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The political and institutional constraints on green finance in Indonesia

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  • James Guild

Abstract

The ADB estimates Asia’s infrastructure needs from 2016 to 2030 will exceed US $26 trillion. This ballooning demand for infrastructure, coupled with rising investor awareness of the importance of sustainable development, is driving the nascent green finance sector. In emerging markets, raising capital for green projects is often the easy part; identifying and implementing suitable projects and structuring the financing is more challenging. This paper draws on the school of institutional economics to analyse the potential of green finance in underwriting renewable energy development in Indonesia. The paper argues that even if there is strong demand on capital markets for green bonds backing clean energy projects, the institutional design of the renewable energy sector has created a misaligned incentive structure for Indonesia’s political class. The paper concludes by discussing Ministerial Regulation 50/2017 which has created a regulatory framework that side-steps some of these constraints.

Suggested Citation

  • James Guild, 2020. "The political and institutional constraints on green finance in Indonesia," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 10(2), pages 157-170, April.
    • Handle: RePEc:taf:jsustf:v:10:y:2020:i:2:p:157-170
    DOI: 10.1080/20430795.2019.1706312
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    Cited by:

    1. Samira Ben Belgacem & Ghousia Khatoon & Abad Alzuman, 2023. "Role of Renewable Energy and Financial Innovation in Environmental Protection: Empirical Evidence from UAE and Saudi Arabia," Sustainability, MDPI, vol. 15(11), pages 1-11, May.
    2. Olga V. Loseva & Svetlana V. Karpova & Konstantin O. Rasteryaev & Elizaveta S. Sokolova & Svetlana V. Makar & Khvicha P. Kharchilava, 2020. "Sustainable Energy in Island States: Comparative Analysis of New Trends in Energy Digitalization and the Experience of the UK, Japan, Indonesia and Cyprus," International Journal of Energy Economics and Policy, Econjournals, vol. 10(6), pages 722-731.
    3. Muhtar Sapiri & Aditya Halim Perdana Kusuma Putra, 2023. "Causality of Bank Financial Performance, Green Bond, CSR, Green Financing Portfolio and CO2 Emissions in Transportation: Evidence from Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 511-522, November.
    4. Bhatnagar, S. & Sharma, D., 2022. "Evolution of green finance and its enablers: A bibliometric analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 162(C).
    5. Abbas, Jawad & Wang, Lisu & Ben Belgacem, Samira & Pawar, Puja Sunil & Najam, Hina & Abbas, Jaffar, 2023. "Investment in renewable energy and electricity output: Role of green finance, environmental tax, and geopolitical risk: Empirical evidence from China," Energy, Elsevier, vol. 269(C).
    6. Christoph Nedopil & Truzaar Dordi & Olaf Weber, 2021. "The Nature of Global Green Finance Standards—Evolution, Differences, and Three Models," Sustainability, MDPI, vol. 13(7), pages 1-23, March.
    7. He, Junming & Iqbal, Wasim & Su, Fangli, 2023. "Nexus between renewable energy investment, green finance, and sustainable development: Role of industrial structure and technical innovations," Renewable Energy, Elsevier, vol. 210(C), pages 715-724.

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