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Climate change is a global issue threatening lives and livelihoods across the globe. The economy is anticipated to suffer as a result of rising temperatures and decreasing agricultural yields. Sri Mulyani, Indonesia’s Minister of Finance, estimated that economic damages from natural disasters related to climate change might reach 3.45% of GDP in 2030, or Rp1.380 trillion¹. However, the figure is likely to be greater because it does not account for costs associated with biodiversity loss, stranded assets, and larger social issues².
To support actions on climate change, financial resources are needed, and they are what is regarded as climate finance. Climate finance in Indonesia encompasses a wide range of capital allocated to various sectors, for example, renewable energy, agriculture, and forestry, and hence, it needs a large scale of investment. Financial resources may originate from a variety of sources, including public or private, national or international, and in the form of various financial products like grants, loans, green sukuk, and others. As the national budget is expected to only cover 30% of the financial needs per year, climate finance from other sources, including the private sector, is critically important.
To attract funding from private sources, Instellar partnered with Crevisse, an impact venture capital from South Korea, to launch a sustainable trade program aimed to support impact business in agriculture, forestry, energy, and environment sectors called ImpactX. We support social enterprises in scaling up their business and most importantly their social and environmental impact.
Impact investing is intentional investment activities to achieve positive impact (social or environmental) and financial return. As a result, addressing climate change issues can be accomplished through both impact investing and climate finance. According to the Global Impact Investing Network (GIIN), 50% of impact investors considered their contribution to the global agenda, including the Paris Agreement to limit the global temperature rise to no more than a 1.5-degree Celsius increase, as a very important motivator for making investment decisions³. In Indonesia, climate-related sectors were performing very well in the impact investment landscape. Forestry and land was the industry with the most impact capital inflows from 2013 to 2020, followed by energy in the third place, and food and agribusiness in the fourth place⁴.
To illustrate how impact investing and climate finance can address climate issues, take Adena Coffee as an example. As one of the social enterprises we supported through ImpactX, Adena Coffee preserves natural resources by integrating Good Agricultural Practices (GAP) in their operations. One of many ways GAP is implemented in their coffee farms is by utilizing agroforestry principles to improve soil fertility, reduce the need for synthetic fertilizers, and optimize environmental health and crop productivity. By 2023, they have implemented GAP in 500 hectares of land in Flores and 248 hectares of land in Gayo, allowing them to maintain biodiversity.
Rumah Mocaf, another social enterprise we supported through ImpactX, embraces sustainable farming practices in their operations. By equipping their farmers with integrated and natural farming techniques, they repurpose production waste (cassava skins) for feedstocks then transform livestock waste into fertilizer, resulting in 90% of the leftover production being used as fertilizer.
Climate finance is geographically concentrated, with East Asia and the Pacific, the United States and Canada, and Western Europe accounting for 84% of global climate finance. According to UNDP, financing remains a significant impediment to the acceleration of climate action in developing countries⁵, including Indonesia. As a result, more impact funding with a climate focus is needed in Indonesia to advance projects and solutions for climate change mitigation and adaptation.
While impact funding is important to address climate issues, more can be done to increase the contribution of impact investment to climate finance. In ImpactX, for example, we provide not only funding but also tailored technical assistance, helping social enterprises grow their business and further their impact. This hands-on approach is important for increasing the flow of impact investment into climate finance and ensuring that innovative and effective solutions receive the support they need.
On contributing to impact investment in Indonesia, we work to accelerate solutions to climate and environmental problems by engaging with Zebras. Our goal is to nurture and build a bridge that allows Zebras to have a sustainable growth and receive the right support at the right time.
Climate change is a global issue and we all have our part to play. How do you play your part?
¹ Tempo, 2023
² Climate Policy Initiative, 2023
³ Global Impact Investing Network, 2019
⁴ ANGIN, 2021
⁵ UNDP, 2021
Impact Advisory Officer at Instellar
Instellar Indonesia
V-Office District 8, Treasury Tower Lt.6 Unit F
Jl. Jend. Sudirman Kav. 52-53, SCBD Lot.28
Jakarta 12190
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Copyright © 2017 – 2024 Instellar.
All rights reserved.
Instellar Indonesia
V-Office District 8, Treasury Tower Lt.6 Unit F
Jl. Jend. Sudirman Kav. 52-53, SCBD Lot.28
Jakarta 12190
Stay connected with us
Copyright © 2017 – 2024 Instellar. All rights reserved.