Rating Assessment Program, as
milestone in defining categories that are eligible well as the Ministry of Agriculture’s Indonesia
for green financing for all stakeholders carrying Sustainable Palm Oil Certification.
out sustainable economic activities. It also
represented a significant effort to encourage the
private sector to comply with ESG regulations
and prioritize green investments.

4
ESG. ESG at a Glance. https://esg.idx.co.id.
5
OJK. 2022. Taksonomi Hijau Indonesia Edisi. Jakarta.
 RECENT INITIATIVES IN SUSTAINABLE FINANCE 7

Box 1: United Nations Development Programme Assistance in the Indonesian Green Sukuk
and Sustainable Development Goal Bond Market

Indonesia first entered the thematic bond market with

an inaugural issuance of green sukuk in 2018, which Figure: Indonesia’s Green Sukuk and
was followed by annual issuances in subsequent years, Sustainable Development Goal
both in the global and domestic retail markets. As of Bond Issuance, 2018–2022
May 2022, the issuance of green sukuk had raised an
1st Global Green Sukuk
aggregate of USD5.0 billion globally, while retail green March 2018
USD1.25 billion
sukuk (first issued in 2019) had cumulatively raised
2nd Global Green Sukuk
USD830 million. February 2019
USD750 million
1st Retail Green Sukuk (ST-006)
November 2019
The United Nations Development Programme IDR1.46 trillion
(UNDP) has enjoyed a longstanding partnership with 3rd Global Green Sukuk
June 2020
the Government of Indonesia dating back to 2016 USD750 million
with the establishment of Climate Budget Tagging— 2nd Retail Green Sukuk (ST-007)
November 2020
a budgeting mechanism allowing the government to IDR5.4 trillion
monitor and track its spending on climate mitigation June 2021
4th Global Green Sukuk
USD750 million
and adaptation efforts—that later paved the way for
green sukuk (Islamic bonds). UNDP support has been 1st Global SDG Bond
September 2021
EUR500 million
channeled through the provision of technical assistance
3rd Retail Green Sukuk (ST-008)
during the development of the green bond and sukuk November 2021
IDR5 trillion
framework, an external review of the framework,
5th Global Green Sukuk
project selection and evaluation in the pre-issuance May 2022
USD1.5 billion
process, and impact measurement and reporting for
EUR = euro, IDR = Indonesian rupiah, SDG = Sustainable
post-issuance. UNDP also contributed to public sector Development Goal, USD = United States dollar.
capacity building and institutional strengthening with Source: UNDP.
regard to the overall context of green financing, as well
as the transparency and disclosure requirements that
follow. A series of campaign and advocacy efforts were continued to work closely with the Ministry of Finance
also undertaken to further enhance the visibility of in developing the Government of Indonesia’s SDG
Indonesia’s pioneering green sukuk initiative, such as Securities Framework and its subsequent second-party
through exposure in national and international forums opinion external review process.
and the development of a broad range of green sukuk
knowledge products (e.g., handbook, studies, video) These preparations led to Indonesia’s inaugural SDG
capturing Indonesia’s green sukuk journey in global bond issuance in the global capital market in September
and domestic markets. 2021. This 12-year EUR500 million bond met with a
positive reception, leading to a 2.4x oversubscription.
The string of successes from green sukuk issuances UNDP provided support during the project evaluation
inspired the Government of Indonesia to develop and selection process to ensure that proceeds were
Sustainable Development Goal (SDG) bonds (Figure), allocated toward SDG achievement efforts. Close
with UNDP taking an active role in this process. collaboration was also maintained for the development
The provision of support commenced in 2020 with of the Government of Indonesia’s first annual SDG Bond
the development of a feasibility study in collaboration Allocation and Impact Report. The government is also
with the Ministry of Finance, which resulted in expected to issue its SDG Bond and Blue Bond and Sukuk
recommendations for the ministry to undertake steps Report, and UNDP remains ready to provide its utmost
in preparing the issuance of SDG bonds. Further, UNDP support to ensure yet another success story.

Source: UNDP.
 SURVEY RESULTS

T
he survey was conducted in March 2022 if they were, their respective firms are currently
among 108 local institutional investors developing an action plan (Figure 5). Only a
(fund managers, financial institutions, few respondents were already mandated to
insurance companies) and local underwriters invest in green bonds as part of their overall
and advisors. A summary of the survey’s findings investment mandate.
is given below.
Due to the fact that most respondents either
have limited awareness and resources or are still
Institutional Investors developing an action plan, the vast majority of
respondents also indicated that green bonds
The survey began by asking respondents about comprised less than 5% of their aggregate
their firms’ interest and/or current investment in portfolios. Green investments comprised
green financial instruments. The vast majority of between 21% and 30% of portfolios for only 1%
respondents indicated that they were interested of all respondents, while 5% of respondents,
in investing, but they had limited awareness primarily pension funds, indicated that green
and resources. Others are either not interested investments comprised more than 30% of their
in green financial instruments at this stage or, portfolios (Figure 6).

Figure 5: Interest in Investing in Green Bonds

70
61
60

50

40
%

30

20 16
14
10 6
2
0
Not interested Interested but Interested Interested and Other
at this stage with limited and developing mandated
awareness an action plan in the overall
and resources investments

Source: Authors’ compilation based on survey results.

8
 SURVEY RESULTS 9

Figure 6: Share of Green Investments Figure 7: Optimal Investment Size

in Portfolio
5% 4%
3% 5% 2%
1%
12% 10%

79% 79%

<
−5% 6%–10% 11%–20% <
−USD10 million USD11 million–USD50 million
21%–30% >30% USD51 million–USD100 million >USD100 million
Other

Source: Authors’ compilation based on survey results. Source: Authors’ compilation based on survey results.

When asked about ticket size, 79% of respondents’ investment portfolios (Figure 8).
respondents indicated a preference for (For more on Indonesian ESG Indices, see
investments of less than USD10 million, Box 2). Meanwhile, 12% of respondents have
while 10% indicated a willingness to invest up no exposure to green investments, while only
to USD50 million per transaction (Figure 7). 3% of respondents have investments related to
Only 2% of respondents indicated that their green buildings. For these investors to be able to
optimal investment size was more than invest in green financial instruments, additional
USD100 million. support from development partners is required
to increase their capacities.
In terms of sector preference, renewable energy
(20%), energy efficiency (16%), and ESG indices When asked their primary reasons for investing
and benchmarks (13%) are the top sectors in in green bonds, the majority of investors believe

Figure 8: Share of Investor Portfolios with an Investment in the Following Sectors

25

20
20
16
15 13
12
11
%

10
10
8

5
5
3
1
0
Renewable Energy Water Clean Sustainable Green Waste ESG No exposure Other
energy efficiency management transportation agriculture buildings management indices and to green
and circular benchmarks

ESG = environmental, social, and governance.

Source: Authors’ compilation based on survey results.
10 GREEN BOND MARKET SURVEY FOR INDONESIA

Box 2: Indonesian Environmental, Social, and Governance Indices

The Indonesia Stock Exchange (IDX) of that, the Indonesia Stock Exchange has also
recognizes the significance of environmental, created four ESG-based indices, which are
social, and governance (ESG) investing to described below.
support the expansion of sustainable financing
in the Indonesian capital market. The exchange To learn more about companies that were
has issued a regulation to support and indexed to these two indices, see https://www.
encourage the issuance of green bonds in idx.co.id/data-pasar/data-saham/indeks-saham.
Indonesia through Rule Number I-B. On top

IDXESGL (ESG LEADERS) SRI-KEHATI

An index that measures the stock price of 15–30 An index that measures the stock price of 25 listed
companies that have a good ESG performance and companies, selected by the Indonesian Biodiversity
do not have significant controversies. The index Foundation (KEHATI Foundation), that have a good
is selected from stocks with high trading liquidity performance in encouraging sustainable businesses
that also have a good financial performance. and raising ESG awareness, which is also known as
ESG scoring and controversy analysis is conducted sustainable and responsible investment (SRI).
by Sustainalytics. SRI-KEHATI is a jointly developed index with the
KEHATI Foundation.

ESG SECTOR LEADERS IDX KEHATI ESG QUALITY 45 IDX KEHATI

An index that offers broad market exposure and An index that measures the stock price of 45
diversification by choosing representative in each companies that consider the quality of financial and
industry with best ESG score. Stocks with above- ESG aspects with relatively large market capitalization
average ESG scores are selected to represent their and high liquidity. This index is jointly developed with
respective industries and grouped by IDX Industry the KEHATI Foundation.
Classification. This index is jointly developed with
the KEHATI Foundation.

Source: Indonesia Stock Exchange. ESG Investments. Jakarta.

that this would give them an opportunity to their organization’s green image. The majority of
diversify their institution’s investment portfolio respondents also perceived green bonds to be
(Figure 9). Nearly 90% of respondents also more stable and liquid than conventional bonds.
cited increased transparency as a reason for
their interest in green bonds. This may be due While there are clear motivations for investing
to the fact that green bond issuers are required in green bonds, the survey asked respondents
to explain in their issuance framework how to identify any major obstacles to investing,
proceeds from the bonds will be used, as well as as green investments are generally not a very
to report on how proceeds have been or will be significant part of their investment portfolios.
allocated to the projects listed in the framework A quarter of respondents stated that the primary
and any potential environmental benefits. impediment is the inadequate supply of green
A significant number of respondents believed bonds in the domestic market (Figure 10).
that investing in green bonds would enhance This clearly indicates that Indonesia’s current
 SURVEY RESULTS 11

Figure 9: Key Motivations for Investing in Green Bonds

Generate excess return 20 62 18

Diversify the investment portfolio 26 71 3

Greater transparency 26 63 11

Improve the green image of the organization 23 63 14

Opportunities to embed SDGs in investment strategy 23 66 11

Mandated or demanded by the investor 14 49 37

Regulatory requirement 19 61 20

Perceived to be more stable and liquid 17 61 22

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

SDG = Sustainable Development Goal.

Source: Authors’ compilation based on survey results.

Figure 10: Main Obstacles to Investing in Green Bonds

30
25
25

19 20
20
15 15
15
%

10

5 4
2

0
No clear benefits Absence of Lack of internal Inadequate supply Higher risk Difficult to mark Other
of green bonds policy guidance and of green bonds inherent in to market due to
as opposed to guidance from resources for such or limited green green bonds possible buy back
conventional regulators type of investment bond issuances by issuer and/or
bonds related to change in coupon
green bonds rate (article 14
of OJK regulation
No. 60/POJK.4/2017)

Source: Authors’ compilation based on survey results.

supply of green bonds, especially those issued such types of investment is also relevant, while
domestically, are insufficient to meet demand. 19% of respondents indicated that the absence
As a result, there is a significant opportunity for of clear benefits from investing in green bonds
issuers to consider green bond issuance as a was one of the key inhibiting factors. Similarly,
means of diversifying their investor base. around 15% of respondents also indicated
that the mandatory buyback of bonds and a
Around 20% of respondents also suggested that possible change in the coupon rate in the event
the lack of internal guidance and resources for the bond no longer carries a green label could
12 GREEN BOND MARKET SURVEY FOR INDONESIA

make it difficult for investors to mark to market, the historical performance, as these directly
especially for long-term investors. Prior to the correlate to the bond’s operations. The next set
initiation of a mandatory buyback or increase of priorities are the ESG impact of the bond,
in coupon rate, an issuer must prepare a plan alongside the issuance currency. Finally, brand
outlining how they will ensure that the projects association and alignment with non-green
they are financing with proceeds from the bond investment mandates score relatively low.
are or will be aligned with environmental-based A vast majority of investors believe that external
business activity, as required by OJK Regulation review by a third party is highly important
No. 60 /POJK.04/2017. The issuer must or important and can aid them in making
submit a plan to the OJK within 14 days of investment decisions.
becoming aware that their business activity
and/or other activities no longer comply with Respondents were requested to select up to
the requirements and must rectify the issue three options that they felt could encourage the
within 1 year of submitting a report to the OJK. growth of Indonesia’s green bond market. More
In the event that the issuer is unable to than 20% of respondents recommended that
resolve the issue, Article 14 of OJK Regulation the government provides regulatory support
No. 60/POJK.04/2017 permits the holders of and clarity on the approaches to developing
the green bond to request that the issuer a domestic green bond market. Furthermore,
repurchase the green bond and/or increase respondents suggested that the introduction of
coupon payments on the green bond. tax incentives or grant schemes would entice
investors to hold more green bonds (Figure 12).
When investing in green bonds, investors Meanwhile, nearly 15% of responses indicated
continue to prioritize credit ratings and valuation that a clear taxonomy defining what constitutes
and pricing (Figure 11). This is unsurprising given green assets, projects, and expenditures, and
that performance is central to a fund manager’s increased ESG disclosure by listed companies,
mandate. The other most critical factor is the would significantly assist investors in making
company profile or management team and green investment decisions.

Figure 11: Key Considerations for Investing in Green Bonds

Valuation and pricing 54 45 1

Company profile or management team 43 55 2

Historical performance 42 57 1

ESG impact and clear use of proceeds 37 60 3

Brand association 20 71 9

Alignment with non-green investment mandates 14 74 12

Currency 27 66 7

Credit rating 66 33 1

External review on green label 27 68 5

0 10 20 30 40 50 60 70 80 90 100
%
Highly Important Important Not Important

ESG = environmental, social, and governance.

Source: Authors’ compilation based on survey results.
 SURVEY RESULTS 13

Figure 12: Policy Mechanisms That Would Increase Green Bond Investments

Demand from stakeholders 6

Promoting ESG reporting on stock exchanges 12

Requirement by law to allocate certain portion of portfolio to green assets 11

Regulatory support and guidance from regulator 22

Penalties for investing in high-carbon assets 3

Preferential treatment of low-carbon assets by investors 4

Tax incentives or subsidies for green bond investors 20

External review of green bonds framework 8

Standardization of green taxonomy 14

0 5 10 15 20 25
%

ESG = environmental, social, and governance.

Source: Authors’ compilation based on survey results.

As mentioned above, the OJK introduced the For nonfinancial institutions, almost 27% of
Indonesia Green Taxonomy 1.0 in January 2022. respondents believed that issuers from the
This taxonomy will be used as (i) the basis for renewable energy sector offered the greatest
the development of incentive and disincentive investment opportunities, followed by 17% for
policies by various ministries and institutions, the clean transportation sector (Figure 14).
including the OJK; and (ii) guidelines for These findings are consistent with the sector
information openness, risk management, and breakdown of respondents’ current portfolios of
the development of innovative sustainable green assets.
finance products and/or services. Furthermore,
the development of the Indonesia Green On policies needed to develop the green bond
Taxonomy 1.0 is expected to provide an market, almost all respondents emphasized
overview of the classification of sectors and the critical importance of government and
subsectors categorized as green to avoid regulatory policy clarity to increase the amount
greenwashing practices.6 of investment capital allocated to this sector.
Indeed, more than 50% of respondents believed
An increasing number of local investors are this to be “most relevant.” Tax incentives for
looking for investment opportunities in green green bond issuers were viewed as having nearly
bonds. The survey investigated which types of as important an impact on the development of
green bond issuers respondents are interested the market.
in. Local institutional investors indicated that
they are mostly interested in sovereign issuances, Respondents believe that establishment of a
followed by green bonds issued by development centralized information platform displaying
banks. Next were financial institutions, including information on all green or sustainable bonds
commercial banks, and insurance companies from Indonesian issuers and preferential buying
(Figure 13). by institutional investors would also provide
some support for the market (Figure 15).

6
OJK. 2022. Indonesia Green Taxonomy Edition 1.0. Jakarta.
14 GREEN BOND MARKET SURVEY FOR INDONESIA

Figure 13: Level of Local Investor Interest by Issuer Type

Development banks 11 56 33

Nonfinancial institutions 9 57 34

Financial institutions (commercial banks,

17 64 19
securities companies, insurance companies)

Municipal and provincial governments 10 48 42

Sovereign governments 45 48 48 7

0 10 20 30 40 50 60 70 80 90 100
%
Highly Interested Interested Low Interest

Source: Authors’ compilation based on survey results.

Figure 14: Sectors with Most Potential for Green Bond Investments

30
27

25 259.01 pt
20
17
16
15 13 13
%

10 8

5
5

0
Renewable Energy Water Clean Sustainable Green Waste
energy efficiency management transportation agriculture buildings management
and circular
economy

Source: Authors’ compilation based on survey results.

Regarding capacity development, respondents This would lead to an increase in the supply of
were near unanimous in agreement that green bonds to meet investor demand.
investors require additional training (Figure 16).
Additionally, it was felt that chief financial Among investors interested in regional
officers of listed companies and deal teams investments, Singapore, Thailand, and Malaysia
should be trained to gain a better understanding are the preferred investment destinations
of green bonds and their issuance process. (Figure 17). When asked about the underlying
 SURVEY RESULTS 15

Figure 15: Policy Options for Green Bond Market Development

Centralized information platform for sustainable bond 27 70 3

Tax incentives for green bond issuers and investors 46 50 4

Streamlined cross-border fundraising framework 15 72 13

Subsidy for transaction costs for labeled bonds 22 68 10

Default choice for new pension fund account holders 15 66 20

Preferential buying by institutional investors 27 65 8

Increase pipeline of eligible projects 26 69 5

Clear “green” definition 34 58 8

Policy clarity from governments and regulators 51 46 3

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant
Source: Authors’ compilation based on survey results.

Figure 16: Capacity Building—Who Should Be Trained?

Board members of state-owned enterprises 20 77 3

CFOs of large corporations and listed companies 20

205.073
75
pt 5

Deal teams inside the investment banks and securities firms 23 74 3

74

Investors and asset managers 37 61 2

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

CFO = chief financial officer.

Source: Authors’ compilation based on survey results.

issuance currency, 90% of respondents preferred thematic bonds that have the potential to
hard currencies such as the United States further mainstream climate finance in Indonesia
dollar, Singapore dollar, euro, or Japanese yen (Figure 19). For a majority of investors,
(Figure 18). SDG bonds and sustainability bonds are
the two instruments in which they are most
Lastly, investors were asked if they would interested. This may be attributable in part to
be interested in investing in other types of the fact that the Indonesian government issued
16 GREEN BOND MARKET SURVEY FOR INDONESIA

Figure 17: Interest in Figure 18: Preferred Underlying

Regional Investment Currencies Among Investors

6% 2% 6%
2% 2%
7%
12% 35%
7% 37%

17% 18%

24% 25%

Brunei Darussalam Cambodia Malaysia United States dollar Singapore dollar euro
Philippines Singapore Thailand Japanese yen Other Malaysian ringgit
Viet Nam Thai baht

Source: Authors’ compilation based on survey results. Source: Authors’ compilation based on survey results.

Figure 19: Interest in Other Types of Thematic Bonds

SDG bonds 16 69 15

Transition bonds 7 66 27

Sustainability-linked bonds 12 62 26

Sustainability bonds 14 71 15

Social bonds 12 62 26

0 10 20 30 40 50 60 70 80 90 100
%
Highly Interested Interested Not Interested

SDG = Sustainable Development Goal.

Source: Authors’ compilation based on survey results.

a EUR500 million SDG bond with a 12-year The interest of investors in sustainability bonds
maturity and a coupon rate of 1.3% on the global coincides with the recent expansion of the
market in September 2021. The proceeds from sustainability bond market in Indonesia, as
the sale are being used to support three priority their aggregate annual issuance volume in 2021
sectors: social protection, education, and health. surpassed that of green bonds for the first time.
SDG bonds are similar to GSS bonds whose use According to the International Capital Market
of proceeds further aligns with and contributes Association, sustainability bonds are bonds in
to specific SDGs.7 which the proceeds are exclusively applied to

7
ASEAN Capital Markets Forum. 2021. ASEAN SDG Bond Toolkit. Jakarta.
 SURVEY RESULTS 17

finance or refinance a combination of both green Figure 20: Interest in Issuing Green
and social projects.8 Bonds from Advisors’ and
Underwriters’ Perspective
Advisors, Underwriters, 80

and Issuers 70 67

60

This section examines the interest of potential 50

issuers of green bonds, the most promising 40

%
33
economic sectors, and the various types of 30
potential issuers from the perspectives of
20
local advisors, underwriters, and potential
10
issuers. From the perspective of advisors
and underwriters, their clients are generally 0
Interested but Interested
interested in and developing plans for the with limited and developing
awareness and an action plan
issuance of green bonds. It was encouraging to resources
learn that all respondents indicated that their Source: Authors’ compilation based on survey results.
clients have some interest in issuing green bonds
(Figure 20). However, issuers had an entirely
different perspective. The majority of issuers indicated that they are interested in issuing and
indicated that they are not interested in issuing are developing an action plan. This demonstrates
green bonds at this stage, which is greater than the need for listed companies to continue
the percentage of issuers who are interested developing their green bond knowledge
but lack the knowledge and resources to do so and resources.
(Figure 21). A small proportion of respondents

Figure 21: Interest in Issuing Green Bonds from Issuers’ Perspective

50
43
40
40

30
%

20
11
10 6

0
Not interested Interested but Interested Other
at this stage with limited and developing
awareness and an action plan
resources

Source: Authors’ compilation based on survey results.

8
ICMA. 2021. Sustainability Bond Guidelines. Zurich.
18 GREEN BOND MARKET SURVEY FOR INDONESIA

Figure 22: Breakdown of Issuer Respondents by Industry Sector

25
23

20
17 17

15
%

10 9 9 9

6 6
5
3 3

0
Energy Basic Industrials Consumer Health care Financials Properties Infrastructures Transportation Other
materials Noncyclicals and
real estate

Source: Authors’ compilation based on survey results.

More than 40% of the issuer respondents

have a market capitalization of less than Figure 23: Optimal Issuance Size
USD500 million, while 26% have a market
capitalization of between USD500 million and
33% 33%
USD2 billion. Only 3% of issuer respondents
have a market capitalization of USD50 billion
or above. The majority of issuers operate
in the financial, real estate, and industrial
17% 17%
sectors (Figure 22). There is relatively little
representation from the energy, consumer,
<
−USD10 million USD11–USD50 million
technology, and transport sectors. USD51–USD100 million >USD100 million

Source: Authors’ compilation based on survey results.

In terms of issuance size, around 33% of
advisors and underwriters indicated an
optimal issuance size for green bonds greater 20% of respondents agreed that both green
than USD100 million, while another 33% of buildings and energy efficiency hold significant
respondents shared that the optimal deal size potential for the Indonesian green bond
should be less than USD10 million (Figure 23). market’s development. Although advisors and
Despite the fact that the majority of sustainable underwriters view green buildings as one of the
bonds from Indonesian issuers are denominated most promising sectors, the sector comprises
in US dollars, the majority of them had issue only 3% of the portfolios of local institutional
sizes in excess of USD100 million. investors and is not considered one of the most
promising sectors from investors’ perspective.
In terms of sectors, the majority of advisors
and underwriters agreed that renewable When asked why clients should issue green
energy presents the greatest opportunity for bonds, all advisors and underwriters cited
the issuance of green bonds in Indonesia over the possibility of reduced funding costs.
the next 3 years (Figure 24). Additionally, Approximately 67% of respondents believed this
 SURVEY RESULTS 19

Figure 24: Most Promising Sectors for Green Bonds Issuance

35 33

30

25
20 20
20
%

15 13

10
7 7
5

0
Renewable Energy Water Clean Green buildings Other
energy efficiency management transportation

Source: Authors’ compilation based on survey results.

to be the most compelling reason for companies Additionally, 83% of respondents agreed that
to issue green bonds, while 33% believed it green bonds could be issued in response to
to be a valid reason (Figure 25). For 50% of investor or lender demand.
respondents, attracting new types of investors is
the most important factor, while the remaining Unlike advisors and underwriters, issuers
50% considered this to be an important factor. believed that improving an organization’s green
All respondents believed that the issuance of image and enhancing the quality of corporate
green bonds would enhance an organization’s disclosure are two of the most important
green image and be a key motivator for issuers and relevant reasons for issuing green bonds.
to integrate ESG into their corporate DNA. Additionally, issuers indicated that the ability

Figure 25: Key Motivations for Issuing Green Bonds

from Advisors’ and Underwriters’ Perspective

Possible lower cost of funds 67 33

Opportunity to attract new investors 50 50

Increase quality of corporate disclosure 100

Improve the green image of the organization 17 83

Opportunity to incorporate ESG as part of corporate DNA 100

Mandated or demanded by the investor or lenders 33 50 17

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

ESG = environmental, social, and governance.

Source: Authors’ compilation based on survey results.
20 GREEN BOND MARKET SURVEY FOR INDONESIA

to attract new investors is more important than obstacle preventing them from issuing green
the possibility of a reduction in financing costs bonds (Figure 27 and Figure 28). Advisors
(Figure 26). and underwriters believe that the lack of clear
benefits of green bonds over conventional
Advisors and underwriters, as well as issuers, bonds is the second most important factor,
agreed that the lack of knowledge and awareness while issuers believe that the additional
about green bonds is the most important procedures and costs associated with the

Figure 26: Key Motivations for Issuing Green Bonds from Issuers’ Perspective

Mandated or demanded by the investor or lenders 14 54 31

Opportunity to incorporate ESG as part of corporate DNA 20 65 14

Improve the green image of the organization 51 43 6

Increase quality of corporate disclosure 51 43 6

Opportunity to attract new investors 43 54 3

Possible lower cost of funds 31 46 23

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

ESG = environmental, social, and governance.

Source: Authors’ compilation based on survey results.

Figure 27: Main Obstacles to Issuing Green Bonds

from Advisors’ and Underwriters’ Perspective
30

25 24 24

20 18

15
%

12 12

10
6 6
5

0
No clear benefits Absence of Lack of internal Lack of Additional Lack of Possible
of green bonds policy guidance and eligible project procedures and knowledge or mandatory
as opposed to guidance from resources pipelines insurance costs awareness buy-back or
conventional regulators increase in
bonds related to coupon rate
green bonds

Source: Authors’ compilation based on survey results.

 SURVEY RESULTS 21

Figure 28: Main Obstacles to Issuing Green Bonds from Issuers’ Perspective
25
23

20
20

15 14 14
%

10 9

6 6 6
5
3

0
No clear Absence Lack of internal Lack of Lack of Additional Possible Possible Other
benefits over of policy guidance and eligible project knowledge procedures reputation risk mandatory
conventional guidance from resources pipelines or awareness and issuance in case bond buy-back or
bonds regulators on green bonds costs is no longer increase in
green coupon rate

Source: Authors’ compilation based on survey results.

issuance of green bonds is the second most Respondents were then asked to identify key
important obstacle. Interestingly, the absence drivers that could increase green bond issuance
of policy guidance from regulators was seen in Indonesia. Local underwriters and issuers
as less of an impediment from intermediaries’ have differing perspectives. While underwriters
perspective. This demonstrates the strong indicated that increased investor demand is
leadership of the domestic regulator in the most important factor to drive increased
implementing measures that have facilitated green bond issuance (Figure 29), the majority of
the emergence of the green bond market issuer respondents indicated that tax incentives
in Indonesia. and/or government subsidies are the most

Figure 29: Key Drivers for Green Bond Issuance

from Advisors’ and Underwriters’ Perspective

Demand from stakeholders 13

Demand from investors 31

Preferential treatment of low-carbon assets by investors and lenders 6

Tax incentives or subsidies for green bond issuers 25

Availability of local reviewer or verifier 19

Standardization of green taxonomy 6

Other 6

0 5 10 15 20 25 30 35
%

Source: Authors’ compilation based on survey results.

22 GREEN BOND MARKET SURVEY FOR INDONESIA

important factor (Figure 30). A significant When asked about potential investors in
number of underwriters also indicated that tax green bonds, all respondents believed that
incentives and subsidies are important. development partners could significantly
contribute to the growth of the local green bond
Surprisingly, none of the underwriters indicated market by investing in green bonds issued by
that promoting ESG reporting on stock their clients. Meanwhile, all respondents agreed
exchanges would be relevant to increasing green that development banks, the social security fund,
bond issuances in Indonesia, despite the fact and commercial banks should invest in green
that approximately 14% of issuer respondents bonds, with nearly 50% believing that insurance
indicated that this is one of the most significant companies, pension funds, and asset managers
drivers. Contrary to the responses of issuers, could also play a significant role in facilitating the
the majority of underwriters believe that the issuance of longer-term debt (Figure 31).
availability of a local reviewer or verifier is the
most important factor.

Figure 30: Key Drivers for Green Bonds Issuance from Issuers’ Perspective

Promoting ESG reporting on stock exchanges 14

Demand from stakeholders 12

Demand from investors 19

Preferential treatment of low-carbon assets by investors and lenders 7

Tax incentives or subsidies for green bond issuers 28

Availability of local reviewer or verifier 4

Standardization of green taxonomy 14

Other 1

0 5 10 15 20 25 30
%
ESG = environmental, social, and governance.
Source: Authors’ compilation based on survey results.

Figure 31: Preferred Investors in Green Bonds from Advisors’ and Underwriters’ Perspective

Development banks 33 67

Insurance companies 17 50 33

Commercial banks 17 67 16

Social security fund 83 17

Pension funds 17 50 33

Asset managers 17 50 33

0 10 20 30 40 50 60 70 80 90 100
%
Highly Interested Interested Low Interest

Source: Authors’ compilation based on survey results.

 SURVEY RESULTS 23

Advisors and underwriters, as well as issuers, on all sustainable bonds issued by Indonesian
were asked about policy options that could be entities and an expanded green project pipeline
implemented to support the development of are crucial for making issuance decisions
the Indonesian green bond market. Contrary to (Figure 33).
institutional investors, underwriters and advisors
believe that an increase in the pipeline of eligible In terms of capacity building, a majority
projects for green bond issuance and preferential of advisors and underwriters believe that
purchasing from central banks, pension funds, investors and asset managers would benefit
and insurance companies are required to the most from training to help them better
further develop Indonesia’s green bond market understand green bonds and why they should
(Figure 32). This is in contrast to investors, who include them in their investment strategy
gave less importance to these two policy options. (Figure 34). All respondents also believed that
In addition, clear green definitions, a streamlined board members of state-owned enterprises
cross-border fundraising framework, and making and the teams inside investment banks and
green bonds the default option for new pension securities firms closing deals should be trained
fund account holders were of importance to to help increase the supply of green bonds.
advisors and underwriters. Indeed, 33% of respondents believe that
training for these two groups of stakeholders
Issuers indicated that tax incentives for green is critical, while 67% believe it is necessary.
bond issuers and investors would be the most This demonstrates that state-owned enterprises
effective policy option for promoting the market. could play a leading role in proving their
Consistent with the perspective of local advisors environmental and social commitments and
and underwriters, issuers also believe that clear assisting Indonesia in reaching its net-zero
policy options from the government and clear emissions goal by 2060 through the issuance
green definitions are beneficial. Importantly, of green bonds. All respondents agreed that
all issuer respondents indicated that having a chief financial officers of large corporations and
centralized platform that provides information listed companies require training as well.

Figure 32: Preferred Policy Options for Green Bond Market Development
from Advisors’ and Underwriters’ Perspective

Centralized information platform for sustainable bond 83 17

Tax incentives for green bond issuers and investors 50 50

Streamlined cross-border fundraising framework 17 83

Subsidy for transaction costs for labeled bonds 33 67

Default choice for new pension fund account holders 17 67 16

Preferential buying by institutional investors 67 33

Expanded pipeline of eligible projects 67 33

Clear “green” definitions 17 83

Policy clarity from governments and regulators 50 50

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

Source: Authors’ compilation based on survey results.

24 GREEN BOND MARKET SURVEY FOR INDONESIA

Figure 33: Preferred Policy Options for Green Bond Market Development
from Issuers’ Perspective

Centralized information platform for sustainable bond 20 80

Tax incentives for green bond issuers and investors 49 49 2

Streamlined cross-border fundraising framework 14 80 5

Subsidy for transaction costs for labeled bonds 20 73 6

Default choice for new pension fund account holders 17 69 14

Preferential buying by institutional investors 26 66 8

Expanded pipeline of eligible projects 20 80

Clear “green” definitions 34 57 9

Policy clarity from governments and regulators 46 51 3

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

Source: Authors’ compilation based on survey results.

Figure 34: Capacity Building—Who Should Be Trained?

(Advisors’ and Underwriters’ Perspective)

Board members of state-owned enterprises 33 67

CFOs of large corporations and listed companies 17 83

Deal teams inside the investment banks and securities firms 33 67

Investors and asset managers 50 50

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant

CFO = chief financial officer.

Source: Authors’ compilation based on survey results.

Similarly, the majority of issuers believe that Lastly, advisors, underwriters, and issuers were
institutional investors should be trained on the asked about their interest in other sustainable
importance of ESG investments. As issuers, finance instruments that could help mainstream
chief financial officers of large companies should climate finance to support sustainable bond
be trained so that ESG considerations can be market development in Indonesia (Figure 36).
incorporated into their financing strategies. The majority of underwriters believe that
Similarly, deal teams and underwriters need a sustainability bonds and sustainability-linked
deeper understanding of green bond issuance bonds are the two instruments with the most
processes in order to better advise clients potential impact.
(Figure 35).
 SURVEY RESULTS 25

Figure 35: Capacity Building—Who Should Be Trained?

(Issuers’ Perspective)

Board members of state-owned enterprises 17 73 9

CFOs of large corporations and listed companies 20 71 9

Deal teams inside the investment banks and securities firms 20 80

Investors and asset managers 31 69

0 10 20 30 40 50 60 70 80 90 100
%
Most Relevant Relevant Not Relevant

CFO = chief financial officer.

Source: Authors’ compilation based on survey results.

Figure 36: Interest in Issuing Other Types of Thematic Bonds

from Advisors’ and Underwriters’ Perspective

SDG bonds 83 17

Transition bonds 83 17

Sustainability-linked bonds 17 67 16

Sustainability bonds 17 67 16

Social bonds 50 50

0 10 20 30 40 50 60 70 80 90 100
%
Highly Interested Interested Not Interested

SDG = Sustainable Development Goal.

Source: Authors’ compilation based on survey results.
26 GREEN BOND MARKET SURVEY FOR INDONESIA

According to the International Capital Market are not either low- or zero-carbon emissions
Association, sustainability-linked bonds are but that can play a short- or long-term role
any type of debt instrument for which the in decarbonizing an activity or assisting an
financial and/or structural characteristics can issuer in transitioning to compliance with the
vary depending on whether the issuer achieves Paris Agreement.10
predefined sustainability or ESG objectives.
In that sense, issuers are committing explicitly Similar to the responses of advisors and
(including in the bond documentation) underwriters, less interest is shown in social
to future improvements in sustainability bonds due to their restricted use of proceeds
outcome(s) within a predefined timeline. for social projects. Issuers may prefer to issue
Sustainability-linked bonds are a forward-looking, sustainability bonds where bond proceeds can
performance-based instrument.9 be allocated to both green and social projects,
making the issuance size more feasible from
Meanwhile, a majority of issuers are interested a bond issuance standpoint and allowing
in exploring sustainability and transition for more flexible use of proceeds from the
bonds (Figure 37). Transition bonds refer to issuer’s perspective.
instruments that are used to fund activities that

Figure 37: Interest in Issuing Other Types of Thematic Bonds from Issuers’ Perspective

SDG bonds 11 60 29

Transition bonds 6 69 25

Sustainability-linked bonds 9 54 37

Sustainability bonds 9 66 25

Social bonds 6 54 40

0 10 20 30 40 50 60 70 80 90 100
%
Highly Interested Interested Not Interested

SDG = Sustainable Development Goal.

Source: Authors’ compilation based on survey results.

9
ICMA. 2020. Sustainability-Linked Bond Principles. Zurich.
10
ADB. 2022. Promoting Local Currency Sustainable Finance in ASEAN. Manila.
 WHAT ADB CAN DO TO HELP

R
espondents identified several ways in financial risks to enable issuers to improve their
which ADB can assist the Indonesian disclosure practices.
green bond market’s development.
These beneficial recommendations can be ADB could also assist in providing updates
classified as follows. on the development of the sustainable bond
market via AsianBondsOnline. This would
increase market participants’ awareness of such
As a Knowledge Partner instruments and increase the knowledge of
financial practitioners.
ADB could provide knowledge support to
relevant stakeholders in Indonesia, including
potential issuers, capital market intermediaries, As an Investor, Issuer,
institutional investors, and the general public. and Guarantor
This is particularly relevant, as many stakeholders
have indicated that their lack of awareness is an Development partners like ADB could act
impediment to more green finance. as anchor investor to increase demand for
green bonds and as an advisor for global green
ADB can collaborate with a development partner investors to invest in Indonesia’s green bonds.
such as UNDP to provide technical assistance ADB can help to enhance the credit rating of
to relevant stakeholders in Indonesia (Box 3). the issuer through its trust fund, the Credit
For example, to facilitate the development Guarantee and Investment Facility. Doing
of the green bond market in Indonesia, ADB so would result in a lower cost of capital for
can encourage financial market authorities to Indonesian companies since more investors
provide relevant frameworks and standards and would be interested in such investments.
make it easier for stakeholders to evaluate green Moreover, ADB can boost investor confidence
bonds and their associated benefits. The more in green bonds, signaling to the market that
successful examples of green bond issuance will they are investment-worthy opportunities.
trigger other companies to follow suit in using The increase in demand for green bonds would
green bonds as an alternative source of funding also encourage more issuance of green bonds in
and at the same time help combat the impact the country.
of climate change. Also, ADB can provide some
capacity building support to help develop a risk ADB can support the development of the green
management framework for the banking, asset bond market in Indonesia by facilitating loans
management, and insurance industries and for financially sustainable infrastructure projects
risk-based supervision guidelines for supervisors and local companies in Indonesia through a
in the context of implementing climate-related wider network channel and encouraging more

27
28 GREEN BOND MARKET SURVEY FOR INDONESIA

Box 3: ADB’s and United Nations Development Programme’s

Technical Assistance to Potential Indonesian Issuers

The Asian Development Bank (ADB) is Meanwhile, the United Nations Development
implementing a regional technical assistance Programme (UNDP), under its Innovative
(TA) program to develop an ecosystem Financing Lab, continues to take an active role
for sustainable local currency bond in supporting the development and deployment
market development in the Association of of innovative debt instruments and mechanisms
Southeast Asian Nations (ASEAN) plus the for the attainment of the Sustainable
People’s Republic of China, Japan, and the Development Goals (SDGs) by domestic
Republic of Korea—a grouping collectively stakeholders. This is fulfilled through the
known as ASEAN+3. Under the guidance provision of TA to potential issuers, both in the
of ASEAN+3 finance ministers and central public and private sectors, throughout the cycle
bank governors, this TA was developed and of thematic bonds. TA is provided throughout
implemented in accordance with the ASEAN+3 the pre-issuance phase in the development
Asian Bond Markets Initiative’s (ABMI) of appropriate thematic frameworks as well as
Medium-Term Road Map for 2019–2022. the project evaluation and selection process—
As a result, this TA program is truly owned ensuring their alignment with existing market
by ASEAN+3 governments. principles and standards as well as the SDGs.
The support carries over to the post-issuance
The project provides end-to-end support phase with the bond’s impact measurement and
to sustainable bond issuers to ensure reporting process.
successful bond issuance, from project
selection to development of a sustainable ADB and UNDP would be happy to provide
bond framework and engagement of external consultation and technical hands-on support
review providers. The project has recently to Indonesian companies wishing to issue
supported several sustainable bond issuers in green, social, sustainability, and/or SDG bonds
the region such as Thailand’s Central Pattana in Indonesia.
Plc. Group, Government Savings Bank, and
Thaifoods Group.

Source: ADB and UNDP.

banks and financial institutions to issue green Finally, ADB can support the financing of green
bonds. In addition, ADB can help raise awareness projects by acting as a “first-loss” investor in
of the negative impacts of climate change and pooled investment vehicles that aggregate
inform investors of the increased risks posed smaller projects, helping to attract private
by climate change impacts. Also, ADB can investors to invest in senior layers of the capital
support the establishment of an independent structure. By bringing its expertise and capital
agency to provide second-party opinions, limited to such deals, ADB can help scale up the
assurance, and rating and scoring for green and market effectively.
ESG investments.
 FINAL WORD FROM
SURVEY RESPONDENTS

S
urvey respondents were asked to give Demand
some final words on green bond market
development in Indonesia. The following ff The green bond market in Indonesia is still
list comprises a few highlight responses: very limited in terms of instruments, so it
has considerable potential to be developed
Supply in Indonesia.
ff Green bonds in Indonesia will grow rapidly
ff The green bond market’s development in line with the government’s commitment
will need support from the government. to reduce greenhouse emissions by 41%
Green bonds should offer competitive by 2030.
interest rates for investors. ff Green bonds can be an investment
ff The Government of Indonesia needs alternative for bond investors seeking to
to develop more green projects in diversify their portfolio.
collaboration with the private sector. ff Relevant stakeholders need to work
ff Green bonds in Indonesia should be together to increase green bond issuances
denominated in rupiah and have a lower in Indonesia, which will provide greater
interest rate. They should be supported investment options for investors.
by the Government of Indonesia with a ff If the regulator allows investment outside
tax deduction or tax holiday. of Indonesia, we would also buy ASEAN
ff There should be a law or OJK regulation green bonds.
requiring institutional investors to allocate ff Green bonds are a perfect match for
a certain portion of their portfolios to long-term investments such as
green assets. pension fund.
ff An eligible green project pipeline is needed ff It is important to measure the impact
in Indonesia. There is a lack of awareness of climate change on financial markets
of green instruments among bond in Indonesia.
market participants. ff Many Indonesian investors, especially retail
ff The supply of and demand for green bonds investors, only pay attention to returns
exists, but investing in them has not yet and are not paying much attention to
become a necessity in the market. environmental aspects. This is a challenge
for the development of a green bond
market in Indonesia.
ff Most investors still see green bonds from
the commercial side (i.e., coupon rate),
yet there is no coupon compensation on
the “green” label. Issuers need incentives

29
30 GREEN BOND MARKET SURVEY FOR INDONESIA

for the additional costs (e.g., second ff There are exciting opportunities for
opinion) of issuing a green bond. On the Indonesia to develop and add inventory
other hand, investors need a push to to the green and sustainable bond
purchase green bonds (e.g., mandatory market, which needs more support from
green asset allocation or a tax benefit). the government in terms of incentives,
socialization, and a roadmap for both
Market Development issuers and investors. As investors globally
have put more importance on and targeted
ff The awareness of green and sustainable exposure to this type of investment,
investments is improving in our country. quickly developing the Indonesia green
The OJK regulations regarding sustainable bond market could attract more potential
finance have encouraged issuers to investors.
apply sustainability and green aspects in ff Indonesia needs more time to educate
their business activities. The success of investors and potential issuers.
sovereign sustainable bond and green ff At this stage, the green bond market is not
sukuk issuances has attracted global green yet attractive due to the lack of guidance,
investors to our country, contributing to resources, and regulation.
momentum among all stakeholders toward ff Clear guidelines and incentives from the
developing a green and sustainable bond government is necessary. Meanwhile,
market in our country. issuers should put in place a mechanism
ff Policy mechanisms that would increase to ensure that environmental objectives
green bond issuance include tax incentives are achieved as intended following the
and subsidies for green bond issuers, tax allocation of bond proceeds.
incentives for the coupon received by ff A local environmental expert who can
green bond investors, more incentives provide green bond verification services
from the regulator, and a policy from would be extremely useful.
the regulator mandating a certain ff The proliferation of standards, frameworks,
percentage of ESG investments for and guidelines—as well as the diversity of
institutional investors. market practices in terms of definitions
ff Sustainable economic opportunities and requirements for green bonds—create
remain high along with already strong complexity and confusion among issuers
regulations in the market. Meanwhile, and investors.
Indonesia has adopted a sustainable ff A standardized taxonomy and
economic growth approach via Law disclosures for green bonds is necessary,
No. 16/2016 Concerning the Ratification including having an external reviewer
of the Paris Agreement. The OJK also for green labeling, as well as enhanced
issues various regulations, including OJK information on green bonds via common
Regulation No. 51/2017 Concern ing the bond platforms.
Implementation of Sustainable Finance ff We need to work together to expedite
for Financial Service Institutions, Issuers, the practice of sustainable finance for
and Public Companies. future generations.
 NEXT STEPS

T
his survey found that the majority of Currently, the Indonesia green bond market is
investors, advisors, and underwriters, dominated by three sectors: renewable energy,
as well as issuers, are committed to energy efficiency, and clean transportation. It is
becoming more environmentally friendly in critical to further diversify and identify potential
terms of both investment and fundraising. issuers from other promising sectors—such
However, there are a significant number of as sustainable agriculture, water and waste
respondents that are not yet interested in management, and green buildings—to provide
investing or issuing green bonds at this stage, them with more funding opportunities and to
while others are interested but do not have give investors more investment opportunities.
sufficient capacity to seriously look into these
instruments. As a result, development partners, As Secretariat of the ABMI, ADB will continue
in collaboration with relevant regulators, can to work closely with local regulatory bodies
play a key role in strengthening the capacity and development partners to establish
of local capital market stakeholders, as well and strengthen the ecosystem necessary
as issuers, to mainstream climate finance and for the Indonesian sustainable finance
expand both the eligible project pipeline and market’s development, including capacity
the issuer base. building, publication of guidance notes and
handbooks, and technical assistance to issuers
on their sustainable finance journey.

31
Green Bond Market Survey for Indonesia
Insights on the Perspectives of Institutional Investors and Underwriters

This publication provides an overview of institutional investors’ interest in green bonds issued in Indonesia,
along with an assessment of the perspectives of local arrangers and underwriters on their clients’ interest
in green bond issuances. It presents the results of a survey to help identify drivers, impediments, and
development priorities for Indonesia’s sustainable finance market. The findings serve as a resource to inform
action to accelerate the market’s development.

About the Asian Development Bank

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific,
while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members
—49 from the region. Its main instruments for helping its developing member countries are policy dialogue,
loans, equity investments, guarantees, grants, and technical assistance.

GREEN BOND MARKET SURVEY

FOR INDONESIA
INSIGHTS ON THE PERSPECTIVES OF
INSTITUTIONAL INVESTORS AND UNDERWRITERS
NOVEMBER 2022

ASIAN DEVELOPMENT BANK

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1550 Metro Manila, Philippines ASIAN DEVELOPMENT BANK
www.adb.org