Indonesia Tackles Climate Change Through the Issuance of Green Sukuk (Islamic Bond)
Jakarta, 3 April 2018 — The Government of Indonesia issued in February the world’s first sovereign green sukuk (Islamic bond). Today’s event, co-hosted by Ministry of Finance and UNDP, signals the start of work to implement the green sukuk initiative. The workshop will raise awareness on the role of the green sukuk as a form of innovate financing to combat climate change. It will enhance collaboration between the Ministries and stakeholders and develop the framework for impact monitoring and reporting. Drawing on international expertise from the private sector and other countries that have implemented green bonds, such as Poland and Fiji, the workshop will develop a plan of action for successful implementation.
Indonesia’s commitment in combating climate change and to achieve its global emission reduction goals by 2030 requires at least USD 50 billion. With this issuance of the USD 1.25 billion green sukuk, Indonesia has become the first country to issue a sovereign bond exclusively aimed to fund climate change in a manner where financing is compliant with Islamic law. The proceeds will be allocated to climate or environment-related projects that contribute to the mitigation of or adaptation to climate change as well as the preservation of biodiversity. This green sukuk is a critical tool for the Government in its commitment to cut greenhouse gas emissions by at least 29 percent by 2030 and for renewable energy to make up one-quarter of its energy mix by 2025, up from around 12 percent today.
The sovereign sukuk plays a vital role in the fiscal budget. Of USD 301 billion total government debt, about 15 percent is sovereign sukuk although in recent years, the contribution of sukuk has increased to 28 to 30 percent. Dr. Luky Alfirman, The Director General of Budget Financing and Risk Management, Ministry of Finance, said “Aside from being a source of financing the state budget, the sovereign sukuk issuance shows the government’s commitment to support the shariah financing development in the country. To add, the sovereign sukuk (Surat Berharga Syariah Negara) issuance is also an effective means for the development and deepening of domestic financial markets.”
Climate change, seen in more severe flooding and droughts, risks undoing Indonesia’s development gains. “The Government of Indonesia is leading the way in showing how to unlock Islamic funds and financing for addressing climate change and ensuring sustainable development. UNDP is honoured to support the Ministry of Finance in their work to fill the financing gap to combat climate change. This partnership between the Government of Indonesia, the private sector and UNDP shows that large- scale infrastructure investment can also be sustainable and inclusive, benefiting all Indonesian people”, said Francine Pickup, Deputy Country Director UNDP Indonesia.
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