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JUST TRANSITION TOWARDS A SUSTAINABLE ECONOMY







Sustainability is becoming one of the most crucial facets of business development. It is considered necessary to be competitive and foster company longevity. Not only helping the planet and making society fairer and more inclusive, evidence is mounting that sustainable businesses actually offer higher returns for investors.

World Economic Forum stated that companies that invest in clean, green businesses will continue to see better returns due to their ability to adapt to our changing world and sustainable investing will become the norm.1 Therefore, it is not surprising that investors, including banks, are competing to invest in sustainable companies and leave companies that are considered unsustainable, one of which is a company with business activities sourced from fossils.

Based on a study released by the Institute for Energy Economics and Financial Analysis (IEEFA), more than 100 global financial institutions have decided to leave financing for coal and mining power plant projects. Recently, Bank of China also decided to get out of this business. This trend is also followed by several large banks in Southeast Asia, such as Maybank and CIMB.2

Indonesia is also following the existing trend. Banks, particularly state-owned banks, have been urged to limit lending to unsustainable companies.3 PT Bank Rakyat Indonesia (Persero) Tbk (“BRI”) has just announced that it will limit lending to the fossil energy sector. BRI is said to no longer provide financing to businesses that damage the environment and is committed to implementing sustainable finance practices that are integrated with ESG (Environment, Social, and Governance) aspects. 4

BRI's decision to stop financing the fossil energy sector such as coal and oil has also received appreciation from environmental activists. Coordinator of the Association for Ecological Action and People's Emancipation (AEER) said the decision from Bank BRI helped reduce the pace of climate change.5 Environmental activists encourage banks and other financial service providers to follow BRI's lead.

This transition step that is being promoted is certainly a good step to achieve sustainable economy that is concerned with the environment and social welfare. However, in practice, it must be ensured that the transition is just transition. Just transition means ensuring that costs and benefits of a world powered with renewables are fairly distributed. It therefore must create alternatives to people and regions trapped in fossil fuel dynamics through new economic opportunity, education and skills trainings and adequate social safety systems.6

We need to ensure that the transition towards a sustainable economy happens in a fair way, leaving no one behind. Frans Timmermans, Executive Vice-President of the European Commission stated that we must show solidarity with the most affected regions, such as coal mining regions and others, to make sure the green deal gets everyone’s full support and has a chance to become a reality.7 We also need to understand that reduction of fossil fuels in developed countries and developing countries such as Indonesia cannot be matched at the same speed.8

To achieve just transition, several actions shall be taken by all parties, such as:9

  1. facilitating employment opportunities in new sectors and those in transition.

  1. offering re-skilling opportunities.



  1. supporting the company transition to low-carbon technologies and economic diversification based on climate-resilient investments and jobs.

  1. providing easier access to loans and financial support for companies that want to conduct a transition.

  1. investing in research and innovation activities for companies who want to explore the transition.

Further, to make sustainable economy as our reality, all parties shall play their parts. For example, the unsustainable company shall come up with new strategy and conduct concrete action to prepare themselves to conduct business transition. One of the Indonesian companies that has conducted such step is PT Adaro Energy Indonesia Tbk (“Adaro”). Its Head of Corporate Communication said that Adaro is not indifferent to business trends, especially regarding the issue of climate change. Adaro will adapt to this change by starting to look at the new renewable energy business. Adaro through its subsidiary, Adaro Power, is overseeing green energy projects.10

Investors play a role by continuing to encourage the implementation of ESG in the provision of finance. One of the tools that can be used is to require a Sustainability Report to be able to see the implementation of ESG on prospective debtors. Not only to see the implementation of ESG in prospective debtor companies, through a Sustainability Report, investors can also see the company's long-term plans and strategies to achieve sustainability.

A consultant also can play a huge part in this journey. The consultant can assist both debtors and investors to conduct assessment on the prospective debtors, draft the Sustainability Report, make effective plan and strategy to achieve sustainability and even evaluate and monitor implementation of sustainability programs in prospective debtor companies.

There is also the role of the government in encouraging the achievement of sustainable economics through various regulations. As we all know that the Government is currently discussing the Draft of Law on New and Renewable Energy.11 In the financial sector, OJK is also developing a green taxonomy roadmap. OJK has prepared incentives from the fiscal side for industries that are included in the green taxonomy sector. Later, incentives will be given from upstream to downstream, such as low interest rates for credit in the green sector, tax incentives, working capital loans and others.12



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