What’s Holding Back Green Bond Issuance Amid the Energy Transition?

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Regulatory support since 2017 and ambitious energy transition targets have not yet proven effective enough to attract private sector interest in raising large amounts of capital through green bonds. To date, only a few private companies in Indonesia have sought funding through this instrument to finance renewable energy projects.

 

Debt instruments serve as a crucial source of funding to drive corporate activity in green investment. The aim is to ensure that efforts to reduce greenhouse gas emissions are undertaken not only by the government but also by the private sector. After all, achieving Indonesia's climate targets requires substantial funding that cannot be fully covered by the state budget.

 

Indonesia's climate action document, the Second Nationally Determined Contribution (SNDC), estimates the country's total climate funding needs at approximately US$472.6 billion (around IDR 8,340 trillion) through 2035, covering the energy, agriculture, forestry and other land use (FOLU), and waste sectors. This estimate does not yet account for the industrial sector, meaning actual funding requirements could be higher. Meanwhile, as the largest source of emissions, the energy sector requires the most significant funding for emissions reduction.

 

Green-bonds remain government-dominated

 

Despite having relevant policies in place for nearly a decade, Indonesia has not yet appeared on the radar of global green bond fundraising activity. Green bond issuance in Indonesia remains dominated solely by the government, as recorded up to March 2026.

 

The government issued green bonds worth US$118.71 million denominated in rupiah. The government has dominated green bond issuance since 2018, while the corporate sector played a significant role in December 2020 by raising US$1.11 billion. State-Owned Enterprises (SOEs) were among the companies actively raising funds through green bonds to finance renewable energy projects and nature-based solutions.

 

Based on a market survey conducted by the Asian Development Bank (ADB) in 2022, various stakeholders involved in developing the country's green bond ecosystem acknowledge that awareness of these eco-friendly debt instruments and the associated resources remains limited; consequently, they are still formulating action plans.

 

Most corporations raising funds are from the financial, real estate, and industrial sectors, rather than the energy, consumer goods, technology, and transportation sectors. In terms of market capitalization, debt issuance is dominated by small-scale companies with a market capitalization of less than US$500 million, representing 40% of the total respondents.

 

Meanwhile, companies with larger market capitalizations—specifically up to US$2 billion—account for only 26%, and companies valued at over US$50 billion represent just 3% of the total respondents.

 

Why are there so few issuers?

The low volume of green bond issuances stems from an unattractive issuance climate in the country. An ADB survey found that respondents perceive a lack of fiscal incentives, such as tax breaks and subsidies for eco-friendly sectors, that would demonstrate state support for environmentally friendly investments.

 

Respondents also called for clarity regarding the absorption of green bond supplies by institutional investors, such as development banks, social security administrators (like BPJS Kesehatan and BPJS Ketenagakerjaan), and commercial banks. Nearly half of the respondents believe that insurance companies, pension funds, and asset managers investing in green bonds also play a significant role in driving the issuance of long-term debt securities.

 

It is not surprising that interest in green investments remains sluggish. The survey revealed that only 1% of respondents held green portfolios accounting for 21%–30% of their total investment portfolios. In contrast, the majority of respondents held green portfolios representing just 5% of the total. More specifically, pension funds allocated 30% of their capital.

 

Thus far, investors have continued to target instruments issued by governments and development banks. Meanwhile, only 27% have confidence in renewable energy companies, and 17% in clean transportation. This trend is linked to the sluggish corporate fundraising, as companies ultimately prefer other instruments, such as foreign loans.

 

The capital allocated by investors to green bonds issued by governments or development banks is not substantial. The majority of respondents (79%) invested less than US$10 million per transaction, while only 2% allocated more than US$100 million per transaction to environmentally themed investments.

 

Respondents, including underwriters and advisors, called for policy clarity, a clear definition of "green," and alignment with cross-border fundraising frameworks.

 

What are other countries doing?

 

Indonesia’s situation is broadly similar to that of other Southeast Asian countries, with the exception of Singapore. In general, green bond issuance remains sluggish due to the high costs of verifying the green activities to be financed. Issuance costs range from US$10,000 to US$100,000 per issuance. These additional costs impact market appeal; high expenses can reduce green bond yields, as corporations are unable to offer investors excessively high coupon rates.

 

Cost-related issues are further complicated by the fact that the definition of "green" for green bonds remains unclear and misaligned with global practices, creating uncertainty for companies. Furthermore, the number of national-scale green projects remains limited—particularly in the renewable energy sector, where acceleration is needed.

 

Nevertheless, there are success stories that could serve as references. Japan, China, and Singapore have taken the spotlight by implementing decarbonization guidelines for key industries—such as steel, cement, and chemicals, while utilizing blended finance to boost green bond issuance.

 

To illustrate, Japan’s green bond fundraising reached a total of US$4.55 billion as of March 2026, with the government accounting for the dominant share. Notably, the highest value of global bond issuance since 2018 reached US$9.84 billion in September 2023, with government and corporate issuers contributing nearly equal shares.

 

Corporate-led fundraising in China also reached US$1.17 billion in March 2026. The highest figure since 2018 was recorded in September 2025, with US$41.6 billion raised, driven by the business sector.

 

Singapore, Indonesia's closest neighbor, recorded corporate green bond fundraising totaling US$219 million in March 2026. Similarly, the volume recorded in September 2025 reached US$3.74 billion, driven by the corporate sector, marking the highest level since 2018.

 

What is the way forward?

 

Interestingly, amidst various challenges, opportunities remain, including the issuance of green bonds. Faced with substantial funding needs, the government can take the initiative by providing grants and subsidies to encourage fundraising activities through green bonds.

 

For instance, the government could reduce bond rating costs for companies, lower tax rates on bond coupon interest, and simplify administrative procedures for bond listing on the Indonesia Stock Exchange (IDX), thereby making green bond issuance more cost-effective. This approach could serve as a viable solution, as implemented in Singapore and Malaysia.

 

In addition, public financial institutions and multilateral development banks play a crucial role in securing funding to drive low-carbon investment. Studies estimate that a global guarantee mechanism would reduce cost risks associated with renewable energy development, resulting in global savings of US$1.5 trillion by 2030.

 

A global guarantee mechanism is an international financial framework designed to reduce the high financing costs of renewable energy projects in developing countries. By pooling cross-border risks and leveraging the role of institutions such as the Multilateral Investment Guarantee Agency (MIGA), risk premiums can be lowered and private capital mobilized, ultimately reducing the cost of decarbonization.

 

Multilateral banks, climate funds, and international financing institutions can act as intermediaries to transfer risks associated with renewable energy development, thereby mobilizing public funding—including through debt instruments. The Organisation for Economic Co-operation and Development (OECD) notes that these institutions employ various instruments to attract investment in sustainable infrastructure across G20 countries, primarily through co-investment, loans, cornerstone stakes (involving major investors who secure projects at an early stage), and loan guarantees. Risk mitigation can also be achieved through syndicated loans and collaboration between public and private entities.

 

Green bonds—or alternative financial instruments—are certainly not a magic bullet capable of resolving every climate finance challenge. Nevertheless, the various obstacles surrounding green bond issuance warrant attention so that climate action is no longer dominated solely by governments and multilateral institutions.

 

Moreover, the government could clearly define environmentally conscious instruments, provide incentives, and formulate long-term action plans for decarbonization and the energy transition, rather than revising targets deemed unachievable. Clearer policy improvements to support renewable energy development are also essential to convince investors that Indonesia is genuinely committed to decarbonizing its energy sector.