Green Finance in Indonesia: Implementation and Challenges

Abstract

The transition toward a low-carbon economy has increased the need for financing mechanisms that incorporate environmental considerations. In Indonesia, the implementation of green finance has continued to develop through strengthened policy frameworks, green financing instruments, and market-based mechanisms, although various challenges remain. This study aims to examine the implementation of green finance in Indonesia by reviewing policy developments, the application of green finance instruments, and the challenges associated with their implementation. This study employs a qualitative descriptive approach using a narrative literature review. Data sources include scholarly articles, regulations, official reports from government agencies and financial institutions, and institutional publications relevant to green finance in Indonesia. The findings indicate that the implementation of green finance is supported by the Sustainable Finance Roadmap, Financial Services Authority regulations, and the Indonesian Taxonomy for Sustainable Finance. Its implementation is reflected in instruments and mechanisms such as green bonds, green sukuk, green banking, and the carbon exchange. Each faces specific challenges, including the limited availability of eligible green projects, transparency and impact-reporting requirements, the technical capacity of financial institutions, the quality of environmental, social, and governance (ESG) data, and limited market liquidity and participation. In addition, uneven stakeholder literacy and the risk of greenwashing emerge as cross-cutting challenges.