Indonesia

Project title Sector SCP practice
ACMFN Cross cutting issues Cleaner Production
AEMAS Utilities sector Product design for sustainability
Clean Batik Initiative Textile and leather industry Product design for sustainability, Sustainable Supply Chain Management
Efficient Air Conditioners / ASEAN SHINE Electrical equipment industry Eco-labels, Product design for sustainability
Hand-Woven Eco-Textiles Textile and leather industry Business and products for the poor, Sustainable Supply Chain Management
Lead Elimination Project Chemical sector Cleaner Production
Prospect Indonesia Wood-based industry Product design for sustainability, Sustainable Supply Chain Management
SCOPE - Soybean Processing Food and beverage Cleaner Production
Timber Indonesia Wood-based industry Eco-labels, Sustainable Supply Chain Management

Focal point

Mr. Noer Adi Wardojo
Director/Head, Standards and Technology, 
Ministry of Environment and Forestry, Indonesia   

SWITCH-Asia RPSC

In Indonesia, the SWITCH-Asia Programme's policy support is implemented through a National Policy Support Component (NPSC). Under the NPSC, a range of coordinated SCP activities are being implemented in Indonesia. For this policy support, the main partner in Indonesia is the Ministry of Environment and Forests.

Based on the SCP policy needs assessment, Indonesia has started their SCP policy support with the following activities lead by a National Policy Support Component under SWITCH-Asia:

  • Creating the framework for a consolidated national SCP policy
  • Support to SCP policy implementation
  • Financial mechanisms, incentives and policy instruments for SCP promotion

The National Policy Support Component is closing its activities in early 2015 and discussions are underway to broaden policy support activities in the country under the Regional Policy Support Component in 2015-2016.

Status of SCP policy framework

Indonesia has been one of the leading Asian countries on SCP. It is one of the first Asian countries to actively lead and represent the region in the Rio+20 10 Year Framework of Programmes on Sustainable Consumption and Production (10YFP) and in 2014 also launched its own national strategy for SCP with a similar name.

It was adopted by the Ministry of Environment and the National Body for Planning and Development (BAPPENAS) on 5 June 2013. Since then, the uptake of SCP in the national development policy has advanced further: the national 10YFP is now reflected in the Presidential Decree Number 43 of 2014 as one of the seven cross-cutting priorities in the first year of the Mid-term National Development Plan of 2015-2019, still to be formally adopted by the President. Joint planning and implementation are being undertaken by the government, the business and industry sector and civil society to implement the national 10YFP. The national framework puts forward a vision where quality of life is improved towards sustainable development and builds upon three main goals: 1) the inclusion of SCP into national development planning; 2) asset management and service to stakeholders for SCP implementation: “SCP Resource Pool Indonesia”; and 3) “Quick Wins” with thematic programs: “Ecolabel & Green Public Procurement”, “Green Industry”, “Green Building”, “Green Tourism”, and “Waste management”.

One of the sectors where the government is particularly active is sustainable buildings and construction. The government is applying green public procurement practices in the buildings and construction area. It relies on a life-cycle approach that takes into account not only the construction but also the usage phase of the building. The country is likewise actively engaged on consumer information on sustainability as one of the co-leads of the 10YFP programme on Consumer Information through its Ministry of Environment and Forestry. In addition, SCP indicators for eco-tourism as well as a Green Hotel Award programme have been put in place as part of the Green Tourism programme. Moreover, the Ministry of Environment and the Ministry of Industry join forces to develop cleaner industrial parks and production.

Indonesia has a driver role in the Southeast Asian region. The country is the lead organizer of the Forum on SCP of the Association of Southeast Asian Nations (ASEAN). This annual meeting, for which Indonesia also acts as the Secretariat jointly with UNEP, aims at facilitating experience sharing and cooperation on SCP implementation within ASEAN. The event is since 2011 bringing together representatives of small and medium enterprises, actors of the public and private sectors, as well as representatives of governments and ministries. Furthermore, ASEAN countries formulated an Integrated Food Security Framework and Strategic Plan of Actions to secure a stable access to food supply for household based on sustainable food production.

At the international level, Indonesia is actively engaged as a member of the 10YFP Board.  Indonesia has reaffirmed the importance of SCP as a universal and central condition to sustainable development, particularly in the context of the Sustainable Development Goals (SDGs). H.E. Balthasar Kambuaya, Minister of Environment of Indonesia said that “Without SCP, SDGs cannot be achieved.”

At the sectoral level there have also been many policy advancements on SCP and the SWITCH-Asia National Policy Support Component has lead the development of assessments on SCP policies in Indonesia to track progress on key policy issues. For example, the 2013 baseline study on SCP policies in Indonesia titled Mapping the State of SCP Policies and Tools in Indonesia is available here: http://www.switch-asia.eu/fileadmin/user_upload/Final_Baseline_Study_Indonesia_.pdf

(Source: 10YFP website)

Resource consumption and production

Main Resource Consumption and Resource Efficiency Indicators (2010)

Population (millions) 242326
GDP (billion USD) 846834
GDP is in USD exchange rate based on year 2005 and deflated.
Source: UNSD database.
Subject Area Total Per person Per USD$ of GDP
Domestic Material Consumption, DMC
(tonnes, tonnes per capita, kgr per 1USD$)
84,653,649 3.15 8.22
GHG emissions
(kilotonnes,tonnes per capita, kgr per 1USD$)
32,738 1.22 3.18
Total Primary Energy Supply, TPES
(Petajoules, Gigajoules per capita, Megajoules per 1USD$)
427.50 15.92 41.51
Water Use
(Trillion litres, Kilolitres per capita, Litres per 1USD$)
9.50 353.76 922.17
Subject Area Indicator
Population density 2015 (UNESA 2012 revision), population per sq.km 134
GDP per capita (USD), 2013 WB 3,475.30
HDI Rank (2013) UNDP 0.684
Arable land (hectares per person) WB 2012 0.1
Forest cover in % (2010), UNSTATS 52
Material intensity (2010)UNEP 4.28
Per-capita energy use (kg of oil equivalent per capita) 2011, WB 857
Energy intensity (total primary energy consumption per USD of GDP) 2011, EIA 15,738.99
GHG intensity (2010) UNEP 1.97
CO2 emissions (metric tone per capita), 2010, WB 1.8
Number of Middle Class consumers % (2010), ADB 47
Number of people with income < 2USD/day (PPP, USD, %), 2010, ADB 53

Trends in Resource Consumption and Resource Efficiency Indicators (1970-2010)

DE: Domestic Extraction;
MI: Material Intensity of the economy;
MF: Material Footprint.
All other abbreviations explained in the table above

For Indonesia, Panel a) shows that GDP has grown considerably faster than the other four overview indicators, with the possible exception of GHGs. The highly erratic year-to-year values for GHGs (a result of large variable components from fires/clearing/land-use change) appear to roughly track GDP until the most recent years. Growth in DE in panel b) is slightly slower than the growth in DMC seen in panel a), indicating a growing dependence on imported primary resources, although DE of fossil fuels grew more rapidly in relative terms. Panel c) shows strong growth in MF derailed by the Asian economic crisis of 1997 and subsequent events in Indonesia, with a relatively strong rebound from 2001 on. Comparing MF to DE indicates that Indonesia’s DE is more than that required, in gross terms, to support local primary material requirements. Panels d), e) and f) show roughly static to marginally decreasing intensities for materials, energy, and GHGs on both conventional and footprint based measures. It is also evident in panels d), e) and f) that footprint based measures attribute considerably lower consumption of materials and energy, and emissions of GHGs, to Indonesia than DMC/TPES based measures.

(Source: UNEP CSIRO Indicators for a Resource Efficient and Green Asia and the Pacific, 2015). 

Key references relevant to SCP

UNEP's relevant activities

The information in the country profiles herein have been obtained through research with firsthand and secondhand sources. The information presented herein cannot be considered as official policy of governments or other official bodies. The SWITCH-Asia Programme cannot be held responsible for the content of the sites to which it provides links or for the availability of servers or links. Information is being continuously updated in order to maintain an up to date country profile. If you would like to contribute information for this profile or have any further comments, please send an email to: SWITCH-PSC@unep.org

Status

"Green finance" - funding for sustainable consump­tion and production - represents only a small fraction of total commercial lending and financial products available, and is sold at a premium to non-green finance. Alternative sources for finance, such as factoring and lease financing, could help enable Small and Medium Enterprises (SMEs) to invest in sustainable consump­tion and production in Indonesia.

Despite promising developments, a key issue is the need for capacity building and awareness of sustainable consumption and production. SMEs and financiers both lack capa­bilities and skills required for widespread implemen­tation of green technologies and processes. In order for businesses to develop a more long-term oriented view and recognise the benefits of sustainable pro­duction and consumption, large-scale, nation-wide education campaigns may be needed for significant impact. Greater understanding between stakeholders could over­come many of the demand-supply barriers related to SMEs' enabling capacity, ability to navigate financing applications, or financiers' nascent exposure to green loans.

Indonesia has more than 56.5 million SMEs more than half of which are active in primary industries, namely fishery, agriculture, and forestry, followed by trade, which accounts for about one third of total SMEs. The number of SMEs has been growing steadily at about 2% p.a. from 2007 to 2012. Total establishments account currently for 99.9% of local enterprises, contributing about 60% to the gross domestic product (GDP) in 2012. About 6% of SMEs operate in the manufacturing sector, holding a share of more than 16% of total SME contribution to GDP.

In 2013 in Indonesia, commercial loans to SMEs represent­ed about 19% of total loans, of which 6% were targeted at the manufacturing sector. Working capital remains the most common type of financing provided to SMEs, com­prising 73.4% of total SME loans outstanding in 2013. State-owned banks are important actors in the Indo­nesian landscape, and lead the country market in dem­onstrating how the SME segment can be reached despite perceptions of high risk and high costs in serving them.

Alternative financing techniques, notably factoring and lease financing, serve as complementary sources of work­ing capital or investment finance, and are well suited to developing markets where the financial infrastructure presents gaps, or where the collateral regime or infor­mation infrastructure are weak. Factoring remains the most expensive and least popu­lar of the two alternative sources of finance. In Indonesia, lease financing represents 34.8% of total nonbank financ­ing whereas in contrast, factoring represents only 1.7%.

Private sector finance trends - Sources of Equity

No dedicated platform for SME listing exists in Indonesia, and the country's capital markets remain small compared to the overall size of the financial sector, and also mod­est in terms of the country's GDP and status as a middle income country. Equity markets have grown strongly in recent years, with stock market capitalisation recently reaching 55% of GDP. However, much of this growth is driven by a handful of companies (the top 10 companies account for 41% of market capitalisation), and there is limited mobilisation of capital from the primary markets.

Public support in Indonesia

At a G8 conference in 2009, Indonesia committed to re­ducing its greenhouse gas emissions by 26% (BAU) by 2020. To meet this target, substantial investment in the order of USD 170-200 billion p.a. will be needed for criti­cal infrastructure, as well as environmentally sensitive areas such as agriculture, forestry, energy, mining and waste. Financing for SMEs and industry is also critical for creating jobs and boosting productivity. One of the Government of Indonesia's immediate actions, following its greenhouse gas emissions reduction target announcement, was the creation of the Indonesia USD 1 billion Green Investment Fund (IGIF). With the objective of scaling both public and private investments into infrastructure, the IGIF acts as a shadow investor by providing funds for projects or banks without making direct loans or providing grants. Although the IGIF does not directly target SMEs, the fund is an important catalyst for further investment into new asset classes and potentially smaller enterprises. Indonesian commercial banks consider green finance to be an interesting business opportunity, yet dedicated finance mainly originates from state-owned banks or international development finance institutions that channel their funds through local commercial banks. A 2014 survey among 29 banks (commercial and Islamic) reported that green finance represents only 1.37% of the total lending portfolio (2013), up from 1.19% in 2011. Sector recipients for green funds were mini hydro (26.08%), geo­thermal (25.72%), and environmentally efficient machin­ery (19.64%). A major increase in direct investment is needed for In­donesia to make a substantial shift towards a sustainable development pathway, built on a less carbon-intensive and more inclusive economy. To date, finance flows from foreign development finance institutions have played a dominant role.

Key challenges SMEs face accessing finance

Structural barriers:

In Indonesia, cash-flow based finance is not practised. In the absence of banking and securities laws that enable securitisation of cash flows, contract rights, as well as elaborated insol­vency regimes to facilitate collection and prioritisation of multiple creditors, the Indonesian market's ability to promote diverse access to finance while preserving finan­cial stability remains limited. Traditional balance-sheet fi­nance is strongly preferred, and it follows that Indonesian banks will also prefer known borrowers with significant credit history and strong balance sheets.

Supply-side barriers:

- Higher transaction costs

- Long turnaround time due to additional (environmen­tal) assessments

- Longer tenor required (hence higher risk) to achieve environmental and financial savings

- Financiers lack technical skills

- Organisational processes necessary to evaluate green projects and smaller, newer and more opaque firms

- Lack of differentiation in Indonesia for green finance products (green transactions must be directly compared with non-green deals, without the dedicated metrics needed to support internal and market momentum for new business lines)

Demand-side barriers:

- Short-term outlooks

- Lack of awareness of the business case for green in­vestments

- Inadequate business ena­bling capacity

A government-led, top-down approach will be es­sential to enforcing and stimulating greater SME access to green finance, and raising awareness of sustainable consumption and production. Economic incentives for banks should be considered to help them overcome inertia and initially higher transac­tion costs. National regulations, such as quotas for commercial lending to SMEs for green projects, would be a strong market signal to advance progress toward greener and more inclusive financial services.

Main institutions providing Green Finance

Main institutions providing Green Finance

Bank Rakyat Indonesia (BRI) is well known for its focus on providing finance to SMEs; about 80% of BRI's lending portfolio is dedicated to SMEs. This experience has fos­tered BRI's innovative approaches for client acquisition, assessment and servicing. To serve SME customers effec­tively, BRI has 'down-scaled' standard commercial bank practice and enhanced operations with processes from community bank practice. Credit analyses are simplified and weightings are adjusted for SMEs relative to larger borrowers. Collateral is generally considered less impor­tant for a successful loan application, and a stronger em­phasis is placed on a general, qualitative assessment of the borrower's personal and business 'reputation' and 'character' during the credit approval process (Bank Indo­nesia, 2013).

Public Bank Mandiri and L'Agence Française de Développement (AFD or French Development Agency) recently launched the second part of cooperation for financing renewable energy and energy efficiency projects. AFD extended a line of credit to Mandiri of USD 100 million in 2010 during phase one, and an ad­ditional USD 100 million in 2013 during phase two of the initiative. Out of the total USD 200 million, about USD 97 million has been disbursed to finance energy efficiency, mini-hydro, biogas and biomass projects, among others. While the first tranche focused only on targeted project types, the second project phase builds on lending activities by providing funding for technical capacity building and transaction support for Mandiri to internally assess and underwrite green projects.

Channelled through Bank BNI and Indonesia Exim-bank, the Industrial Efficiency and Pollution Control (IEPC-1 and IEPC-2) facility is targeted at SMEs to sup­port end-of-pipe solutions and integrated environ­mental investments, such as machinery upgrades and a more efficient resource use. The credit line of EUR 11.25 million (USD 14 million) is largely funded by the German Federal Ministry for Economic Cooperation and Development through KfW, providing EUR 9 mil­lion (USD 11.2 million), and through BNI and Eximbank, providing EUR 2.5 million (USD 3.1 million).

Other institutions providing Green Finance in Indonesia are:

Bank BPD Bali

The Ministry of Energy, Green Technology and Water (METGW)

Global Environment Facility (GEF) Trust Fund

UNEP

KfW & Partners

Ministry of Foreign Affairs of Finland