This chapter assesses Indonesia’s policy framework for sustainable infrastructure planning, delivery and financing. It examines national development strategies and international commitments under the country’s Nationally Determined Contribution (NDC) and Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR), alongside sectoral frameworks in energy, transport and industry infrastructure. The chapter analyses infrastructure investment needs, financing gaps and the role of public finance, public-private partnerships and sustainable finance instruments for mobilising private capital. It explores climate risks, emissions trends and fossil fuel dependence, as well as challenges linked to governance fragmentation, subnational capacity and project preparation. The chapter also reviews infrastructure appraisal tools, resilience planning, nature-based solutions and the integration of environmental, social and gender considerations in infrastructure decision-making.
Accelerating Sustainable Infrastructure Investments
Abstract
Indonesia faces acute and growing challenges in ensuring that its infrastructure systems are resilient to the escalating impacts of climate change. The country is among the top third globally in terms of exposure to climate risks, including flooding, extreme heat, droughts and coastal risks linked to sea level rise. Today, approximately 180 million Indonesians are exposed to sea-level rise, while around 40% of the population is exposed to multiple hazards such as floods, landslides and droughts. These hazards increase the likelihood of cascading and systemic risks, where disruptions in one infrastructure system (e.g. transport or energy) propagate across sectors and regions. Their impacts are not only widespread but systemic, with potential macroeconomic consequences estimated at between 2.5% and 7% of GDP, underscoring the urgency of strengthening infrastructure resilience as a core development priority (WWF, 2025[1]).
Extreme weather events, drought and sea-level rise are only projected to intensify with climate change, reinforcing the need for immediate and sustained action. Even under scenarios where global mitigation efforts are successful, Indonesia is expected to experience a rise in average temperatures of around 1°C by 2050 relative to pre-industrial levels, alongside increasingly frequent and unpredictable extreme weather events. Under higher-emissions pathways, the economic and social costs could be substantially more severe, with GDP projected to decrease by 4.4% by mid-century and significant increases in climate-related mortality risks. These trends highlight that adaptation and resilience-building are not optional but essential to safeguarding economic stability and human well-being (OECD, 2024[2]).
Against this backdrop, the twin goals of mitigating greenhouse gas (GHG) emissions and integrating climate resilience into infrastructure planning, design and investment are critical. Without such integration, climate impacts are projected to intensify sharply, with annual flood-related damages in urban areas expected to increase more than four-fold by 2030. In the longer term, sea level rise could lead to permanent flooding affecting an estimated 4 million people by 2070 under a median scenario. These projections point to the need for a systemic shift in infrastructure development practices, prioritising adaptation and resilience-building to ensure that assets remain functional and effective under a wide range of future climate conditions (OECD, 2024[3]).
5.1.1. The infrastructure gap in Indonesia
Infrastructure investment plays a central role in supporting Indonesia’s continued economic development and its long-term ambition of achieving high-income status by 2045, as outlined in its long-term national development strategy (RPJPN). Despite significant progress, including a doubling of public infrastructure spending between 2014 and 2023, total investment remains well below estimated needs. Public infrastructure spending reached 1.9% of GDP in 2023 – only around one-third of the estimated 6% required – implying a financing gap of approximately USD 56 billion in that year alone. More broadly, estimates suggest annual shortfalls ranging from USD 23 billion to USD 74 billion, underscoring the scale and persistence of the challenge (ADB, 2025[4]). Mobilised private capital has so far been insufficient to bridge this gap. Given constrained public resources, it is essential that Indonesia remove barriers to and encourage the upscaling of private investment in infrastructure, while continuing to use public and development funds judiciously to crowd in investors.
The nature of this financing gap reflects both structural and sector-specific challenges. Indonesia’s geography as an archipelagic state of more than 17 000 islands significantly increases the cost and complexity of infrastructure provision, particularly for transport and logistics systems. As a result, key networks remain underdeveloped: the road system faces capacity and design limitations, while logistics costs – at 14.3% of GDP in 2022 – remain well above regional comparators (ADB, 2025[4]; World Bank, 2023[5]). Infrastructure deficits are also evident in essential services. In the energy sector, near-universal electrification (99.4% in 2023) co-exists with reliability issues in remote areas and a continued reliance on coal-fired generation, pointing to gaps in both access and sustainability (ADB, 2025[4]). In urban areas, home to over 56% of the population, access to basic services remains limited: only 21% of households have piped water, 7% have safely managed sanitation, and around 30 million people live in inadequate housing, while inadequate waste collection exacerbates environmental pressures. These issues are further compounded by climate adaptation challenges, as investments in resilience – such as climate-proof infrastructure and disaster risk reduction – often entail higher upfront costs and face perceptions of limited or uncertain short-term returns, despite their long-term economic and social benefits. Water-related constraints are particularly acute, with half of GDP generated in water-stressed river basins, widespread degradation of irrigation infrastructure, and low levels of water productivity (ADB, 2025[4]).
Estimates vary regarding the size of Indonesia’s infrastructure investment gap (Table 5.1), but in all cases public resources alone will not be sufficient to close Indonesia’s infrastructure gap. Fiscal constraints limit the scope for further increases in public spending, making it essential to mobilise private capital at scale. This will require addressing persistent barriers to investment, strengthening the enabling environment for private participation, and using public and development finance more strategically to crowd in private investors.
Note: AFOLU = agriculture, forestry and other land use
Indonesia’s recent economic trajectory shows steady growth alongside a gradual decline in investment intensity (Figure 5.1). Between 2014 and 2024, nominal GDP in current US dollars rose from about USD 891 billion to roughly USD 1.4 trillion. Over the same period, gross fixed capital formation – used here as a proxy for infrastructure and capital investment – declined from around 33% of GDP in the mid-2010s to approximately 29% by 2022-2024. While the absolute level of investment has increased alongside economic expansion, the declining share indicates that capital formation has grown more slowly than overall economic output. This divergence suggests that investment may need to accelerate – particularly in infrastructure – to sustain productivity growth and support Indonesia’s long-term development objectives.
Gross domestic product (GDP) in billion constant 2015 USD (left axis) and gross fixed capital formation as a percentage of GDP (right axis), 2014 to 2024
Source: Author’s elaboration based on (World Bank, 2025[11]).
5.1.2. Sustainable infrastructure investments offer an opportunity for Indonesia’s long-term competitiveness and development
Infrastructure is central to Indonesia’s inclusive growth agenda, serving as both a catalyst for economic transformation and a key lever to enhance long-term competitiveness and resilience. Indonesia has made significant progress in expanding its infrastructure base, but infrastructure investment and development have not kept pace with rapid economic growth and demographic shifts (especially urbanisation), hindering Indonesia’s efforts to tackle poverty reduction and pursue shared prosperity. Despite continued improvements in living standards, poverty and inequality remain higher than in several ASEAN peers. Regional disparities remain pronounced, with limited connectivity and uneven access to essential services particularly affecting rural and coastal communities vulnerable to climate-related shocks. Overall infrastructure quality and reliability constrain Indonesia’s ability to move up global value chains. (ADB, 2022[12]).
Indonesia’s economy has demonstrated strong and resilient growth over the past two decades, averaging around 5% annually and delivering significant welfare gains. The national poverty rate declined from around 24% in 1999 to approximately 9.5% by March 2022 and further to about 8.6% by September 2024 (World Bank, 2023[13]). However, Indonesia’s growth model remains strongly resource-driven, with significant reliance on energy-intensive and extractive sectors. This creates both a vulnerability and a strategic opportunity: transitioning toward more sustainable, infrastructure-led growth could support economic diversification and enhance competitiveness in emerging low-carbon markets. The economy continues to depend heavily on exports of natural resources such as coal and palm oil, both of which are associated with major sources of greenhouse gas emissions (World Bank, 2023[13]).
Transport infrastructure constraints represent one of the most significant structural barriers to Indonesia’s development agenda but also represents an important opportunity to improve economic performance through targeted sustainable investments. Road transport dominates mobility – accounting for over 85% of passenger activity – while rapid motorisation and low public transit uptake reinforce congestion and GHG emissions pressures (World Bank, 2023[14]). Public transit mode shares remain between 2-15% across most Indonesian cities, with Jakarta’s share only 2.4%, far below comparable Asian urban centres. Expanding and modernising public transport systems would not only reduce GHG emissions but also improve labour mobility and urban productivity. These patterns contribute to rising energy demand, with the transport sector responsible for roughly 25% of national energy-related GHG emissions and around 10% of total GHG emissions (World Bank, 2023[14]). Traffic congestion also imposes substantial economic costs, with wasted commuting time estimated at USD 5.1 billion annually – roughly 0.5% of GDP – disproportionately affecting poorer households living far from city centres (OECD, 2024[2]).
Freight connectivity faces similarly significant bottlenecks, presenting opportunities to enhance trade competitiveness and reduce costs through more efficient and sustainable logistics systems. Underdeveloped port connections, limited modal integration, and relatively few direct shipping routes contribute to high logistics costs, which remain around 14% of GDP – with national targets aiming to reduce this to 8% by 2045 (ITF, 2025[15]). Infrastructure disparities in eastern regions raise costs and hinder market access, underscoring the need for substantial transport infrastructure upgrades (OECD, 2024[2]; ITF, 2025[15]). Heavy reliance on road freight, which accounts for around 90% of surface freight movement, exacerbates congestion, GHG emissions and climate vulnerability, while rail freight remains underdeveloped, concentrated primarily on the island of Java and poorly integrated with other transport modes (OECD, 2024[2]; ITF, 2025[15]).
Sustainable energy infrastructure will also play a critical role in Indonesia’s long-term competitiveness and development, offering a pathway to enhance energy security, reduce costs and support new growth sectors. At present, the energy mix remains heavily skewed toward coal and petroleum, while renewables account for only around 13% of consumption and less than 1% of Indonesia’s vast renewable potential has been utilized (OECD, 2024[2]). Grid infrastructure remains underdeveloped, with transmission bottlenecks, intermittent supply in remote areas and limited inter-island connectivity constraining integration of clean energy sources (ADB, 2025[4]). Regulatory barriers, complex permitting processes and fossil fuel subsidies – which absorb around 2% of GDP – further slow the energy transition (OECD, 2024[2]). Addressing these structural constraints would reduce reliance on volatile fossil fuel imports, strengthen energy security and enable Indonesia to develop emerging industries such as electric vehicle and battery supply chains (ADB, 2025[4]).
5.1.3. The need for infrastructure aligned with climate and broader sustainability risks and commitments
Indonesia faces severe and escalating climate risks across multiple dimensions that are likely to intensify over time (World Bank and Asian Development Bank, 2021[16]). The frequency of climate-related disasters – particularly flooding – has increased over the past two decades (Figure 5.2). Average temperatures have risen by approximately 0.28°C per decade since 1971 and are projected to increase further in many regions by the end of the century. Extreme rainfall events are becoming more frequent, while sea levels are projected to rise by up to 0.90 metres by 2100, significantly increasing flood risks for coastal communities (World Bank, 2025[17]).
Number of drought, flood, wet mass movement* and wildfire events
Note: Wet mass movement refers to downslope movement of soil, rock or debris in which water saturation reduces material strength and promotes gravitational displacement
Source: Author’s analysis of the EM-DAT database (Delforge et al., 2025[18]) updating the analysis of (OECD, 2024[3]).
Indonesia ranks among the world’s largest greenhouse gas emitters, accounting for roughly 2% of global GHG emissions, although per-capita emissions remain modest compared to many industrialised economies. Total GHG emissions have increased steadily, rising from roughly 0.6 gigatons in 2000 to approximately 1.2 gigatons in 2023, even as emissions intensity per unit of GDP has declined over time indicating a moderate decoupling of economic growth from emissions trajectories (European Commission, 2024[19]).
A closer look at sectoral trends highlights the central role of infrastructure-related emissions in shaping Indonesia’s overall trajectory. GHG emissions from the energy sector have been consistently large – generally the single largest source since the mid-2000s – and have shown a clear upward trend, increasing from approximately 318 MtCO₂e in 2000 to over 750 MtCO₂e in 2023 (Figure 5.3). By contrast, GHG emissions from land use, land-use change and forestry (FOLU), including peat fires, have been far more volatile, with large spikes in certain years (notably 2015 and 2018) reflecting episodic events such as forest and peatland fires rather than steady structural drivers. Other sectors, including agriculture, industrial processes (IPPU) and waste, have exhibited more gradual increases over time, but remain smaller in magnitude relative to energy. This pattern underscores that while land-based GHG emissions can drive short-term fluctuations in Indonesia’s emissions profile, infrastructure-related systems – particularly energy and transport – represent the most stable and growing source of emissions. At the same time, infrastructure planning decisions can also influence land-use dynamics, for instance through the expansion of linear infrastructure such as roads and transmission networks into forested areas, which can contribute to deforestation, fragmentation and associated GHG emissions. As such, infrastructure systems constitute one of the most important levers available to Indonesia to influence its long-term GHG emissions trajectory, highlighting the critical importance of directing infrastructure investment toward low-carbon investments, in addition to resilient investments that reduce exposure and vulnerability to future risks.
Kiloton of CO2e by sector 2018 – 2023
Note: FOLU emissions were negative in 2001-2003.
Source: Author’s analysis of BPS-Statistics Indonesia Database (BPS-Statistics Indonesia, 2025[20])
This dominance of energy-related GHG emissions is closely linked to the structure of Indonesia’s primary energy supply, which remains heavily reliant on fossil fuels. Coal use has expanded dramatically since 2000, becoming the dominant source of energy supply, while oil and natural gas remain major contributors (Figure 5.4). Although renewable energy sources such as hydropower, solar and wind have grown gradually, their share of the overall energy mix remains relatively small. Accelerating the deployment of clean energy infrastructure will therefore be essential for reducing GHG emissions, strengthening energy security and aligning Indonesia’s development trajectory with its climate commitments (IEA, 2025[21]).
Indonesia’s primary energy supply by source (terajoules, TJ), 2000-2023
Source: Author’s analysis of (IEA, 2025[21]).
Indonesia is already experiencing the impacts of climate change, which are likely to exacerbate existing social inequalities. Urban areas face increasing exposure to flooding and land subsidence, particularly in coastal cities such as Jakarta where subsidence rates reach 1-15 centimetres per year (World Bank, 2023[14]). Without significant investment in climate-resilient infrastructure, these impacts could reduce Indonesia’s GDP by up to 7% by the 2060s under a high-emissions scenario (World Bank, 2023[14]; OECD, 2024[3]). Climate impacts also interact with existing development vulnerabilities, amplifying inequality and disproportionately affecting lower-income households, which are more exposed to climate hazards and have fewer resources to recover from shocks (World Bank, 2023[14]; ADB, 2025[4]). Strengthening the resilience of infrastructure can reduce these impacts, increasing asset lifetimes and the reliability and efficiency of service provision while reducing maintenance and recovery costs.
Proactive investment in climate adaptation is significantly more cost-effective than reactive post-disaster spending. This reflects the high benefit-cost ratios typically associated with adaptation investments, particularly when resilience is integrated early in the infrastructure lifecycle. Long-term benefits from adaptation measures are substantial: Avoided health and fire-related damages from land-use policies alone are estimated at USD 65 billion between 2018 and 2030, while proactive investments in infrastructure and disaster risk management could generate GDP gains of USD 16 billion over the same period (World Bank, 2023[14]).
Aligning infrastructure investments with economic, social and environmental sustainability outcomes requires that the national strategic framework in place provides clear qualitative and quantitative objectives for sustainable infrastructure development. The national strategic planning framework includes (i) governance and strategic policy frameworks, i.e., the processes, systems, and practices through which infrastructure decisions are made, as well as strategic plans, policies and programmes driving infrastructure planning; (ii) long-term planning tools backed by robust modelling, scenario-building and foresight capabilities; and (iii) specific tools, methods and capabilities for mainstreaming sustainability into infrastructure planning and project-level appraisals.
Indonesia has strengthened its sustainable development planning, notably through the Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR 2050) and the updated Nationally Determined Contribution (NDC), as well as the integration of sustainable infrastructure into overall development planning, through medium- and long-term strategic development plans (RPJPN 2025–2045, RPJMN 2025–2029). Together, these strategies provide a clearer vision linking infrastructure investment with economic transformation, climate mitigation and resilience objectives. However, translating these strategies into infrastructure investment decisions remains challenging. Climate resilience and gender considerations are increasingly recognised but remain unevenly embedded in infrastructure planning, project appraisal and governance. Climate adaptation remains insufficiently operationalised, with limited use of enforceable standards, forward-looking risk assessments and monitoring indicators to guide resilient infrastructure outcomes. Strengthening co-ordination, planning tools and implementation mechanisms will be essential to ensure infrastructure investments support sustainable and resilient development.
Strengthen alignment and co-ordination across national strategies and infrastructure planning. Clarify the links between overarching climate-related strategies (e.g., LTS-LCCR, NDC 3.0, led by the Ministry of Environment), national development plans (e.g., RPJPN, RPJMN, led by Bappenas) and sector-level infrastructure investment pipelines (led by line ministries). Improve co-ordination across ministries and levels of government to help ensure sustainability and climate objectives are reflected in infrastructure prioritisation and implementation.
Expand the use of long-term modelling and scenario analysis in infrastructure planning. Strengthen institutional capacity for modelling, foresight and scenario analysis through targeted capacity building and training. Integrate these tools more systematically into infrastructure strategies and public investment decision-making to better align infrastructure development with long-term decarbonisation and resilience pathways. Scenario analysis should explicitly incorporate climate uncertainty and be complemented by adaptive pathways approaches favouring low-regret options to support flexibility and ensure returns under uncertainty.
Embed climate resilience more systematically in infrastructure planning and project appraisal. Develop clearer guidance and minimum resilience standards for climate-resilient infrastructure, mandating the use of climate risk assessments in project appraisal. Expand the use of forward-looking climate data through training and accessible platforms to improve infrastructure design and investment decisions.
Integrate gender and social inclusion considerations more consistently into infrastructure governance. Strengthen gender-responsive consultation processes, integrate gender indicators into infrastructure planning and monitoring frameworks and support initiatives that increase women’s participation in infrastructure decision-making. Particular attention should be given to how climate risks differentially affect vulnerable groups.
5.2.1. National governance and strategic framework for sustainable infrastructure development
Indonesia’s national strategic framework increasingly positions infrastructure as a central instrument for long-term growth, connectivity and resilience (Table 5.2). Indonesia’s current long-term national development plan, Long-Term National Development Plan (Rencana Pembangunan Jangka Panjang Nasional, RPJPN) 2025-2045, sets ambitious overarching objectives, including the headline goal of achieving high-income status by 2045. A series of 5-year medium-term plans, most recently RPJMN 2025-2029, serve to complement and flesh out the long-term plan with more detailed lists of priority activities and indicators. As the first implementation phase, RPJMN 2025-2029 prioritises the links between infrastructure development and regional connectivity, resilience and environmental sustainability (Government of Indonesia, 2025[22]; Bappenas, 2025[23]). These planning documents provide a stronger basis than earlier planning cycles for aligning infrastructure investment with broader development and sustainability objectives (Bappenas, 2025[23]).
Indonesia’s climate mitigation and adaptation commitments are also more clearly articulated than before. The Second Nationally Determined Contribution, submitted in 2025, states that it is aligned with the LTS-LCCR 2050 and the RPJPN 2025-2045, and reiterates Indonesia’s objective of achieving net-zero GHG emissions by 2060 (Government of Indonesia, 2021[24]; Government of Indonesia, 2025[25]). The National Adaptation Plan, submitted in 2025, complements this framework by setting out adaptation priorities across sectors including water, energy, housing and transport (Government of Indonesia, 2025[26]). Taken together, these documents provide a formal basis for integrating mitigation and adaptation objectives into long-term infrastructure planning (Government of Indonesia, 2025[26]).
Despite the breadth of this framework, implementation remains constrained by fragmented mandates and uneven co-ordination across institutions. Most notably, insufficient co-ordination between the Ministry of National Development Planning (Bappenas), which leads the development and co-ordinates the implementation of national development strategies, and the Ministry of Environment (formerly the Ministry of Environment and Forestry), which fulfils a similar role for UNFCCC processes, including the NDCs, the LTS-LCCR and the National Adaptation Plan, has been identified as a key barrier to policy coherence and effective implementation. This fragmentation is particularly problematic for adaptation, which requires cross-sectoral and multi-level co-ordination due to the systemic nature of climate risks. According to a survey of decision-makers within Indonesia focusing on adaptation policies, conflicts between the two bodies including cases of intentional exclusion from key decision-making processes, were highlighted as a recurrent factor hindering policy development and implementation (Apresian, 2024[27]). Indonesia’s climate and development transition requires stronger integration of fiscal, financial, investment and sectoral policies, because outcomes in infrastructure are shaped by interactions across energy, transport, land use, urban development and forestry planning. In practice, this means that the challenge is less the absence of plans than the limited coherence with which they are translated into infrastructure prioritisation, appraisal and delivery (World Bank, 2023[14]).
Recent institutional reforms have sought to strengthen horizontal co-ordination in infrastructure planning and delivery through the establishment of a dedicated co-ordinating function. In particular, the creation of a Co-ordinating Ministry for Infrastructure and Regional Development under the 2024 cabinet restructuring, formalised through presidential regulations on the organisation of state ministries, aims to consolidate oversight of key infrastructure and spatial planning portfolios, including public works, transport and land administration. This reform reflects an explicit government objective to improve policy alignment and accelerate project delivery by reducing fragmentation across sectoral mandates. However, the same regulatory framework does not establish a clear institutionalised role or consultative capacity for the Ministry of Environment (formerly the Ministry of Environment and Forestry) in the core co-ordination architecture for infrastructure development (President of Indonesia, 2024[28]). This risks weakening the integration of climate adaptation considerations into core infrastructure decision-making processes.
Reliance on public finance and delivery arrangements also continue to constrain implementation. Indonesia faces very large infrastructure investment needs over the coming decades, and official programme documents prepared with Bappenas emphasise that closing this gap will require both more private finance and better quality public spending (Department of Foreign Affairs and Trade, 2024[29]). At the same time, climate-responsive public financial management has advanced, including through climate budget tagging, but recent assessments show that further reforms are still needed for climate considerations to shape budgeting and expenditure decisions more consistently across the full public financial management cycle (PEFA Secretariat, 2025[30]). In addition, current public financial management practices do not yet systematically track or prioritise adaptation-related expenditures, limiting the ability to assess whether infrastructure investments are effectively reducing climate risks. The government’s continued use of public-private partnerships reflects an effort to improve delivery, but the broader challenge remains how to convert strategic priorities into a predictable and investable infrastructure pipeline (Bappenas, 2025[31]).
Multi-level governance also poses key challenges. Subnational governments are responsible for significant areas of infrastructure provision and planning, including water supply, sanitation, irrigation, local roads, land-use planning and urban development, and they are also expected to incorporate resilience into regional planning and budgeting (OECD, 2024[3]). However, current practice remains uneven. Recent OECD analysis finds that climate-risk information is increasingly available, but forward-looking risk assessment and infrastructure-specific vulnerability analysis are still not systematically embedded in local planning. This gap is exacerbated by the lack of clear national specifications and standards for climate-resilient infrastructure (OECD, 2024[3]). In addition, local planning processes often rely on historical climate data, limiting their relevance under rapidly changing climate conditions. Stronger vertical co-ordination, clearer national guidance, forward-looking data and dedicated funding for training and capacity development at the local level will therefore be essential if national commitments are to translate into more consistent project-level decisions across regions (OECD, 2024[3]).
Sectoral strategies are progressively integrating sustainability objectives, but they do not yet form a fully coherent implementation framework. In energy, the transition requires major investment in renewable generation and transmission infrastructure, while market design and off-taker arrangements continue to affect incentives for private investment (OECD, 2024[2]). In terms of resilience planning, Indonesia has expanded the availability of climate-risk data and promoted nature-based solutions, but forward-looking risk assessment, asset-level vulnerability analysis and clearly defined resilience standards remain incomplete (OECD, 2024[3]). Moreover, sectoral approaches often do not fully account for interdependencies between infrastructure systems, increasing the risk of cascading failures under climate stress. Overall, Indonesia’s national strategic framework for sustainable infrastructure is now relatively strong in terms of plans and commitments, but less mature in terms of institutional coherence, implementation discipline and integration across governance levels and sectors (World Bank, 2023[14]; OECD, 2024[2]).
5.2.2. Long-term planning tools: modelling, scenario-building and foresight capabilities
Indonesia’s long-term climate strategy is articulated in the Long-Term Strategy for Low Carbon and Climate Resilience. The strategy outlines pathways for achieving net-zero emissions and strengthening resilience by 2060 while maintaining economic growth and development. The strategy uses scenario-based modelling to assess alternative mitigation pathways across key sectors including energy, industry, land use and transport, providing an analytical basis for long-term GHG emissions reductions and investment planning. It also calls for strengthening sectoral resilience (e.g., water, agriculture, coastal systems), scaling ecosystem-based approaches, integrating climate risk into infrastructure and planning, and enhancing institutional capacity and financing to protect vulnerable communities (Government of Indonesia, 2021[24]).
Strategic foresight is an important tool to strengthen long-term plans in the face of uncertainty and potential interconnected disruptions. Strategic foresight is a structured and systematic approach to anticipating, exploring and shaping the future. Rather than predicting a single outcome, the methodology enables governments to stress-test long-term strategies against a range of plausible futures, including those shaped by environmental, technological, economic, and geopolitical shifts (OECD, 2025[32]). From an adaptation perspective, foresight tools are particularly valuable for identifying low-regret strategies and avoiding lock-in to infrastructure designs that may become maladaptive under future climate conditions.
Under SIPA, the OECD’s Strategic Foresight Toolkit for Resilient Public Policy was piloted in Indonesia to help strengthen the long-term and medium-term national development plans (Box 5.2). Its application led ultimately to the development of a dedicated policy brief to strengthen the medium development plan, RPJMN 2025-2029. The OECD’s foresight process is built around five modules – exploring disruptions, imagining interactions, creating scenarios, envisioning strategies, and recommending policies – that help policy makers challenge core assumptions and prepare for complex, emergent risk (OECD, 2025[32]).
Strategic foresight workshops
In 2023, OECD Strategic Foresight Unit collaborated with the Ministry of National Development Planning (Bappenas) to apply strategic foresight in support of the National Long-Term Development Plan (RPJPN 2025–2045) and Medium-Term Development Plan (RPJMN 2025–2029). The objective was to assess how these plans would perform under different future conditions and identify actions that remain relevant across scenarios. The exercise’s three workshops brought together 30 senior officials from Bappenas and other ministries, including Energy and Mineral Resources, Environment and Forestry, Public Works and Housing, and Industry.
As a result of the workshops, participants co-created recommendations to integrate well-being indicators alongside GDP, embed nature-based solutions and biodiversity safeguards in infrastructure projects, phase out fossil fuel subsidies while supporting green industries, and improve digital resilience through data protection and cybersecurity awareness. Beyond these recommendations, the workshops served as an important introduction of strategic foresight methodology to policy makers, encouraged co-ordination across ministries, and supported the integration of resilience thinking into Indonesia’s development planning processes.
RPJMN policy brief
In 2024, Bappenas, reflecting on the results of the foresight exercise and other ongoing SIPA activities, requested targeted recommendations from the SIPA consortium to strengthen the draft RPJMN 2025-2029. That year, the recommendations, compiled in a policy brief, were delivered to Bappenas during a policy dialogue in Jakarta and endorsed by high-level Bappenas officials. The recommendations fed into the adopted text, strengthening the mainstreaming of resilience and nature-based solutions throughout the strategy and calling for greater use of enhanced project evaluation techniques, including integrated cost-benefit analysis.
Source: (OECD, 2023[33])
5.2.3. Policy-level and asset-level sustainability evaluation tools integrating environmental and social considerations
Evaluation tools play a critical role at both the policy and asset levels in promoting more sustainable and cost-effective infrastructure. At the policy level, instruments such as Strategic Environmental Assessments (SEAs; locally known as Kajian Lingkungan Hidup Strategis, KLHS) help integrate environmental and social considerations into high-level planning and decision-making frameworks. At the asset level, Environmental Impact Assessments (EIAs, locally known as Analisis Mengenai Dampak Lingkungan, AMDAL) as well as integrated cost-benefit analysis tools that include environmental sustainability criteria, like IISD’s Sustainable Asset Valuation (SAVi) methodology, help evaluate the specific impacts of individual infrastructure projects.
Integrated cost-benefit analyses utilising methodologies that account for non-market impacts provides policymakers and investors with more holistic evaluations of infrastructure projects. Cost-benefit analysis is a form of economic appraisal often used ex ante to estimate the monetary value of the costs and benefits of a policy package within a particular geography over a set period of time; the outcome of which can be expressed as a benefit-to-cost ratio (OECD, 2018[34]). Developments in valuation methodologies have enabled policymakers to estimate the value of environmental amenities and disamenities which otherwise could not be accurately integrated into cost-benefit analyses (OECD, 2018[34]). However, the extent to which social and environmental costs and benefits are included in public infrastructure project appraisal varies highlighting the need for more holistic cost-benefit analysis. In addition, climate risk and resilience considerations are often only partially captured or treated qualitatively.
The Sustainable Asset Valuation (SAVi) methodology, developed by the International Institute for Sustainable Development (IISD), provides a simulation-based approach to infrastructure appraisal that integrates environmental, social and economic externalities into financial analysis. Unlike traditional cost-benefit analysis, which often excludes non-market impacts, SAVi quantifies and estimates a monetary value of externalities such as pollution, climate-related disruptions and social dislocation, and models their effects on financial performance indicators like net present value (NPV) and internal rate of return (IRR). This enables policymakers and investors to assess the full value of sustainable infrastructure investments over their life cycle (IISD, 2019[35]). Under SIPA, SAVi methodology was piloted on two road projects through a series of collaborative capacity building workshops (Box 5.3). Wider, more systematic use of integrated cost-benefit analysis could help ensure that investments deliver maximum societal benefits while minimising environmental impacts.
Indonesia’s road network is highly vulnerable to floods and landslides, with up to 65% of roads at risk of climate impacts. Conventional engineering approaches often overlook the resilience benefits provided by ecosystems such as forests, wetlands, and mangroves. To address this, IISD developed and piloted a Sustainable Asset Valuation (SAVi) model to quantify the direct and indirect benefits of nature-based solutions (NbS) for road resilience.
In Indonesia, the analysis covered several costs and benefits that traditional cost-benefit analysis would overlook, including avoided road damage, reduced fuel consumption, lower vehicle and road maintenance costs, improved access to markets and services, and reductions in air and GHG emissions. Socio-economic indicators like mental health and productivity losses are also included.
Applied to two pilot locations – Pekanbaru (urban) and West Kalimantan (rural) – the SAVi analysis demonstrates that including non-road benefits transforms projects from economically unviable to highly viable. For example, in Pekanbaru, the benefit-to-cost ratio (BCR) rises from 0.89 under a traditional approach to 11.45 when NbS co-benefits are considered, with an internal rate of return (IRR) of 66.6%. In West Kalimantan, the BCR could increase from 0.35 to as high as 6.05.
The model also incorporates climate risk projections using Shared Socio-economic Pathways (SSPs) and an “extreme wet event” indicator to estimate future flood and landslide risks. This forward-looking approach ensures that resilience planning accounts for the most disruptive rainfall events, enabling more effective investment decisions under different climate scenarios.
Source: (IISD, 2025[36]).
5.2.4. Mainstreaming climate resilience into infrastructure development
Integrating climate resilience into infrastructure systems is increasingly recognised as a policy priority in Indonesia, supported by expanding availability of climate risk information. National institutions such as the National Disaster Management Authority (through the InaRisk platform), the Meteorology, Climatology and Geophysical Agency, and the National Research and Innovation Agency provide a growing body of hazard, exposure and vulnerability data to support disaster risk management and adaptation planning (OECD, 2024[3]). These datasets represent an important foundation for resilience-informed infrastructure planning. However, their use in infrastructure decision making remains limited, and significant gaps persist in translating data into actionable investment decisions.
Under SIPA, the OECD helped identify these gaps and supported the integration of resilience into infrastructure planning and public investment management through policy dialogues and targeted recommendations. The policy dialogues highlighted key constraints, including the predominance of backward-looking datasets based on historical hazards, which limits their relevance for long-term infrastructure planning under changing climate conditions, increasing the risk of underestimating future hazards and leading to potential maladaptation (OECD, 2024[3]). In addition, the lack of asset-level vulnerability data makes it difficult to assess risks to specific infrastructure systems or prioritise resilience measures. Addressing these challenges will require systematically integrating forward-looking climate projections into planning processes, strengthening risk screening tools, and embedding resilience criteria within project appraisal and prioritisation frameworks (OECD, 2024[3]).
Indonesia’s broader data governance reforms provide an opportunity to support this transition. The Indonesia One Data policy aims to improve interoperability, accessibility and consistency of government datasets across ministries and agencies (World Bank, 2023[14]). Integrating climate hazard and risk information within this framework would enhance its usability for infrastructure planning at both national and subnational levels. At the same time, strengthening institutional co-ordination and standardising methodologies for climate risk assessment will be essential to ensure consistent application across sectors and levels of government. Ensuring that climate data are decision-relevant (e.g. downscaled, sector-specific and linked to design standards) will also be essential for their effective application to infrastructure planning and management.
Subnational governments play a central role in infrastructure delivery and spatial planning, yet capacity constraints continue to limit the integration of resilience considerations into investment decisions. These constraints are particularly critical for adaptation, as resilience measures are often highly context-specific and require localised risk assessments and implementation capacity. While some cities, including Jakarta and Semarang, have begun incorporating adaptation into local planning frameworks, progress remains uneven (OECD, 2024[3]). Many local governments face limited technical capacity for climate risk assessment and infrastructure management, as well as challenges related to fragmented governance and misalignment between national priorities and local implementation (World Bank, 2023[14]). Financing constraints further compound these challenges, as access to instruments such as public-private partnerships, bonds and climate finance mechanisms often requires technical and administrative capacities that are not yet widely available. In addition, resilience investments – particularly those with cross-sectoral benefits – remain difficult to finance within existing frameworks (OECD, 2024[3]).
Under SIPA, complementary work led by WWF focused on the role of nature-based solutions (NbS) in strengthening infrastructure resilience (Box 5.4). WWF’s national-scale analysis identifies priority ecosystems that provide critical services such as flood regulation, sediment retention, water recharge and coastal protection that directly support infrastructure systems and reduce climate risks.
WWF’s analysis identifies ecosystems that provide critical services to infrastructure systems, including flood regulation, sediment retention, water recharge and coastal protection. These priority areas, covering around 16% of Indonesia’s land, underpin the resilience of approximately 147 million people and 68% of the national road network. Many of these ecosystems lie outside protected areas, indicating gaps in current land-use and conservation frameworks. Targeted conservation and restoration could significantly expand resilience benefits.
Policy implications
Integrate NbS into planning frameworks: Embed ecosystem-based approaches into national infrastructure planning, spatial planning and public investment management systems.
Strengthen data integration: Incorporate NbS and climate risk datasets into national platforms (e.g. One Data) to ensure consistent use across sectors and levels of government.
Enhance subnational capacity: Build technical and institutional capacity to apply climate risk screening and NbS approaches in local planning and project design.
Mobilise finance for resilience: Align public, private and climate finance to support investment in NbS, including through blended finance and incentive mechanisms.
Methodology
The analysis combines national-scale spatial mapping of ecosystem services with infrastructure and population exposure data to identify areas where natural systems contribute most to resilience. It assesses multiple ecosystem functions relevant to infrastructure performance and overlays these with infrastructure networks and demographic data to quantify the extent of benefits and identify priority areas for conservation and restoration.
Source: (WWF, 2025[1])
5.2.5. Mainstreaming gender considerations into infrastructure planning and evaluation frameworks
Indonesia’s recent expansion of infrastructure has helped reduce structural barriers that disproportionately affect women, but benefits remain uneven. Infrastructure investments have started to benefit women by improving access to economic opportunities, reducing time poverty, easing women’s unpaid domestic burdens, supporting girls’ education and enabling home-based economic activities (World Bank, 2020[37]; World Bank, 2022[38]; World Bank, 2024[39]; Soeters, 2021[40]). However, infrastructure sector employment remains male-dominated, with women primarily in support roles due to stereotypes, lack of training and non-inclusive environments (Hansen, 2021[41]; ERIA, 2025[42]).
Although gender is recognised in Indonesia’s national development strategies, gender considerations remain weakly operationalised within infrastructure-specific policies and sectoral strategies. Indonesia has formally committed to gender equality through international and national policy frameworks. The country has ratified the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) in 1979 through Law 7/1984, signed the 1995 Beijing Platform for Action (United Nations, 2021[43]) and has since incorporated gender equality into national planning frameworks such as the National Medium-Term Development Plan (RPJMN) 2025–2029. The Presidential Instruction No.9/2000 on Gender Mainstreaming mandates Gender Responsive Planning and Budgeting (GRPB) across all government levels. This framework is supported by a range of implementation tools, tools including Gender Tagging, Gender Budget Statements (GBS) and gender disaggregated data. Reviews of frameworks such as the national transport system (SISTRANAS) and the industrial strategy (RIPIN) show limited gender-responsive targets or investment criteria. In practice, gender considerations are often limited to broad principles such as accessibility or participation rather being systematically integrated into infrastructure design, prioritisation and investment decisions (World Bank, 2022[38]; UNDP, 2022[44]). Interviews with government stakeholders further indicate that gender tools are applied inconsistently across infrastructure ministries due to capacity constraints, limited oversight and a compliance-oriented approach. To strengthen the integration of gender considerations into Indonesia’s national development strategies, the government could embed gender equality objectives in the Presidential Regulations and their supporting regulations governing infrastructure development. This could be achieved by institutionalising Gender Impact Assessments (GIAs) to systematically inform gender-responsive spatial and sectoral planning processes. In parallel, efforts to localise Gender Equality and Social Inclusion (GESI) mandates should be reinforced by incorporating gender-sensitive indicators into regional development plans. Particular attention should be given to highly vulnerable regions, such as Papua and East Nusa Tenggara, to ensure that development outcomes are inclusive and responsive to differentiated needs.1
While Indonesia has made regulatory and institutional investments in gender co-ordination, its whole-of-government approach remains fragmented. Institutional co-ordination is jointly led by BAPPENAS, Ministry of Women’s Empowerment and Child Protection (MoWECP), the Ministry of Finance, and the Ministry of Home Affairs, alongside Gender Mainstreaming Working Groups (Pokja PUG) at national and sub-national levels. A review of strategic documents across six key infrastructure ministries and agencies, including Public Works, Transport, Environment, Agrarian Affairs, Industry and the Investment Coordinator Board suggests that most lack gender equality KPIs, gender-disaggregated targets or institutionalised gender accountability in their recent (2020-2024) strategic plans.2
While infrastructure-related ministries including Public Works and Environment show internal progress through sex-disaggregated data initiatives and strategic planning, these efforts are not consistently translated into project implementation or tracked through gender-specific indicators (Ministry of Public Works and Housing, 2020[45]). MoWECP has established a dedicated unit for infrastructure under the Deputy of Gender Mainstreaming and provides technical assistance, but interviews with government stakeholders, including Bappenas, the Ministry of Finance and the Ministry of Home Affairs, highlight that its impact is constrained by limited sectoral presence, weak enforcement and symbolic application of gender tools, with a focus on easily quantifiable outputs rather than equity-focused planning. Without stronger enforcement linking gender outcomes to infrastructure performance indicators and procurement processes, co-ordination mechanisms risk remaining procedural rather than transformative.3
Monitoring and evaluation of gender outcomes in infrastructure development remains fragmented. Indonesia has regulations in place (Finance Minister Regulation No. 142/2018) which requires gender analysis across government. However, GRPB application in infrastructure sectors is inconsistent and largely procedural: while gender objectives are formally embedded in budget systems, project performance monitoring and outcome-based evaluations rarely incorporate gender-specific indicators, and GBS tend to track inputs rather than outcomes. While sex disaggregated data is collected by some ministries, it is not systematically used in planning or budgeting processes (PEFA, 2020[46]). Although national accountability mechanisms for gender mainstreaming exist and are co-ordinated by Bappenas, the Ministry of Finance and the Ministry of Women’s Empowerment and Child Protection, enforcement across infrastructure sectors remains inconsistent (PEFA, 2020[46]), as confirmed in interviews with Bappenas.4
To address these gaps, Indonesia could: (1) integrate gender-sensitive indicators from the outset of infrastructure projects and ensure their systematic tracking (e.g. women’s access to services, participation rates and exposure to gender-based risks); (2) strengthen accountability and feedback mechanisms by mandating accessible and anonymous grievance redress systems for women at the project level; (3) institutionalise ex-ante and ex-post gender impact evaluations to assess outcomes such as time poverty, income, mobility and intersectional effects, and feed lessons into future planning; (4) improve gender-disaggregated data systems, including databases on land acquisition, compensation and customary land rights, to better safeguard women’s interests; and (5) build capacity in gender analysis across all levels of government, ensuring continuous training and stronger integration of monitoring and evaluation findings into infrastructure planning cycles.5
Donor-funded infrastructure initiatives have often led the way in integrating gender considerations into project planning and implementation. In these projects, gender-inclusive consultations, gender action plans, social risk screening and sex-disaggregated indicators are systematically incorporated into feasibility studies, project design and monitoring frameworks (Witt and Doig, 2025[47]; ADB, 2020[48]). For example, projects under the Just Energy Transition Partnership (JETP) integrate gender action plans and social safeguards in preparation (JETP, 2023[49]). However, these do not always translate into practice. A study on Indonesia’s energy transition finds that limited transparency and accountability in JETP decision-making risk excluding vulnerable communities, with women lacking meaningful influence (Witt and Doig, 2025[47]). While these initiatives offer models for embedding gender considerations, their replication will require stronger accountability and the inclusion of women as decision-makers, not just beneficiaries.
While Indonesia’s national strategies and institutional frameworks provide a strong basis for advancing sustainable infrastructure, achieving real progress depends on how well sectoral policies and regulations translate these national ambitions into practice. Coherence across sectors is critical to ensure that efforts in energy, transport and industry contribute consistently to the country’s broader sustainability and climate goals. Sectoral frameworks, which encompass the policies, standards, and regulatory instruments that guide investment decisions, play a central role in shaping market incentives and determining the viability of business models for infrastructure development. This section examines Indonesia’s framework conditions for investment in sustainable energy, transport and industrial infrastructure, highlighting how they can support the transition toward a more diversified, low-carbon and resilient economy.
Sectoral policies and regulatory frameworks play a decisive role in shaping investment incentives for sustainable infrastructure in Indonesia. Despite national commitments to decarbonisation and sustainable development, market conditions in key sectors continue to favour carbon-intensive infrastructure pathways. In the energy sector, heavy reliance on coal, regulated electricity tariffs and substantial fossil-fuel subsidies continue to distort investment incentives and slow renewable deployment. In transport, road-based mobility dominates passenger and freight systems, contributing to rising GHG emissions, high logistics costs and infrastructure congestion. Infrastructure assets are also increasingly exposed to climate-related risks, requiring stronger integration of resilience considerations in planning and investment. However, resilience considerations remain insufficiently operationalised within sectoral regulations, investment frameworks and technical standards, limiting the effectiveness of adaptation efforts. At the same time, emerging OECD work on industrial decarbonisation highlights the importance of enabling conditions – including access to low-carbon electricity, supportive infrastructure and appropriate financial instruments – to support the transition of key industrial sectors.
Reform policy and fiscal incentives favouring carbon-intensive energy infrastructure. Gradually redirect fossil-fuel subsidies and other fiscal support toward renewable energy deployment, grid modernisation and energy-efficiency programmes. Strengthen cost-reflective electricity pricing and open the power market to independent producers, promoting more competition and greater private investment into clean energy infrastructure.
Improve transparency, project pipelines and financing mechanisms for sustainable energy investments. Strengthen data availability on technology costs and infrastructure pipelines and expand the use of blended-finance and risk-mitigation instruments through public financial institutions. These measures would help improve project bankability and mobilise private capital for renewable energy, energy-efficiency and industry decarbonisation projects. Integrating climate risk disclosure and resilience criteria into project preparation would further help enhance long-term bankability and reduce climate-related financial risks.
Accelerate the transition toward low-carbon and multimodal transport systems. Reduce reliance on road-based transport by expanding rail, maritime and public transport infrastructure and improving port-hinterland connectivity. Strengthening multimodal logistics systems and integrating climate resilience considerations into infrastructure planning would help reduce GHG emissions, congestion and supply-chain vulnerabilities.
Strengthen enabling conditions for industrial decarbonisation. Support the transition of key industrial sectors by improving access to low-carbon electricity, developing supporting infrastructure and strengthening policy and financial instruments that facilitate investment in low-emission technologies.
5.3.1. Framework conditions for sustainable energy infrastructure development
Indonesia’s energy system remains overwhelmingly reliant on fossil fuels, even as the country stands at a pivotal moment for reform and diversification. Coal supplies about 70% of power generation, while other fossil fuels make up just under half of the remainder. Renewables account for just over 15%, led by hydropower and geothermal, with biofuels and solar photovoltaic contributing small but steadily rising shares (Figure 5.5). Despite an ambitious national target to achieve net-zero emissions by 2060, progress has been slow. Although renewable generation has grown 2.6-fold since 2010, fossil fuel output has expanded almost as quickly (about 2.4-fold) and, in absolute terms, the increase in fossil-based generation has far outpaced gains in clean energy. Moreover, even though Indonesia has cancelled 51.5 GW of planned coal projects, which would have almost doubled domestic generation capacity, it still plans to add 17.7 GW of new coal capacity, further entrenching the country’s dependence on coal (Global Energy Monitor, 2025[50]). The 2023 Ministry of Finance Regulation No. 103/2023 (Permenkeu 103/2023) allowing state budget funds to finance early coal-plant retirement represents an important shift in this pattern, but implementation remains at an early stage (Ministry of Finance of the Republic of Indonesia, 2023[51]): The Global Energy Monitor has recorded a total of only 55 MW of retired coal capacity in Indonesia up to July 2025, equivalent to less than 1% of the country’s currently operating fleet (2025[50]).
Electricity generation by source in GWh, 2000-2023
Source: (IEA, 2025[52])
Structural features of Indonesia’s power market and fiscal framework continue to anchor the energy system to fossil fuels. The state-owned utility Perusahaan Listrik Negara (PLN) operates as a vertically integrated monopoly controlling generation, transmission and distribution, while independent power producers (IPP) can sell power only to PLN or within narrow captive markets, severely limiting competition. The regular procurement of renewable power projects, either through public investment and EPC contracts or through IPP auctions, is key to develop a local industrial ecosystem and reach Indonesia’s climate goals. Power grid developments face challenges in the archipelago; they need to be accelerated to unlock electrification, growth and the integration of grid-scale renewables.
Fossil-fuel subsidies further compound these distortions. Under SIPA, IISD undertook a comprehensive analysis of fossil fuel subsidies in Indonesia, their potential reform as well as potential reforms to PLN. Fossil fuel subsidy reform and PLN reform are intricately linked: Between 2017 and 2022, the government transferred over IDR 500 trillion (approximately USD 24 billion) to PLN to compensate for below-market tariffs, effectively subsidising fossil-fuel use. With retail tariffs held below cost-recovery levels and no carbon price in place, renewables still appear costlier than coal despite falling generation costs (IISD, forthcoming[53]).
From 2016 to 2021, 94% of all quantified energy support went to fossil fuels and less than 1% to renewables (Figure 5.6). Tax exemptions and price support for oil, gas and coal, along with new incentives under the 2020 Job Creation Law granting a 30% tax allowance and royalty exemptions for coal-gasification, divert scarce fiscal resources away from clean energy. A flagship USD 2.3 billion coal-to-dimethyl ether (DME) plant in South Sumatra, for instance, is economically viable only when LPG prices exceed USD 858 per ton, a level reached in just 6% of the past 20 years. While the government’s 2015 fuel-subsidy reform saved IDR 211 trillion (USD 15.6 billion), much of the fiscal space was later used to maintain low electricity prices. Redirecting these transfers and incentives toward renewable generation, grid upgrades and energy-efficiency programmes would yield far stronger long-term returns and align public finance with Indonesia’s decarbonisation goals (IISD, forthcoming[53]).
Support measures by target sub-sector in trillion IDR, fiscal years (FY) 2016-2021
Note: Only partial data available for FY2021.
Source: (IISD, forthcoming[53])
Aligning Indonesia’s fiscal policy with its clean energy goals will be crucial to closing the investment gap and signalling credibility to investors. Reallocating existing fossil fuel subsidies through a ‘subsidy swap’ could free up IDR 107 trillion from coal and IDR 154 trillion from transport fuels, more than twice the IDR 126 trillion (USD 8 billion) estimated annual investment gap to achieve net-zero in Indonesia’s energy sector (IEA, 2022[8]). Redirecting these funds toward renewable generation, grid upgrades and energy-efficiency programmes would both strengthen fiscal efficiency and accelerate the transition. Indonesia’s experience with the 2015 fuel-subsidy reform, which saved IDR 211 trillion (USD 15.6 billion) and financed expanded health and welfare programmes, shows that such reallocation is feasible. Building on this precedent, a new round of reforms could direct subsidy savings toward clean-energy investment and just-transition support, turning existing public expenditure from a constraint into a catalyst for decarbonisation (IISD, forthcoming[53]).
Capacity building and institutional co-ordination are emerging as key enablers of Indonesia’s energy transition. Under SIPA, the OECD Clean Energy Finance and Investment (CEFI) Training Weeks (Box 5.6) have demonstrated that bringing together policy makers, project developers and financial institutions under a shared learning framework can help overcome long-standing co-ordination and knowledge gaps. By improving participants’ understanding of project structuring, risk allocation and financial analysis, these training weeks have enhanced the ability of both public and private actors to prepare and assess bankable projects. Participants’ follow-up actions, such as renewed collaboration between the Ministry of Energy and Mineral Resources and the Financial Services Authority (OJK) on sustainable-finance guidelines and the creation of internal project-evaluation units in several provincial agencies, illustrate the growing institutional uptake of these skills.
Since 2022, under SIPA and as part of the Clean Energy Finance and Investment Mobilisation (CEFIM) Programme, the OECD partnered with Indonesia’s Ministry of Energy and Mineral Resources (MEMR), the Financial Services Authority (OJK) Institute and international partners (GIZ CASE, USAID SINAR, and SETI) to deliver an annual series of Clean Energy Finance and Investment (CEFI) Training Weeks. These three editions, held in Bandung (2022), Yogyakarta (2023) and Manado (2024), brought together more than 180 participants from national and provincial governments, financial institutions and the private sector.
Each training combined classroom instruction, case studies, and field visits on renewable-energy and energy-efficiency projects. Over time, the programme evolved from foundational awareness-raising to hands-on project appraisal and financing exercises. Over the three years, participants identified and refined more than 20 pilot projects, including micro-hydro, geothermal and industrial-efficiency investments, which were later presented to financial institutions for feedback on bankability. The events also generated concrete follow-up results:
Improved co-ordination: MEMR and OJK initiated work to align sustainable-finance taxonomies and clean-energy lending guidelines.
Replication of training: MEMR’s Renewable Energy and Energy Efficiency Training Centre (PPSDM) incorporated CEFI modules into its national training curriculum.
Pipeline development: Several participants from the private sector and local governments used project-assessment templates introduced during the training to prepare feasibility studies now under review by PT SMI and other financiers.
Beyond capacity building, several cross-cutting priorities have been reinforced through the training series and related policy dialogues.
Transparent data on technology costs and project pipelines remains a prerequisite for improving bankability and attracting private investment.
Greater deployment of blended-finance and de-risking mechanisms, through public financial institutions such as state-owned limited liability companies Penjaminan Infrastruktur Indonesia (“Indonesian Infrastructure Guarantees”) and Sarana Multi Infrastruktur (“Multi-Infrastructure Facility”) can help scale financing for both renewable energy and energy-efficiency projects.
Strengthening policy coherence among Bappenas, the Ministry for Energy and Mineral Resources (MEMR) and OJK, alongside continued efforts to integrate gender and regional inclusiveness in training and financing programmes, will be essential to ensure that Indonesia’s clean-energy transition delivers broad-based and equitable outcomes.
5.3.2. Framework conditions for sustainable transport infrastructure development
Indonesia’s transport sector contributes substantially to environmental degradation and urban air pollution, particularly in large cities. The sector is among the largest energy consumers nationally and relies heavily on energy-intensive road transport (the dominant mode for both passengers and freight), which generates large quantities of local air pollutants (e.g. particulate matter, NOₓ, CO) making transport a major source of air-quality and public-health challenges (World Bank, 2023[14]; IISD, 2024[57]). The health burden is significant: recent estimates indicate that exposure to fine particulate matter was associated with around 147 000 premature deaths in Indonesia in 2023 (Health Effects Institute, 2025[58]).
Road transport is overwhelmingly the dominant source of CO2 emissions within Indonesia’s transport sector (Figure 5.7). Road transport consistently dominates Indonesia’s domestic transport emissions – typically accounting for around 85-95% of the total, with only modest and relatively stable contributions from domestic navigation, domestic aviation and rail over the period (Asian Transport Observatory, 2025[59]). This dominance of road transport means that curbing CO₂ emissions from transport critically depends on road-vehicle reforms, modal shift and decarbonisation strategies (IEA, 2023[60]).
Share of national transport‑related CO₂ emissions by mode of transport.
Beyond domestic transport, Indonesia’s GHG emissions profile is also shaped by its international freight system, which is overwhelmingly maritime due to the country’s archipelagic geography and central role in regional and global trade. While these emissions are not always fully captured in domestic inventories, they represent a significant and growing source of carbon intensity associated with Indonesia’s economy. Reducing emissions from maritime transport will therefore be essential to complement domestic decarbonisation efforts. This includes accelerating the implementation of green port initiatives – such as the deployment of shore power, renewable energy (e.g. solar), and alternative fuel bunkering (including hydrogen and LNG) at major hubs such as Tanjung Priok and Tanjung Perak – as well as improving the efficiency of cross-border shipping and logistics. In particular, modernising key trade corridors, including the Dumai-Melaka route with Malaysia, and reducing administrative bottlenecks through deeper integration and expansion of the ASEAN Single Window, can help lower both emissions intensity and trade costs while strengthening regional connectivity.
Indonesia’s transport infrastructure is increasingly exposed to climate-related hazards, raising the risk of disruption, increased maintenance costs and damage; especially for critical links such as roads, ports and inter-island connections (World Bank, 2023[14]; OECD, 2024[3]). The exposure is particularly severe in coastal and low-lying areas where sea-level rise, flooding and more frequent extreme weather events threaten maritime and road infrastructure (World Bank, 2023[14]). These risks highlight the need for a shift from reactive maintenance toward proactive, risk-informed planning and asset management approaches. As a result, climate resilience has become a strategic priority in Indonesia’s infrastructure planning and national development frameworks, including plans for nature-based adaptation measures and climate-aware design for transport assets (OECD, 2024[3]). However, implementation remains uneven, with limited use of standardised resilience metrics, asset-level vulnerability assessments and enforceable design standards across the transport network.
Investing in sustainable, low-carbon and climate-resilient transport infrastructure offers significant long-term economic and development benefits, by reducing fuel dependence and GHG emissions, improving connectivity and lowering the socio-economic costs associated with climate-induced disruptions, including service interruptions in critical corridors and supply chains (World Bank, 2023[14]). More efficient, reliable public transportation and modal diversification (e.g. rail, maritime) can ease congestion, cut logistics costs, reduce vulnerability to climate shocks, and improve access; particularly important for an archipelagic country like Indonesia where connectivity underpins domestic trade, regional integration and socio-economic inclusion (IISD, 2024[57]; ITF, 2025[15]).
Decarbonising freight transport in Indonesia
The freight transport sector plays a central role in Indonesia’s economic development, but this dependence on road-based logistics creates significant environmental and efficiency challenges Road freight accounts for around 90% of domestic surface freight movement, supported by a 500 000-kilometre road network that connects rural and urban areas across Indonesia’s archipelago (ITF, 2025[15]). This overwhelming reliance on trucks increases congestion on key corridors in Java and Sumatra, where surface transport demand is projected to be the highest by 2050, placing strain on existing infrastructure. The dominance of road transport also contributes to high logistics costs and elevated GHG emissions, as rail utilisation remains below 60% and environmental technology adoption is limited (ITF, 2025[15]).
Indonesia’s logistical performance is shaped by persistent infrastructure gaps, particularly in port connectivity and multimodal integration. Despite having major ports such as Tanjung Priok, Belawan and Tanjung Perak, freight movements are characterised by relatively few direct shipping routes and infrastructure gaps in eastern regions, which increase costs and reduce accessibility (ITF, 2025[15]). Planned investment is extensive: the Sea Toll Road programme aims to expand Tanjung Priok and develop Kuala Tanjung as an international hub, while Makassar New Port is being constructed to enhance maritime capacity and improve hinterland access. However, port-hinterland integration remains critical; modelling shows that improved connections between ports and industrial parks on Java and Sumatra are necessary to avoid future congestion and reduce transport costs (ITF, 2025[15])
Decarbonising freight is increasingly urgent, as the transport sector is highly energy-intensive and one of the most polluting in Indonesia (IISD, 2024[57]). The government has introduced Euro 4 standards and incentives for low-carbon road vehicles, yet the adoption of clean technologies has been slow due to limited charging and fuelling infrastructure (ITF, 2025[15]). Scenario analysis from the ITF shows that under a High Ambition – Connectivity and Decarbonisation (HA-CD) pathway, a shift from road to cleaner rail and waterways can reduce freight CO₂ intensity by up to 22% (ITF, 2025[15]).
Freight infrastructure in Indonesia is increasingly exposed to climate risks that disrupt operations and threaten supply chain reliability. Floods, landslides and cyclones frequently damage road, rail and port assets, and major corridors in Sumatra and Java are projected to operate near the limits of their capacity under Business-as-Usual policy pathways, heightening vulnerability (ITF, 2025[15]). Strengthening resilience therefore requires building redundancy into multimodal networks, improving early warning systems for risk-prone areas, incorporating forward-looking climate projections into infrastructure design and investment planning and deploying predictive maintenance for critical infrastructure. The HA-CD scenario shows that enhancing alternate routes and creating mode-switching capacity can reduce volume-to-capacity ratios by up to 30% in vulnerable areas, safeguarding supply chain reliability (ITF, 2025[15]). Such approaches illustrate the importance of system-level resilience, rather than focusing solely on individual assets.
Investing in sustainable and resilient freight systems offers long-term economic benefits by reducing logistics costs and improving market access for domestic and international trade. Freight infrastructure upgrades at key ports such as Makassar and Belawan, coupled with rail electrification along the Trans-Sumatra corridor, improve access to global markets and contribute to a reduction in excess transport costs by more than 15% under high-ambition scenarios (ITF, 2025[15]). These investments, coupled with digitalisation efforts such as the National Logistics Ecosystem, which streamlines customs through a single-window system, increases the degree of intermodality by 25%, creating a more flexible and resilient freight transport system (ITF, 2025[15]). The SAVi analysis further demonstrates that net-zero transport investments deliver significant avoided energy costs and health benefits, with avoided air pollution costs reaching IDR 2 395 trillion (approximately USD 139 billion) under a mixed scenario (IISD, 2024[57]). These findings underline the value of blending infrastructure investment, regulatory reform and clean technology deployment to unlock sustainable growth.
5.3.3. Framework conditions for sustainable industrial infrastructure development
Indonesia’s industrial sector plays a central role in economic development and infrastructure demand. Manufacturing accounted for around 19% of Indonesia’s GDP in 2022, making it one of the largest contributors to economic activity and a key pillar of the country’s industrialisation strategy (World Bank, 2023[14]). Industrial development is also closely linked to Indonesia’s broader economic transformation agenda, including the expansion of downstream mineral processing, metals production and manufacturing clusters aimed at increasing domestic value addition and participation in global value chains (World Bank, 2023[14]).
Industrial activity is a major source of energy demand and greenhouse gas emissions. The IEA’s country data indicate that industry accounted for 40% of Indonesia’s total final energy consumption in 2023, making it the largest final energy-consuming sector in the economy (IEA, 2026[61]). Figure 5.8 shows that Indonesia’s total final energy consumption has risen substantially since 2000, with industry consistently the largest and fastest‑growing consuming sector, increasing its energy use by well over 100 000 TJ over the period and driving much of the overall national growth.
Final energy consumption in terajoules (TJ) by sector, 2000–2023
Source: (IEA, 2026[61]).
Supporting the transition of these industries toward lower-emission production therefore represents an important component of Indonesia’s broader sustainable infrastructure agenda. Decarbonising industry will require both technological change and enabling investment conditions, including access to cleaner electricity, low-carbon and energy-efficient technologies, supporting infrastructure and financing mechanisms capable of supporting capital-intensive projects, which is consistent with wider World Bank and OECD analysis of Indonesia’s transition needs (World Bank, 2023[14]).
In response to this challenge, the OECD developed the Framework for Industry’s Net-Zero Transition. Under SIPA, the OECD piloted the Framework in Indonesia, in collaboration with Bappenas and relevant line ministries, including the Ministry of Industry, to identify enabling conditions and financing solutions for industrial decarbonisation. The analysis focuses on the textile and iron and steel sectors, reflecting their high emissions intensity and economic importance (OECD, forthcoming[62]).
Findings to date indicate that while technically viable decarbonisation pathways exist, their deployment is constrained by persistent economic and structural barriers. In both sectors, low-carbon technologies (including electrification of industrial heat, biomass substitution, carbon capture and storage, and hydrogen-based production) face significant cost competitiveness disadvantages compared to conventional processes. For example, low-carbon steel production routes are estimated to be approximately 20% to 50% more expensive than traditional blast furnace-basic oxygen furnace production, highlighting a substantial competitiveness gap (OECD, forthcoming[62]).
Beyond cost considerations, the analysis points to a broader set of systemic constraints. These include insufficient access to affordable low-carbon electricity, limited availability of enabling infrastructure (notably for hydrogen and carbon capture), nascent energy and resource efficiency ecosystem, weak market demand for low-emission industrial products, and gaps in policy frameworks and technical capacity. Financing constraints remain particularly binding, given the capital intensity and risk profile of emerging low-carbon technologies (OECD, forthcoming[62]). These constraints are compounded by climate risks that can affect infrastructure reliability, resource availability (e.g. water, energy) and logistics networks.
Taken together, these findings suggest that industrial decarbonisation in Indonesia will depend not only on technology availability but on the development of an integrated enabling environment. Key priorities include strengthening policy signals to channel investments towards low-carbon technologies (e.g carbon pricing, sustainable taxonomy), support demand for low-emission products, scaling up concessional and blended finance, and accelerating investment in supporting infrastructure and clean energy supply. Without such measures, the transition risks being delayed despite the technical feasibility of low-carbon pathways (OECD, forthcoming[62]).
Indonesia has developed an increasingly comprehensive framework to mobilise private finance for sustainable infrastructure. Key elements include the Sustainable Finance Roadmap, the Indonesia Taxonomy for Sustainable Finance, sustainable bond and sukuk issuance frameworks, climate risk management guidance and emerging carbon market mechanisms. The sustainable bond market has grown steadily, and government issuance has played a leading role in developing the market. However, private sustainable finance remains limited relative to overall capital markets and investment needs, and financing for climate adaptation and resilience remains significantly underdeveloped relative to mitigation-focused investments, reflecting challenges in project bankability, risk pricing and measurement of adaptation benefits. The effectiveness of the framework is also influenced by differences in technical detail across taxonomy sectors, limited integration between financial frameworks and infrastructure project pipelines, and governance challenges affecting investor confidence. Strengthening implementation and market depth will be critical to mobilising larger volumes of private capital.
Strengthen the implementation and technical robustness of the sustainable finance taxonomy. Continue refining sectoral technical criteria, environmental safeguards and transition classifications to improve investor clarity and comparability with regional and international taxonomies. Clearer guidance for financial institutions on taxonomy application would support consistent implementation across the financial system. This should include clearer definitions and criteria for climate adaptation and resilience activities, which are often less well specified than mitigation activities, to support investment in resilient infrastructure.
Expand sustainable finance instruments and deepen domestic capital markets. Build on Indonesia’s experience with sovereign sustainable bonds and sukuk to encourage greater private-sector issuance. Strengthening regulatory frameworks, disclosure standards and incentives for sustainable finance products would help expand the role of capital markets in financing sustainable infrastructure.
Improve the link between sustainable finance frameworks and infrastructure investment pipelines. Strengthen co-ordination between financial regulators, development planning institutions and infrastructure agencies to develop clearer project pipelines and investment platforms. Improving project preparation capacity and transparency would help translate sustainable finance frameworks into bankable infrastructure investments. Strengthening methodologies to quantify and monetise resilience benefits (e.g. avoided losses and reduced disruption risks) would be critical to improving the bankability of adaptation projects.
Strengthen integrity, transparency and responsible business conduct in infrastructure financing. Expand the use of transparent procurement systems, beneficial ownership disclosure and due diligence requirements across infrastructure projects. Embedding responsible business conduct standards in public procurement, PPP frameworks and state-owned enterprise governance would help strengthen investor confidence and support sustainable infrastructure delivery.
5.4.1. Green taxonomies
Green taxonomies provide a structured classification system to define environmentally sustainable and transition activities. Green taxonomies strengthen comparability across financial products and reduce greenwashing risks through clearer activity-level criteria (World Bank, 2020[63]; OECD, 2020[64]). In bank-dominated financial systems such as Indonesia’s, taxonomy design can influence credit allocation (e.g. directing capital toward activities that enhance resilience and reduce vulnerability to climate risks), risk management, and disclosure practices, particularly where sustainable finance markets are still developing (World Bank, 2020[63]; World Bank, 2023[65]).
Indonesia introduced the third version of its green taxonomy in February 2026 (OJK, 2026[66]). While not mandatory and functioning primarily as a reference framework rather than a standalone binding instrument, its use is increasingly embedded in mandatory sustainable finance regulations, disclosure requirements and supervisory expectations for financial institutions. As a result, while formally non-binding, the taxonomy is becoming operationally central to how sustainability is defined, reported and monitored across the financial system.
Compared to previous versions, the taxonomy’s third version includes substantive institutional strengthening. It structures the taxonomy around defined environmental objectives linked to Indonesia’s climate and sustainability commitments and aligns activity-level technical screening criteria to those objectives (World Bank, 2020[63]; OJK, 2026[66]). Earlier assessments highlighted limited codification of overarching objectives; this gap has now been materially addressed (CELIOS, 2024[67]; PRAKARASA, 2023[68]).
Indonesia’s new taxonomy expands sectoral coverage considerably. While earlier iterations were more concentrated in energy, Version 3 broadens classification across multiple NDC-relevant sectors, including construction and real estate, transport and storage, agriculture, forestry and other land use (AFOLU), and selected industrial activities (OJK, 2026[66]). This expansion improves economy-wide relevance and strengthens alignment with the ASEAN Taxonomy framework (ASEAN Taxonomy Board, 2023[69]). Nonetheless, differences remain in technical depth and granularity across sectors. Compared to more mature taxonomies in the region, certain activity-level thresholds remain less detailed, which may affect cross-border comparability and investor certainty (OJK, 2026[66]; ASEAN Taxonomy Board, 2023[69]).
The revised framework also introduces clearer eligibility criteria and more structured safeguards. Environmental safeguards and social aspects are more clearly articulated within the classification structure, reflecting greater alignment with regional essential criteria approaches (OJK, 2026[66]; ASEAN Taxonomy Board, 2023[69]). Earlier critiques regarding limited operationalisation of social dimensions are therefore less pronounced under the revised framework (CELIOS, 2024[67]; PRAKARASA, 2023[68]). However, compared with frameworks that explicitly reference internationally recognised minimum safeguards, such as binding human rights and labour standards, Indonesia’s approach continues to rely primarily on regulatory compliance and sectoral criteria rather than standalone safeguard tests (OECD, 2020[64]).
The design of the transition category remains important for the credibility of the taxonomy. Earlier comparative analysis characterised Indonesia’s transition provisions as relatively permissive in certain carbon-intensive sectors (IEEFA, 2024[70]; IEEFA, 2023[71]). Version 3 introduces clearer, more structured and time-bound criteria for transition classification (OJK, 2026[66]). Even so, continued scrutiny of transition thresholds – particularly in relation to GHG emissions intensity benchmarks, technology assumptions and sunset provisions – will be important to ensure alignment with evolving regional and global expectations and to maintain interoperability with ASEAN and other international taxonomies (OECD, 2020[64]; ASEAN Taxonomy Board, 2023[69]).
A related issue concerns how clearly the taxonomy defines activities that fall outside sustainability classifications. The updated taxonomy more clearly distinguishes between green, transition and non-eligible activities (OJK, 2026[66]).However, unlike some peer taxonomies that define explicit lists of excluded activities, Indonesia’s framework determines ineligibility through technical screening criteria applied to individual activities. While this approach allows greater flexibility across sectors, it can make it less clear which activities are categorically incompatible with sustainability objectives. Providing greater transparency on exclusion boundaries could help improve investor clarity and strengthen the credibility of the framework (CELIOS, 2024[67]; OECD, 2020[64]). In particular, clearer identification of activities that increase climate vulnerability (i.e. maladaptive investments) could strengthen the taxonomy’s role in guiding resilient investment.
To maximise the effectiveness of the taxonomy, continued attention to implementation will be important. International experience suggests that taxonomies have the greatest impact when they are embedded in disclosure requirements, supervisory expectations and consistent reporting standards (World Bank, 2020[63]). Indonesia’s broader sustainable finance strategy recognises the need to strengthen climate finance measurement and financial system data architecture (World Bank, 2023[72]; World Bank, 2023[65]). The practical impact of Version 3 will therefore depend on consistent application, data quality, verification processes and supervisory integration across financial institutions.
Building on recent progress, Indonesia could further strengthen the impact of its sustainable finance taxonomy by continuing to refine transition criteria, improving transparency around environmental and social safeguards, and embedding the taxonomy more systematically into regulatory and disclosure frameworks. In addition, further strengthening the adaptation dimension of the taxonomy would enhance its ability to mobilise capital toward resilience-building investments, which are critical given Indonesia’s high exposure to climate risks. These steps would help ensure that the framework provides clear signals to investors and supports consistent implementation across the financial system. Version 3 already represents a significant step forward, with clearer environmental objectives, broader sector coverage and more structured eligibility criteria than earlier iterations (OJK, 2026[66]). Strengthening these areas over time would further enhance the taxonomy’s ability to mobilise capital in support of Indonesia’s long-term climate and development objectives (OECD, 2020[64]; ASEAN Taxonomy Board, 2023[69]; IEEFA, 2024[70]).
5.4.2. Sustainable and green finance instruments
Indonesia’s sustainable bond market
Indonesia’s sustainable bond market grew by 12.4% in Q3 2025, reaching USD 16.1 billion in outstanding bonds at the end of September, with quarterly issuance more than doubling to USD 1.9 billion amid continued monetary easing. Public-sector issuers accounted for about 65.3% of the total, reflecting the government’s regular issuance of SDG and blue bonds, which has helped lengthen the market’s maturity profile (ADB, 2025[73]). Despite this growth, Indonesia’s market remains smaller than several ASEAN peers: Thailand leads with USD 27.6 billion outstanding, while the Philippines stands at USD 15.4 billion. Across ASEAN+3, sustainable bonds totalled USD 60.8 billion, meaning Indonesia contributes roughly a quarter of the regional market but still trails Thailand and Malaysia in scale (ADB, 2025[74]; ADB, 2025[75]).
Indonesia’s sustainable bond market has expanded steadily since 2022, though its share of total bonds remains limited (Figure 5.9). Outstanding bonds rose from USD 381.5 billion in March 2022 to USD 482.2 billion by June 2025, while ESG bonds increased from USD 7.1 billion to USD 14.1 billion over the same period. Despite this near doubling in ESG volumes, their proportion of total bonds has remained broadly unchanged at around 3%, indicating that while issuance of sustainable instruments is growing in absolute terms, integration into the broader bond market is progressing gradually (ADB, 2025[76]).
Absolute amount of local currency (LCY) and foreign currency (FCY) bonds outstanding (converted to USD) and consolidated absolute outstanding amount of green, social, sustainability, sustainability-linked, transition, and transition-linked bonds (also LCY and FCY). The right axis shows the percentage of outstanding LCY+FCY bonds that are ESG.
Source: Author’s analysis of (ADB, 2025[76])
Indonesia’s strategic framework for sustainable finance
Indonesia has developed a comprehensive policy framework to mainstream sustainability in its financial system, combining regulatory measures, market development initiatives, and strategic programs. Table 5.3 summarises key strategies and instruments underpinning this framework, including OJK’s Sustainable Finance Roadmap, the Indonesia Taxonomy for Sustainable Finance (TKBI), regulations for sustainability-based bonds and sukuk, climate risk management guidelines, carbon market rules, macroprudential incentives from the Bank of Indonesia, and sovereign frameworks for SDG and blue bonds. These initiatives collectively aim to strengthen governance, mobilise capital for green and transition activities, and align domestic practices with regional and global standards.
Note: OJK = Otoritas Jasa Keuangan (Financial Services Authority); DJPPR = Directorate General of Budget Financing and Risk Management (Ministry of Finance); MEMR = Ministry of Energy and Mineral Resources; AFOLU = Agriculture, Forestry & Other Land Use; PTBAE‑PU = Emissions Ceiling Technical Approvals; SPE‑GRK = GHG Emissions Reduction Certificates.
Indonesia explicitly recognises the need to integrate sustainability into its financial system, as reflected in several strategic initiatives. The Sustainable Finance Roadmap (Phase II, 2021–2025) sets out a medium-term plan to strengthen the sustainable finance ecosystem through policy development, market instruments, and capacity building. The Indonesia Taxonomy for Sustainable Finance (TKBI), launched in 2024 and updated in 2025, provides a national classification system to guide capital flows toward green and transition activities, aligning with ASEAN and global standards. Complementary measures include POJK 18/2023, which regulates the issuance of sustainability-based bonds and sukuk, and the Sustainable Government Securities Framework (2025), which underpins sovereign SDG and blue bond issuance. Together, these instruments demonstrate Indonesia’s commitment to mobilising finance for climate and development objectives while enhancing market integrity and transparency (OJK, 2024; Ministry of Finance, 2025).
Policy priorities for sustainable finance in Indonesia
Indonesia could continue strengthening its climate risk management and disclosure frameworks to enhance financial sector resilience. Building on recent steps such as OJK’s Climate Risk Management and Scenario Analysis guidance and the revision of sustainability reporting rules, aligning disclosure requirements with emerging international standards (e.g., ISSB) and expanding supervisory capacity would help improve transparency and reduce information gaps (World Bank, 2023[14]; World Bank, 2023[65]). Ensuring that adaptation-related investments are clearly identified and prioritised within these frameworks would help scale financing for resilience alongside mitigation.
Operationalising the Indonesia Taxonomy for Sustainable Finance (TKBI) and deepening markets for labelled instruments could support the mobilisation of private capital for climate objectives (World Bank, 2023[14]). Measures to embed the taxonomy in regulatory practice, broaden the range of green and sustainability-linked products, and leverage blended finance platforms such as the Energy Transition Mechanism would help scale investment in renewable energy, adaptation, and other priority sectors (World Bank, 2023[14]; World Bank, 2023[65]).
Developing a comprehensive climate information architecture could facilitate risk assessment and investment decisions (World Bank, 2023[14]). This should include high-resolution, forward-looking climate risk data that can inform financial decision-making, asset valuation and infrastructure investment planning. Centralising climate-related data, improving methodologies for GHG emissions measurement, and enhancing verification systems for sustainability disclosures would strengthen market integrity and investor confidence, while supporting the effective implementation of prudential and market-based policies (World Bank, 2023[14]; World Bank, 2023[65]).
5.4.3. Responsible business conduct framework
Infrastructure development in energy, industry and transport is associated with increased risks related to human rights, labour rights, environmental impacts and business integrity. As governments involve the private sector across the entire infrastructure lifecycle – from planning and financing to delivery, operation, maintenance and decommissioning – Responsible Business Conduct (RBC) plays an increasingly prominent role in the infrastructure sector. With private actors playing a growing role in financing and delivering sustainable infrastructure, attention is shifting to the broader social and environmental impacts of business activities. RBC provides a set of principles to help both public and private stakeholders steer infrastructure development in a more sustainable and responsible manner.
RBC helps improve the sustainability performance of infrastructure investments. By applying RBC principles and standards – particularly risk-based due diligence – companies and investors are better able to identify, prevent and address potential adverse impacts of their infrastructure activities on people, planet and society. Infrastructure projects and their related supply chains can have impacts related to human and labour rights, the environment and climate change, as well as anti-corruption. In this context, the OECD Guidelines for Multinational Enterprises on RBC, together with the Due Diligence Guidance, provide key international standards (OECD, 2018[77]).
Creating the right policy and regulatory environment is essential for governments to promote and enable RBC. The OECD Recommendation on the Role of Government in Promoting RBC underlines that governments should not only develop and implement laws and policies that encourage RBC but also exemplify RBC in their economic and commercial activities. In the infrastructure context, this involves establishing legal frameworks covering human rights, labour rights, environment and anti-corruption as well as implementing state policies on investment promotion and facilitation, public procurement, finance and the governance of state-owned enterprises, as well as efforts to promote meaningful stakeholder engagement and access to remedy (OECD, 2022[78]). Such an enabling environment, in turn, helps countries “keep and attract high quality and responsible investors”.
Under SIPA, the OECD conducted a review of RBC policies relevant to sustainable infrastructure development in Indonesia. The review examined how RBC considerations are integrated into existing laws and policies relevant to infrastructure, how RBC expectations are encouraged across other policy areas such as sustainable finance and investment promotion, and how the state sets an example through its role as an economic actor – including in public procurement, public-private partnerships and state-owned enterprises – as well as mechanisms for stakeholder participation and access to remedy. The review found that Indonesia has taken important steps to create a broad legal and policy foundation for RBC, such as through the adoption of a National Strategy on Business and Human Rights in 2023 and the integration of environmental and social safeguards across sectoral legislation. However, RBC expectations are dispersed across multiple laws and regulations and are not yet systematically framed around risk-based due diligence throughout the infrastructure lifecycle (OECD, 2024[79]).
Environmental governance is anchored in impact assessment requirements, but life-cycle and climate considerations are critical and could be strengthened. Environmental safeguards are primarily governed by Law No. 32/2009 on Environmental Protection and Management, which requires environmental impact assessments (AMDAL) for projects with significant impacts. While AMDAL constitutes an important preventive tool, reforms under the Job Creation Law have altered permitting thresholds and procedures, raising concerns about reduced scrutiny in certain cases. Embedding life-cycle due diligence, cumulative impact assessment and climate resilience considerations more systematically in infrastructure planning would strengthen alignment with Indonesia’s climate objectives and reduce long-term environmental risks (OECD, 2024[79]).
Human rights risks are most acute in land acquisition and community engagement processes. Human rights protections are recognised in Indonesia’s constitutional and statutory framework, and the National Human Rights Commission (Komnas HAM) plays a role in mediation and dispute resolution. Nevertheless, implementation challenges persist, particularly in land acquisition processes affecting Indigenous peoples and local communities. The absence of a clear statutory framework for free, prior and informed consent and uneven grievance mechanisms across projects contribute to social conflict and project delays. Strengthening operational human rights due diligence and standardising access to remedy for large-scale infrastructure projects would enhance predictability and safeguard vulnerable groups (OECD, 2024[79]).
Labour standards are formally established but enforcement and supply-chain oversight remain uneven. Labour protections are set out under the Manpower Law and supported by sector-specific safety initiatives, including in construction. However, enforcement gaps remain in occupational health and safety, and concerns persist regarding vulnerable workers in supply chains. Recent regulatory reforms have prompted debate regarding the balance between labour flexibility and worker protection. Integrating clearer labour compliance requirements into public procurement, public-private partnerships (PPPs) and state-owned enterprise (SOE) governance frameworks would strengthen incentives for responsible practices and support the transition toward green and safe jobs (OECD, 2024[79]).
Integrity risks continue to undermine infrastructure delivery despite a strong formal anti-corruption framework. Indonesia has established a robust legal framework and an active Corruption Eradication Commission (KPK), yet procurement-related bribery and conflicts of interest persist in infrastructure projects. Strengthening beneficial ownership transparency, expanding electronic procurement systems and embedding anti-corruption clauses and monitoring mechanisms in infrastructure contracts would reinforce business integrity across the project cycle (OECD, 2024[79]).
The state’s economic role in infrastructure creates an opportunity to lead by example on RBC. Given the government’s prominent role through public procurement, PPPs and SOEs, embedding RBC expectations consistently across bidding documents, PPP templates and SOE governance frameworks is critical. The OECD review highlights that due diligence, stakeholder engagement and disclosure requirements are not yet standardised across these frameworks. Greater coherence would provide clearer signals to private actors and improve consistency in infrastructure delivery (OECD, 2024[79]).
Overall, Indonesia’s challenge is less the absence of rules than the need for stronger co-ordination and implementation. While key elements of an RBC framework are in place, fragmentation, uneven enforcement and limited integration of risk-based due diligence reduce effectiveness. Strengthening policy coherence and embedding RBC more systematically across infrastructure-related decision-making would help translate commitments into consistent practice and enhance the sustainability and resilience of infrastructure development (OECD, 2024[79]).
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[1] WWF (2025), Nature-based Solutions for Climate Resilient Infrastructure Planning in Indonesia: Policy Brief, https://assets.worldwildlife.org/www-prd/documents/8ic56wwj1_SIPA_IDN_PolicyBrief_2025.pdf.
← 1. Policy note prepared by international consultant Vierna David, 2025.
← 2. Policy note prepared by international consultant Vierna David, 2025.
← 3. Policy note prepared by international consultant Vierna David, 2025.
← 4. Policy note prepared by international consultant Vierna David, 2025.
← 5. Policy note prepared by international consultant Vierna David, 2025.