LocationsA Low-Carbon Development Nexus Launched in the Parliament: Climate Finance Handbook, Circular Economy Modul and Study on Islamic Blended Finance
July 10, 2024
Jakarta, 10 July 2024—The United Nations Development Programme (UNDP), through its Country Office in Indonesia, with the Green Economy Caucus of DPR RI and the Anwar Muhammad Foundation, held a dissemination event for the Climate Finance Handbook for Parliament. The Handbook is a comprehensive guideline for parliament to allocate and manage budgets, source funds, and engage stakeholders in collective actions to address climate change.
Over the past decades, climate change has posed an alarming threat to around 270 million people in Indonesia. The impact has been intense, with unpredictable seasonal shifts leading to prolonged droughts and devastating forest fires, including rising sea levels and temperatures.
Indonesia has committed to controlling climate change, which conveys an increase in the emission reduction target of 31.89% through national efforts and 43.2% with international support by 2030 (ENDC 2021). The country is also committed to achieving 0% emissions target by 2060 or sooner, as stated in the Long-Term Strategy Low Carbon and Climate Resilience (LTS-LCCR 2050). A sustainable funding source is needed to meet these national ambitions while supporting low-carbon development efforts. This is where climate finance taps into.
Climate finance refers to all financial flows addressing the causes and consequences of climate change. It is equally essential for climate change mitigation and adaptation as the financial resources are needed to significantly reduce emissions and adapt to the adverse effects of climate change. In this case, Parliament also plays a vital role in the public budgeting process for climate funding, especially in ensuring accountable budgets and adequate allocations, encouraging the implementation of a circular economy, and accommodating gender equality and social inclusion.
Through its functions of legislation, oversight, and budget, parliamentarians are mandated to review the government's commitment throughout the flow of funding to realise the state budget. This needs to be done through sustainable development supporting national and global climate commitments.
The launching ceremony also aims to disseminate the Circular Economy Module and increase the understanding of parliament, governments, and society regarding such a waste-free system. The module analyses the potential and implementation strategies for a circular economy in Indonesia.
In line with the Handbook, the module is intended to enhance the capacity of parliament, executive institutions, and other stakeholders to mainstream environmental resilience and social welfare issues. There were also ways to realise the potential of a circular economy in Indonesia in the context of finance and law, including the role of relevant stakeholders and how the industrial sector adapts to the circular economy.
“Finding financing solutions for these ambitions is a crucial determinant of our success. As you know, Indonesia requires over US$ 8 trillion to achieve its SDGs and there is a shortfall of US$ 1.5 trillion according to the SDGs Roadmap. On the climate front, Indonesia has a shortfall of at least US$ 285 billion to meet its current NDCs. It is crucial that all financing flows towards supporting our climate and sustainability agenda, shifting away from brown investments – and this means both private and public finance, of both domestic and international sources.” said Norimasa Shimomura, Resident Representative of UNDP Indonesia.
In the global fight against climate change, there’s one resource remains vastly untapped: the immense potential of Islamic finance. As everyone confronts the urgent need for sustainable solutions, policymakers must recognise the pivotal role these faith-based communities can play in shaping a more just and resilient future.
UNDP Indonesia has also prepared an Introductory Study on the Islamic Blended Finance (IBF) model. This model explores the potential of IBF in answering the gap in climate change-responsive financing for farmers who are vulnerable to being affected by climate change at the community level.
The IBF provides payment flexibility, risk-sharing, and product marketing assistance to build farmers' capacity to face the impacts of climate change and develop low-carbon emission development efforts from the production process to the market.
Mixed financing in the IBF allows the mobilisation of new sources of capital by combining financing from public and non-government sources, utilising Islamic endowments (waqf), and impact-based investments. This program strengthens six capitals (6C): financial, manufacturing, human, social and relationship, intellectual, and natural capital. The existence of alternative financing, like IBF, that reaches vulnerable groups ensures that inclusive low-carbon development can be realised.
Within Islamic finance, initiatives such as global zakat or almsgiving, estimated at US$550-600 billion, present a unique opportunity to mobilise resources for climate action. From the commercial sector, US$7.2 billion was raised through the Green Sukuk, a Sharia-compliant bond (2018-2023) issued by the Government of Indonesia, reducing 10.5 million tonnes of CO2e.
All these low-carbon development attempts undertaken by UNDP are supported by the Swedish Government and the UK Foreign and Commonwealth Development Office. A nexus between climate finance, circular economy, and IBF can unlock a massive opportunity for a greener world.
Amanda McLoughlin, UK Development Director for Indonesia stated, “The UK is a longstanding partner with Indonesia on the great issue of our time: climate change. Our support for the forestry and land use sector goes back decades, and we are now proud to be collaborating with government and non-government partners in a wide range of areas.”
The launch of this nexus provides a pivotal step towards achieving Indonesia’s climate goals. As the country navigates the ever-evolving challenges posed by climate change, collaboration and action by all relevant parties remain essential in building a sustainable future that safeguards Indonesia’s development, environment, and citizens' well-being.
About UNDP
UNDP partners with people at all levels of society to help build nations that can withstand crisis, and drive and sustain the kind of growth that improves the quality of life for everyone. On the ground in nearly 170 countries and territories, we offer global perspective and local insight to help empower lives and build resilient nations. Get to know more about UNDP in Indonesia at www.undp.org/indonesia
Media contact: Devi Nugraha – Head of Communications UNDP Indonesia
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