The government of Indonesia raised USD $1.25 billion through the issuance of global “green” bonds, hence becoming the first Asian country to issue this type of bond. With the proceeds from the green bond the Indonesian government will fund projects that have positive environmental and/or climate benefits.
As one of the world’s biggest greenhouse gas emitters, analysts welcomed the move of the Indonesian government to tap the potential of climate-friendly investment. Relatively few governments around the globe have sold this type of bond. Reportedly, the Indonesian government is the first government in Asia that issued the green bond. In Indonesia, the green bond was issued in the form of five-year sukuk (debt paper that is in line with Islamic principles), carrying a 3.75 percent coupon.
Indonesia has a bad track record in terms of environmental protection, particularly due to Indonesians’ weak awareness of environmental issues. Hence, there occur the traditional man-made forest fires each year on commodity-rich islands Sumatra and Kalimantan as local farmers use the slash-and-burn technique to clear land for plantations (usually for pulp and paper or palm oil plantations).
Indonesian President Joko Widodo is committed to preserve the environment and therefore introduced a moratorium on new palm oil concessions, extended a two-year moratorium on issuing new licenses to use land designated as primary forest, encourages the use of renewable energy sources, and contributes to the target of cutting the country’s emissions by at least 29 percent by 2030.
Proceeds from Indonesia’s green bond issuance will be used to finance projects such as renewable energy, green tourism and waste management. The Indonesian government did emphasize, however, that some projects will involve “an element of deforestation”. However, no funds will be transferred to fossil-fuel based infrastructure development projects, or projects that involve the burning of peat-land. Bookrunners were CIMB, Citigroup, Dubai Islamic Bank PJSC, HSBC and Abu Dhabi Islamic Bank.
London-based Climate Bonds Initiative stated that a total of USD $155.5 billion of green bonds were sold across the globe in full-year 2017. This was a new record.