Growth or green? Indonesia can do both

INDONESIA has benefitted from phenomenal economic transformation over the last 50 years. During this period, the nation delivered a fiftyfold increase in gross domestic product (GDP) per capita, reduced the population under the poverty line by 84 per cent, and unlocked equitable economic opportunities as part of an increasingly dynamic national economy.

Now, Indonesia is faced with a remarkable new growth opportunity – one that aligns with ambitions to build a more sustainable world. With the right strategy, Indonesia is poised to position itself as an engine of global green growth, unlocking a US$400 billion annual green growth economic opportunity.

The truth is that Indonesia’s impressive economic expansion has put it at the sharp edge of the climate challenge. Changes in land use, fossil-fuel-heavy energy production, and growing consumption mean Indonesia is now the fourth-largest annual emitter of greenhouse gasses (GHGs), responsible for 4 per cent of global annual emissions.

It’s equally true that, as a developing country, Indonesia needs to maintain economic growth to further improve living standards. However, it is increasingly important that this occurs in a way that decouples growth from emissions.

If global warming exceeds 2 deg C above pre-industrial levels, Indonesia is vulnerable to an economic hit as extreme as a 40 per cent loss to GDP, with over 19 million people potentially displaced by rising sea levels. These stark figures highlight the imperative to build a green growth future for Indonesia.

Green growth means fresh opportunities

Indonesia’s transition to a green growth economy will require a whole-of-nation approach, engaging communities and businesses of all sizes. Large players will, of course, play a critical role, but so too will the vibrant micro-, small-, and medium-sized enterprises that provide the backbone of the national economy.

In our recent study, Catalysing Indonesia’s Green Growth Potential, Boston Consulting Group and AC Ventures identified a substantial US$400 billion annual green growth windfall Indonesia could unlock by 2030. This lucrative transition will require all stakeholders, of all sizes, across all sectors to participate, with three central participation pathways.

Green growth strategy and professional services to help organisations transform could unlock up to US$46 billion annually. Products and services that help steer clients’ green growth journeys, such as carbon accounting and decarbonisation strategies, provide a powerful opportunity to uplift the ecosystem.

Green growth solutions through products and services to optimise clients’ GHG inventories could deliver a further US$350 billion annually, with exciting opportunities in electric vehicles, renewable energy, and other low-carbon technologies.

Indonesia’s significant nature-based solutions potential could deliver a further US$4 billion annually, with the generation and trading of high-quality carbon credits for carbon offsetting.

Unlocking an ecosystem of opportunity

Indonesia’s vibrant startup ecosystem is seeing growing interest in green growth, with a number of startups entering and engaging with this space. Fairatmos is an Indonesian-based, climate-tech venture founded in 2022 that helps developers of carbon mitigation projects establish their businesses and gain access to carbon markets. The company is now working with more than 60 communities and landowners across Indonesia, with carbon sequestration projects covering 1.3 million hectares of land. Koltiva is an Indonesian agritech company with the ambition to help enterprises build traceable, inclusive supply chains, creating new green growth opportunities in this vital industry. In the automotive space, Maka Motors is committed to accelerating the adoption of electric motorbikes to positively impact the nation’s future mobility landscape.

These three companies are prime examples of the innovative ecosystem today. If we’re to truly energise a green growth economy, however, Indonesia needs to build beyond the current landscape and develop three key enablers of accessible green funding, green talent, and supportive regulatory frameworks.

Green talent is the foundation on which a truly green growth economy can be built, but access to appropriate talent remains challenging. Indonesia should look to develop talent that combines climate, technology, and functional skill sets – for example, coders with the understanding to build climate-targeted solutions. Stakeholders should look to develop focused training programmes, build out connectivity infrastructure, attract Indonesian talent back from overseas, and potentially improve access for key categories of foreign workers.

Boosting the scale and accessibility of green funding will further catalyse the ecosystem. The green growth sector is at a relatively nascent stage and will require significant capital injections to scale. Funding will be needed to address early disconnects in the dynamics of supply and demand, as well as a relatively immature standards landscape that can deter some investors. Education and awareness to promote existing green funding, clear and consistent standards for the industry, integrating environmental, social and governance (ESG) factors into risk management, and co-creating green financing products and services could all go some way to address this.

Finally, a supportive regulatory framework will be needed to help drive green growth across the economy. This is also a vital part of delivering a just transition that genuinely unlocks equitable and inclusive opportunities. Indonesian policymakers could develop fresh policies to augment areas of existing strength, create more clarity and transparency around emissions reporting, and provide a fertile landscape to ensure a just transition.

Participation and partnership will drive green growth

We all have a role to play in delivering on this opportunity, from government decision-makers to citizens on the ground.

The government can stimulate economy-wide demand for sustainable products and services while equipping Indonesia’s economy with the resources to drive green growth.

Financiers and investors can help fund this meaningful transformation while also being champions of change. This includes reducing emissions of portfolio companies and supporting their unique decarbonisation journeys. At the same time, they could create tailored offerings for green growth companies and enhance the green growth lens of their investments.

Businesses will be the beating heart of this green growth economy. They should look to develop green growth strategies and optimise carbon intensity while exploring ways to credibly offset any stubborn emissions. Developing products and services to enable decarbonisation in others will also help green the supply side of Indonesia’s economy.

Finally, citizens can make active decisions to choose green products and amplify consumer demand for sustainable brands and businesses. They also have the opportunity to be part of the necessary upswell in green talent, developing climate and technology skills which are highly sought-after in a green growth transition.

The need for a greener economic engine is more apparent by the day, framed by increasingly sharp warnings from the climate, and those who monitor it. What this report makes clear is that there is no need for Indonesia to choose between growth or sustainability.

Green growth promises significant value potential for Indonesia. Nurturing the foundations of success could help catalyse a world-leading economic opportunity, as Indonesia unlocks a US$400 billion annual green growth windfall.

Lauren Blasco is principal, head of ESG at AC Ventures. Marc Schmidt is managing director and partner at Boston Consulting Group in Singapore.