Taksonomi Keuangan Berkelanjutan Indonesia: Guidelines and Implementation To Achieve Sustainable Development Goals

(Source: Otoritas Jasa Keuangan)

In order to support the achievement of the commitment of the Government of the Republic of Indonesia, the OJK as the regulator of the financial services sector consistently carries out a series of policies in encouraging sustainable finance in Indonesia, including collaborating with various stakeholders in developing the Indonesian Sustainable Finance Taxonomy (Taksonomi untuk Keuangan Berkelanjutan Indonesia/TKBI). TKBI is a classification of economic activities that support Indonesias Sustainable Development Goals, covering economic, environmental, and social aspects. The taxonomy is used as a guide to increase the allocation of capital and sustainable financing in encouraging the achievement of Indonesias NZE target. The taxonomy is used as a guide to increase the allocation of capital and sustainable financing in supporting the achievement of Indonesias net zero emission target.

Legal Basis

In achieving sustainable financial goals, the Indonesian government has the appropriate legal basis to achieve these goals. These legal bases include:

1. 1945 Constitution of the Republic of Indonesia (Undang-Undang Dasar Negara Republik Indonesia Tahun 1945/UUD 1945)

Sustainable financial aspects are indirectly included in the 1945 Constitution. This can be seen through the articles contained in the Constitution.

2. The Paris Agreement and its Ratification in Indonesia

The Paris Agreement is an international agreement signed by more than 195 countries, containing a commitment by countries to reduce global GHG emissions by limiting the global temperature increase by 2100 to 2ºC and striving to limit the increase to 1.5ºC. Indonesia is one of the countries committed to ratifying this agreement. The ratification of the agreement is stipulated in Law of the Republic of Indonesia Number 16 of 2016 concerning “Ratification of the Paris Agreement to the United Nations Framework Convention on Climate Change”.

Every five years, countries bound by the Paris Agreement are expected to publish Nationally Determined Contribution (NDC), including Indonesia. In accordance with Indonesias Enhanced NDC in 2022, the government is working to reduce emissions with a target of 31.89% by 2030 if done by its own efforts (unconditional), or 43.20% by 2030 if done with international assistance (conditional).

3. Law of the Republic of Indonesia Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector (Undang-Undang Republik Indonesia Nomor 4 Tahun 2023 tentang Pengembangan dan Penguatan Sektor Keuangan/UU P2SK)

The P2SK Law defines sustainable finance as “an ecosystem with comprehensive support in the form of policies, regulations, norms, standards, transaction products, and financial services that harmonize economic, environmental, and social interests in financing sustainable activities and financing the transition to sustainable economic growth”. Through this definition, it can be understood that the main objective of sustainable finance is to create sustainable economic growth that harmonizes economic, environmental and social interests. This goal can be realized through the overall support of the ecosystem to encourage financing for sustainable activities and activities transitioning towards sustainability.

In the P2SK Law, there is a separate chapter that discusses the Implementation of Sustainable Finance, precisely in Chapter XVII. In this chapter, there are discussions, which explain that the implementation of sustainable finance includes transition financing for projects that make the transition from activities that produce high emissions to more environmentally friendly activities. Financial Sector Business Actors, issuers, and also public companies are required to apply sustainable finance in carrying out their business activities. In addition, a “Sustainable Finance Committee” (“Komite Keuangan Berkelanjutan”) was also formed by the Ministry of Finance (Kementerian Keuangan/Kemenkeu), the Financial Services Authority (Otoritas Jasa Keuangan/OJK), and Bank Indonesia (BI).

4. National Long-Term Development Plan (Rencana Pembangunan Jangka Panjang Nasional/RPJPN)

RPJPN is an elaboration of the objectives of the establishment of the Government of the Republic of Indonesia in the form of a formulation of the vision, mission, and direction of national development for the next twenty years. Most recently, Indonesia has the 2025–2045 National Long-Term Development Plan, which was formulated by considering various aspects of sustainable development in line with the Sustainable Development Goals (SDGs). Sustainable development is defined as national development planning that is oriented towards economic welfare and whose sustainability can be measured based on three environmentally friendly criteria, namely:

1. No wasteful use of natural resources or depletion of natural resources;

2. No pollution and other environmental impacts; and

3. Activities must be able to increase usable resources or replaceable resources.

5. National Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah Nasional/RPJMN)

The National Medium-Term Development Plan (RPJMN) is a national development planning document that contains a description of the vision, mission, and program of the President of the Republic of Indonesia for a five-year period. The 2020–2024 RPJMN explains that the Sustainable Development Goals are one of the priorities of Indonesias development agenda.

6. Presidential Regulation of the Republic of Indonesia Number 111 of 2022 concerning the Implementation of Achieving Sustainable Development Goals (Peraturan Presiden Republik Indonesia (Perpres) Nomor 111 Tahun 2022 tentang Pelaksanaan Pencapaian Tujuan Pembangunan Berkelanjutan)

Indonesia has set the Indonesian SDGs goals and targets which refer to the global SDGs goals and targets by 2030. This is supported by the issuance of Presidential Regulation 111/2022 to accelerate the achievement of the targets that have been set. The Indonesian SDGs include:

1. Maintaining the continuous improvement of the communitys economic welfare;

2. Maintaining the sustainability of the communitys social life;

3. Maintaining the quality of the environment and inclusive development; and

4. Implementing governance that is capable of maintaining the improvement of the quality of life from one generation to the next.

Principles

(Source: Otoritas Jasa Keuangan)

The three main principles in TKBI are designed to support the development of sustainable finance in Indonesia. The first principle, “Scientific and Credible,” promotes the implementation of best practices based on nationally and internationally applicable policies, science, and technology. TKBI aims to develop and apply a scientific and credibility-tested approach in the field of sustainable finance. With this approach, Indonesia seeks to ensure that the practices applied have a strong and reliable scientific basis on a global scale.

The second principle, “Interoperable and Supporting National Interests,” emphasizes the importance of interoperability, which is the ability of Indonesias sustainable financial system to connect and function with international systems and other regions. This aims to ensure that Indonesia not only follows global standards, but is also able to adapt and integrate with relevant international policies. In addition, this principle also emphasizes that national policies must facilitate Indonesias transition to a fair and inclusive sustainable economy, known as a “just transition.” Thus, TKBI seeks to maintain a balance between international interests and the needs of sustainable development at home.

The third principle, “Inclusive,” indicates that the TKBI is designed to be applicable to various user scales, be it large corporations or micro, small and medium enterprises (MSMEs). With this principle, it is hoped that all levels of the Indonesian economy, without exception, can participate in a sustainable economy. TKBI seeks to create a framework that is inclusive and easily accessible to various economic sectors, from large companies to small businesses. Together, these three principles create a strong foundation for the development of sustainable finance that is scientific, supports the national interest, and is inclusive of all sectors of society.

Strategic Objectives

TKBI is structured with strategic objectives, one of which is to refine the standard definition of economic activities carried out in Indonesia. This is done so that economic activities are in line with Indonesias Sustainable Development Goals which harmonize economic, environmental and social aspects. By structuring the TKBI based on a science framework, it will also equalize companies perceptions of sustainability activities. This will reduce the potential for companies to engage in “sustainability” activities such as greenwashing, social washing, and impact washing. The TKBI is also the basis for the development of sustainability-oriented policies, including sustainability reporting, incentives and disincentives, and the development/innovation of sustainable financial products and/or services.

In addition, TKBI is structured as a manifestation of cross-sector collaboration with various stakeholders. This is done to support sustainable finance efforts in Indonesia, which will meet Indonesias targets in various global commitments. This will also have an impact on increasing the allocation of capital and financing related to sustainability in an effort to support the achievement of Indonesias net zero emissions target. TKBI also increases access to literacy and inclusion of sustainability products and/or services, by encouraging MSMEs and non-MSMEs to use TKBI, which in turn will encourage Indonesias economic growth.

Scopes

(Sources: Otoritas Jasa Keuangan)

Based on the Enhanced NDC Indonesia in 2022, there are five sectors that are the focus of climate change mitigation, which are also the focus sectors in TKBI. The five sectors include: Energy, Waste, Industrial Processes and Product Use (IPPU), Agriculture, and Forestry and Other Land Uses (FOLU).

TKBI was developed with a concept called a “growing house” (“rumah tumbuh”), which means that TKBI will be developed into three versions. Version 1, which was published in February 2024, contains the main taxonomy framework with a focus on the Energy sector. In February 2025, TKBI version 2 was published, covering the Construction and Real Estate (C&RE), Transportation and Storage (T&S), and part of Agriculture, Forestry and Other Land Uses (AFOLU) sectors, which in this case are the forestry and oil palm plantation sectors. In the following year, it is planned to continue the development of TKBI version 3, namely AFOLU (continued), Manufacturing, and Water Supply, Sewerage & Waste Management.

Environmental Objective (EO)

TKBI defines Environmental Objective (EO) as a priority environmental performance target to be achieved. TKBI will focus on four EOs, which consist of:

Essential Criteria (EC)

Every activity to be classified in the taxonomy must also meet the applicable EC requirements for taxonomy assessment using either the Technical Screening Criteria (TSC) or Sector-agnostic Decision Tree (SDT) approaches. The ECs used in taxonomy are as follows:

(Sumber: Otoritas Jasa Keuangan)

Research Methodology

TKBI uses a specific methodology to assess the efforts of an Activity in fulfilling the principles or contributing substantially to one of the EO, avoiding significant losses to other EO, recovering the losses incurred (in the event of loss/damage to other EO) and meeting all social aspect criteria. There are two assessment approaches in TKBI:

1. Technical Screening Criteria (TSC)

is a set of criteria used to assess economic activity against its contribution and fulfillment of a substantial EO based on certain thresholds. The use of TSC includes:

1. Activities in the taxonomy that include or are related to the five sectoral focuses in the NDC on a corporate/non-MSME scale

2. Other activities specifically defined in TKBI

2. Sector-agnostic Decision Tree (SDT) Approach

is a principle-based assessment approach in the form of a decision tree developed based on the specific criteria of an EO with guiding questions. There is a decision tree developed based on specific criteria for each EO. Each decision box in the decision tree contains a binary question that must be answered by the TKBI user. The user answers “Yes” or “No” to the binary question based on information related to the Activity being assessed. The use of SDT includes:

1. Activities in the taxonomy that include or are related to the five sectoral focuses in the NDC with an MSME scale

2. Other activities specifically defined in TKBI

Activity Classification

TKBI divides activities into two classifications, namely “Green” and “Transition”, with the following descriptions:

An activity is considered “Not Classifiable” if it is listed in the TKBI but does not meet the “Green” and “Transition” classification requirements.