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Indonesia Green Taxonomy: Towards a More Sustainable Financial System

Indonesia, in adherence to the Paris Agreement as ratified by Law 16/2016, demonstrates its commitment to reducing greenhouse gas emissions by determining the Nationally Determined Contribution (NDC) which sets the course for their ambitious climate goals. In order to meet its NDC goals, Indonesia released the Indonesia Green Taxonomy 1.0, which is aligned with the NDC's sectoral objectives. The initial rollout of the Indonesia Green Taxonomy will be in the financial services sector, where it will be used to improve the reporting systems already in place. The Green Taxonomy classifies economic sectors based on their environmental support, aiding in measuring the portfolio sizes of financial institutions and issuers. The outcomes will help shape sustainable finance policies and promote a greener economy. Indonesia's resolute actions highlight their leadership in climate action and sustainable finance, inspiring global transformative efforts toward a more sustainable future

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Legal Brief
Indonesia Green Taxonomy: Towards a More
Sustainable Financial System
Ministry of
Environment and
Forestry
The ratification of the Paris Agreement, through Law 16/2016, has required all
relevant countries including Indonesia to present their commitment on the efforts
to reduce greenhouse gas (“GHG”) emissions. As a follow up action, Indonesia
through Article 2 (3) PR 98/2021 has committed in reducing GHG by 41% (forty-
one percent) with international assistance or 29% (twenty-nine percent) with
business as usual, which is submitted through the Nationally Determined
Contribution or Kontribusi yang Ditetapkan secara Nasional (“NDC”).
As an overview, the following illustration presents the timeline of Indonesia’s
contribution as a subsequent action to the Paris Agreement regarding efforts to
reduce GHG emissions over the years:
The Issuance of Sustainable
Finance Roadmap phase I
(2015-2019) by OJK.
OJK Regulation No. 51/POJK.03/2017
concerning the Implementation of
Sustainable Finance for Financial
Institutions, Issuers, and Public
Companies.
OJK Regulation No.
60/POJK.04/2017 concerning
the Issuance and the Term of
Green Bond.
The Issuance of Sustainable Finance
Roadmap phase II (2021-2025) by OJK,
which several of the main focus includes:
(i) finalizing the Green Taxonomy; and (ii)
developing the FSS reporting system
including green financing/instruments in
accordance with Green Taxonomy.
The issuance of the Indonesia
Green Taxonomy Edition 1.0.
Establishment of a Sustainable
Finance Task Force, which aims
to serve as a forum for
cooperation and coordination
with industries to respond on the
development of sustainable
finance at national, regional, and
global forum.
2017
2017
2021
2022
2022
Specifically, the Indonesia Green Taxonomy Edition 1.0 will be used as:
1. The basis for the development of incentive and disincentive policy for various
ministries and institutions, including OJK; and
2. Guidelines for information openness, risk management, and development of
innovative sustainable finance products and/or services for Financial Services
Sector and issuers.
Furthermore, it shall be understood that this Indonesia Green Taxonomy Edition 1.0
document is a dynamic/living document that will be revised should there by any
addition or reduction of economic sectors that meet the green criteria.
Ministry of
Industry
Ministry of Marine
Affairs and
Fisheries
Ministry of
Energy and
Mineral
Resources
Ministry of
Transportation
Ministry of
Agriculture
Ministry of Tourism
and Creative
Economy
Ministry of Public
Works and
Housing
Grup Kebijakan Sektor Jasa Keuangan Terintegrasi (“GKTT”)
The completion of the Indonesia Green Taxonomy Edition 1.0 composed by
OJK through integrated Financial Services Sector Policy Group or Grup
Kebijakan Sektor Jasa Keuangan Terintegrasi (“GKTT”) and has involved 8
(eight) relevant ministries, among others:
Definition
Green Taxonomy is an economic activity classification that supports
environmental protection and management efforts, as well as mitigation and
adaptation to climate change.
Responsible Investment Principle
An approach that considers economic, social, environmental and
governance factors in economic activities.
Sustainable Business Strategy and Practice Principle
Obligations to set and implement sustainable business strategies
and practices in every decision-making.
Social and Environmental Risk Management Principle
Includes precautionary prudential principles in assessing social and
environmental risks through identification, measurement, mitigation,
supervision, and monitoring processes.
Governance Principle
Enforcement of Financial Services Sector through business
management and operations which include, among others: (i)
transparency; (ii) accountability; (iii) responsibility; (iv) independence;
(v) professionalism; and (vi) fairness.
Implementing Principles
01
02
03
04
Green Taxonomy is based on 4 (four) principles as follows:
BACKGROUND (1/2)
2015-2019
A H R P L e g a l B r i e f
BACKGROUND (2/2)
The Indonesia Green Taxonomy 1.0 is developed to enhance
the reporting conducted by the Financial Services Industry
and other relevant institutions by providing criteria/thresholds
to categorize economic sectors based on their support for
environmental protection and management, as well as
mitigation and adaptation to climate change.
The reporting outcomes are expected to provide a more
granular and consistent overview of the portfolio size of
Financial Service Institutions, issuers, and public companies
(credit/financing/investment) across economic sectors based
on their environmental support. This information can then
be used as a basis for developing related Sustainable
Finance policies.
Reference: Material on the Implementation and Reporting Plan of Indonesian
Green Taxonomy dated 20 September 2022 prepared by OJK, pg. 2.
Green Taxonomy follows the established government policies and the development of
other relevant references. The threshold of screening criteria to determine the
feasibility of an economic activity, can generally be based on several aspects,
including:
1. Clear definition is set; the threshold must clearly stipulate whether or not an
activity is eligible, specific, and measurable. Thresholds must also be able to
distinguish between activities that can minimize potential of environmental damage
and those that are consistent with the environmental objectives.
2. Other science-based references and the best regional and international
standards:
a. Science-based: thresholds should be chosen based on scientific information
that has been put in place, aimed at achieving global goals and are not limited
by national policies and plans.
b. Revision: thresholds must be revised periodically to achieve the selected goal
during the specified period.
Reference: Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 32.
Due to the dynamic nature of the Indonesia Green Taxonomy 0.1, which is considered as a living document, any policy or information changes can be
accommodated in the subsequent editions of the Indonesia Green Taxonomy. Proposed updates or suggestions can be communicated in advance through
channels such as email at sektorhijau@ojk.go.id.
Furthermore, the following illustration outlines the stages involved in mapping the green taxonomy:
1. Conceptual
framework (principle,
objectives, definition
standardization of
taxonomy)
2. Taxonomy
requirements
mapping
3. Determination of
users: FSI and other
related stakeholders.
Analysis of applicable
environmental
plans, objectives,
and regulations;
including commitment to
international agreements
in order to meet the
climate change mitigation
and adaptation goals.
1. Determination of sectors and
activities category based on the
applicable standards (i.e.: ISIC,
KBLI, etc).
2. Confirmation to internal work
units and related stakeholders. Document Finalization
Define the Strategic Goal and Users
Define the Environmental Objectives
Specify Sectors and Categories
Assessment and Threshold Determination
Assessment and Threshold Determination
Reference: Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 27.
Key Takeaways Methodology and Threshold in Determining the Green Sectors’ Category
A H R P L e g a l B r i e f
USERS AND APPLICABILITY OF GREEN TAXONOMY
Green Taxonomy purposes are to develop standard definition and green criteria from economic sector activities that support the climate change
mitigation and adaptation agenda in Indonesia by implementing a science-based approach and to encourage innovations and investments in
economic activities that have positive impacts on the environment by implementing science-based approaches.
The Green Taxonomy is targeted but not limited to the following:
International Institutions
and International and
Regional Cooperative
Purpose: To disclose
information related to
standard definitions issued
by the government on
green economic activities.
Actors of Indonesian
Financial Services Sector
o Banking
o Capital Market,
o Non-Bank Financial Industry
Purpose: To expand funding,
financing, or investment activities.
National and International
Investors
Purpose: To determine of
investment criteria, especially for
environmental aspects.
Government
Purpose: To formulate fiscal policies
and development planning, as well
as to plan and oversee the delivery
of Indonesia’s commitments in
mitigating climate change and
improving sustainable development.
Financial services and
monetary authorities
Purpose: To create policies as
well as monitor and supervise the
implementation of sustainable
finance policies.
The use of Indonesia Green Taxonomy Edition 1.0 is not yet mandatory, but the guidelines can already serve as a reference for Financial
Services Sector. The implementation of the Green Taxonomy will gradually be applied in the context of reporting for the financial services industry
under the supervision of the OJK. It is also possible that the Green Taxonomy may become mandatory in the future, similar to other countries like
Tiongkok. Further information regarding the implementation plan will be provided in the next slide.
In addition to that, reporting based on the green taxonomy can also be used to complement the disclosure requirements mandated by OJK Reg.
51/2017. According to Article 10 (1) OJK Reg. 51/2017, it is mandatory for users to issue a sustainability report, which is a public disclosure that
encompasses the economic, financial, social, and environmental performance of a financial service institution, issuer, or public company engaged
in sustainable business practices. Moreover, the sustainability report is prepared separately from the annual report or as an integral part of the
annual report. On another note, it is also known that OJK Reg. 60/2017 governs the Environmental Friendly Business Activities or Kegiatan
Usaha Berwawasan Lingkungan ("KBLU").
Article 1 (13) OJK Reg. 51/2017 jo. Article 10 (2) OJK Reg. 51/2017
Hence with that being said, with the enforceability of The Indonesia Green Taxonomy, the implementation of OJK Reg. 51/2017 and OJK Reg.
60/2017 is currently still in effect and no amendments or changes have been made to these provisions. Indonesia Green Taxonomy Edition 1.0
primarily focuses on environmental objectives. Therefore, it will cover the KBLU category with more detailed classifications and broader scope. In
conclusion, currently there are plans by the OJK to implement the Green Taxonomy in relation to OJK Reg. 51/2017. However, there is no further
statement from the OJK regarding the implementation of the Green Taxonomy with respect to OJK Reg. 60/2017.
A H R P L e g a l B r i e f
THE IMPLEMENTATION OF CARBON ECONOMIC VALUE
TO ACHIEVE NDC TARGETS
NDC is a national commitment for the handling of global climate change in
order to achieve the objectives of the Paris Agreement to the UN Framework
Convention on Climate Change. As previously mentioned above, the NDC
target shall includes:
1. Establishing policies and measures as well as implementation of activities
in accordance with the commitment of the Government in the form of GHG
emissions reduction of 29% (twenty-nine percent) up to 41% (forty-one
percent) in 2030 compared to the GHG Emission Baseline; and
2. Developing national, regional, and community resilience from various risks
over climate change conditions or climate resilience.
The GHG Emission Baseline as referred above is the GHG Emission Baseline
in 2030 amounting to 2.869 (two thousand eight hundred and sixty-nine)
million tons of CO2e and the climate resilience baseline as well as the climate
resilience target. Furthermore, such target shall be adjusted to NDC review at
least once every 5 (five) years.
Article 1 (1) jo. Article 2 (3) PR No. 98/2021
Article 2 (6) jo. Article 3 (1) PR No. 98/2021
Efforts to achieve the NDC target shall be implemented through the
organization of: (i) climate change mitigation; and (ii) climate
change adaptation. Moreover, such efforts shall refer to the NDC
implementation strategies which are the directive for the implementation
of NDC.
The NDC implementation strategy shall includes:
• Development of ownership and commitment;
• Capacity development;
• Creation of enabling conditions;
• Formulation of communication frameworks and networks;
• Single data policy on GHG emissions and climate resilience;
• Formulation of policies, plans and programs;
• Formulation of guidelines for NDC implementation;
• Implementation of NDC; and
• Monitoring and review of NDC.
Efforts to achieve the NDC target through the organization of climate
change mitigation shall be conducted through: (i) planning on climate
change mitigation actions; (ii) implementation of climate change
mitigation actions; and (iii) monitoring and evaluation of climate
change mitigation actions.
Article 6 (1) PR No. 98/2021
Efforts to achieve the NDC target through the organization of climate
change adaptation shall be conducted to: (i) increase the climate
change adaptation capacity; (ii) reduce the level of vulnerability and/or
risk of climate change; (iii) take advantage of climate change
opportunities; and (iv) reduce potential losses and damages due to
climate change.
Energy
Food
Waste Industrial processes and
product use
Agriculture Forestry Others
Water Energy
Others
Ecosystem
Health
Sectors in Climate Change Mitigation
Sectors in Climate Change Adaptation
1
2
Efforts to Achieve NDC Targets Climate Change Adaptation
Article 5 (1) & (2) PR No. 98/2021 Article 31 (1) PR No. 98/2021
Climate Change Mitigation
A H R P L e g a l B r i e f
CLASSIFICATION OF GREEN TAXONOMY:
IDENTIFICATION OF ECONOMIC SECTOR FRAMEWORK
Energy
1. Procurement of Electricity,
Gas, Steam or Hot Water,
and Cold Air
2. Transportation and
Warehousing
Forestry
1. Arts, Entertainments, and
Recreation
2. Agriculture, Forestry, and
Fisheries
Agriculture
1. Procurement of Electricity, Gas,
Steam or Hot Water, and Cold
Air
2. Agriculture, Forestry, and
Fisheries
Waste
Water Management, Wastewater
Management, Waste Management
and Recycling, and Remediation
Activities
Industrial Processes and
Product Use
Processing Industry
Others
1. Government Administration, Defense
and Mandatory Social Security
2. Other Services Activities
3. Rental and Leasing Activities Without
Option Rights, Employment, Travel
Agent and Other Supporting Business
4. Professional, Scientific, and Technical
Activities
5. Information and Communication
6. Arts, Entertainment, and Recreation
7. Construction
8. Education
9. Procurement of Electricity, Gas, Steam or Hot
Water, and Cold Air
10. Water Management, Wastewater Management,
Waste Management and Recycling, and
Remediation Activities
11. Provision of Accommodation, Food, and Beverages
12. Wholesale and Retail Trade; Car and Motorcycle
Reparation and Maintenance
13. Mining and Extraction
14. Agriculture, Forestry, and Fisheries
15. Real Estate
A H R P L e g a l B r i e f
Green Taxonomy requires the classification of
economic activities in the business sector as a
reference point. Currently, the sector and subsector
identification in the Green Taxonomy corresponds
to the NDC sector targets stipulated in PR 98/2021
and the 2017 KBLI. Given that the Indonesia Green
Taxonomy Edition 1.0 is a living document, it will be
updated to reflect the KBLI 2020.

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Indonesia Green Taxonomy: Towards a More Sustainable Financial System

  • 1. Legal Brief Indonesia Green Taxonomy: Towards a More Sustainable Financial System
  • 2. Ministry of Environment and Forestry The ratification of the Paris Agreement, through Law 16/2016, has required all relevant countries including Indonesia to present their commitment on the efforts to reduce greenhouse gas (“GHG”) emissions. As a follow up action, Indonesia through Article 2 (3) PR 98/2021 has committed in reducing GHG by 41% (forty- one percent) with international assistance or 29% (twenty-nine percent) with business as usual, which is submitted through the Nationally Determined Contribution or Kontribusi yang Ditetapkan secara Nasional (“NDC”). As an overview, the following illustration presents the timeline of Indonesia’s contribution as a subsequent action to the Paris Agreement regarding efforts to reduce GHG emissions over the years: The Issuance of Sustainable Finance Roadmap phase I (2015-2019) by OJK. OJK Regulation No. 51/POJK.03/2017 concerning the Implementation of Sustainable Finance for Financial Institutions, Issuers, and Public Companies. OJK Regulation No. 60/POJK.04/2017 concerning the Issuance and the Term of Green Bond. The Issuance of Sustainable Finance Roadmap phase II (2021-2025) by OJK, which several of the main focus includes: (i) finalizing the Green Taxonomy; and (ii) developing the FSS reporting system including green financing/instruments in accordance with Green Taxonomy. The issuance of the Indonesia Green Taxonomy Edition 1.0. Establishment of a Sustainable Finance Task Force, which aims to serve as a forum for cooperation and coordination with industries to respond on the development of sustainable finance at national, regional, and global forum. 2017 2017 2021 2022 2022 Specifically, the Indonesia Green Taxonomy Edition 1.0 will be used as: 1. The basis for the development of incentive and disincentive policy for various ministries and institutions, including OJK; and 2. Guidelines for information openness, risk management, and development of innovative sustainable finance products and/or services for Financial Services Sector and issuers. Furthermore, it shall be understood that this Indonesia Green Taxonomy Edition 1.0 document is a dynamic/living document that will be revised should there by any addition or reduction of economic sectors that meet the green criteria. Ministry of Industry Ministry of Marine Affairs and Fisheries Ministry of Energy and Mineral Resources Ministry of Transportation Ministry of Agriculture Ministry of Tourism and Creative Economy Ministry of Public Works and Housing Grup Kebijakan Sektor Jasa Keuangan Terintegrasi (“GKTT”) The completion of the Indonesia Green Taxonomy Edition 1.0 composed by OJK through integrated Financial Services Sector Policy Group or Grup Kebijakan Sektor Jasa Keuangan Terintegrasi (“GKTT”) and has involved 8 (eight) relevant ministries, among others: Definition Green Taxonomy is an economic activity classification that supports environmental protection and management efforts, as well as mitigation and adaptation to climate change. Responsible Investment Principle An approach that considers economic, social, environmental and governance factors in economic activities. Sustainable Business Strategy and Practice Principle Obligations to set and implement sustainable business strategies and practices in every decision-making. Social and Environmental Risk Management Principle Includes precautionary prudential principles in assessing social and environmental risks through identification, measurement, mitigation, supervision, and monitoring processes. Governance Principle Enforcement of Financial Services Sector through business management and operations which include, among others: (i) transparency; (ii) accountability; (iii) responsibility; (iv) independence; (v) professionalism; and (vi) fairness. Implementing Principles 01 02 03 04 Green Taxonomy is based on 4 (four) principles as follows: BACKGROUND (1/2) 2015-2019 A H R P L e g a l B r i e f
  • 3. BACKGROUND (2/2) The Indonesia Green Taxonomy 1.0 is developed to enhance the reporting conducted by the Financial Services Industry and other relevant institutions by providing criteria/thresholds to categorize economic sectors based on their support for environmental protection and management, as well as mitigation and adaptation to climate change. The reporting outcomes are expected to provide a more granular and consistent overview of the portfolio size of Financial Service Institutions, issuers, and public companies (credit/financing/investment) across economic sectors based on their environmental support. This information can then be used as a basis for developing related Sustainable Finance policies. Reference: Material on the Implementation and Reporting Plan of Indonesian Green Taxonomy dated 20 September 2022 prepared by OJK, pg. 2. Green Taxonomy follows the established government policies and the development of other relevant references. The threshold of screening criteria to determine the feasibility of an economic activity, can generally be based on several aspects, including: 1. Clear definition is set; the threshold must clearly stipulate whether or not an activity is eligible, specific, and measurable. Thresholds must also be able to distinguish between activities that can minimize potential of environmental damage and those that are consistent with the environmental objectives. 2. Other science-based references and the best regional and international standards: a. Science-based: thresholds should be chosen based on scientific information that has been put in place, aimed at achieving global goals and are not limited by national policies and plans. b. Revision: thresholds must be revised periodically to achieve the selected goal during the specified period. Reference: Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 32. Due to the dynamic nature of the Indonesia Green Taxonomy 0.1, which is considered as a living document, any policy or information changes can be accommodated in the subsequent editions of the Indonesia Green Taxonomy. Proposed updates or suggestions can be communicated in advance through channels such as email at sektorhijau@ojk.go.id. Furthermore, the following illustration outlines the stages involved in mapping the green taxonomy: 1. Conceptual framework (principle, objectives, definition standardization of taxonomy) 2. Taxonomy requirements mapping 3. Determination of users: FSI and other related stakeholders. Analysis of applicable environmental plans, objectives, and regulations; including commitment to international agreements in order to meet the climate change mitigation and adaptation goals. 1. Determination of sectors and activities category based on the applicable standards (i.e.: ISIC, KBLI, etc). 2. Confirmation to internal work units and related stakeholders. Document Finalization Define the Strategic Goal and Users Define the Environmental Objectives Specify Sectors and Categories Assessment and Threshold Determination Assessment and Threshold Determination Reference: Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 27. Key Takeaways Methodology and Threshold in Determining the Green Sectors’ Category A H R P L e g a l B r i e f
  • 4. USERS AND APPLICABILITY OF GREEN TAXONOMY Green Taxonomy purposes are to develop standard definition and green criteria from economic sector activities that support the climate change mitigation and adaptation agenda in Indonesia by implementing a science-based approach and to encourage innovations and investments in economic activities that have positive impacts on the environment by implementing science-based approaches. The Green Taxonomy is targeted but not limited to the following: International Institutions and International and Regional Cooperative Purpose: To disclose information related to standard definitions issued by the government on green economic activities. Actors of Indonesian Financial Services Sector o Banking o Capital Market, o Non-Bank Financial Industry Purpose: To expand funding, financing, or investment activities. National and International Investors Purpose: To determine of investment criteria, especially for environmental aspects. Government Purpose: To formulate fiscal policies and development planning, as well as to plan and oversee the delivery of Indonesia’s commitments in mitigating climate change and improving sustainable development. Financial services and monetary authorities Purpose: To create policies as well as monitor and supervise the implementation of sustainable finance policies. The use of Indonesia Green Taxonomy Edition 1.0 is not yet mandatory, but the guidelines can already serve as a reference for Financial Services Sector. The implementation of the Green Taxonomy will gradually be applied in the context of reporting for the financial services industry under the supervision of the OJK. It is also possible that the Green Taxonomy may become mandatory in the future, similar to other countries like Tiongkok. Further information regarding the implementation plan will be provided in the next slide. In addition to that, reporting based on the green taxonomy can also be used to complement the disclosure requirements mandated by OJK Reg. 51/2017. According to Article 10 (1) OJK Reg. 51/2017, it is mandatory for users to issue a sustainability report, which is a public disclosure that encompasses the economic, financial, social, and environmental performance of a financial service institution, issuer, or public company engaged in sustainable business practices. Moreover, the sustainability report is prepared separately from the annual report or as an integral part of the annual report. On another note, it is also known that OJK Reg. 60/2017 governs the Environmental Friendly Business Activities or Kegiatan Usaha Berwawasan Lingkungan ("KBLU"). Article 1 (13) OJK Reg. 51/2017 jo. Article 10 (2) OJK Reg. 51/2017 Hence with that being said, with the enforceability of The Indonesia Green Taxonomy, the implementation of OJK Reg. 51/2017 and OJK Reg. 60/2017 is currently still in effect and no amendments or changes have been made to these provisions. Indonesia Green Taxonomy Edition 1.0 primarily focuses on environmental objectives. Therefore, it will cover the KBLU category with more detailed classifications and broader scope. In conclusion, currently there are plans by the OJK to implement the Green Taxonomy in relation to OJK Reg. 51/2017. However, there is no further statement from the OJK regarding the implementation of the Green Taxonomy with respect to OJK Reg. 60/2017. A H R P L e g a l B r i e f
  • 5. THE IMPLEMENTATION OF CARBON ECONOMIC VALUE TO ACHIEVE NDC TARGETS NDC is a national commitment for the handling of global climate change in order to achieve the objectives of the Paris Agreement to the UN Framework Convention on Climate Change. As previously mentioned above, the NDC target shall includes: 1. Establishing policies and measures as well as implementation of activities in accordance with the commitment of the Government in the form of GHG emissions reduction of 29% (twenty-nine percent) up to 41% (forty-one percent) in 2030 compared to the GHG Emission Baseline; and 2. Developing national, regional, and community resilience from various risks over climate change conditions or climate resilience. The GHG Emission Baseline as referred above is the GHG Emission Baseline in 2030 amounting to 2.869 (two thousand eight hundred and sixty-nine) million tons of CO2e and the climate resilience baseline as well as the climate resilience target. Furthermore, such target shall be adjusted to NDC review at least once every 5 (five) years. Article 1 (1) jo. Article 2 (3) PR No. 98/2021 Article 2 (6) jo. Article 3 (1) PR No. 98/2021 Efforts to achieve the NDC target shall be implemented through the organization of: (i) climate change mitigation; and (ii) climate change adaptation. Moreover, such efforts shall refer to the NDC implementation strategies which are the directive for the implementation of NDC. The NDC implementation strategy shall includes: • Development of ownership and commitment; • Capacity development; • Creation of enabling conditions; • Formulation of communication frameworks and networks; • Single data policy on GHG emissions and climate resilience; • Formulation of policies, plans and programs; • Formulation of guidelines for NDC implementation; • Implementation of NDC; and • Monitoring and review of NDC. Efforts to achieve the NDC target through the organization of climate change mitigation shall be conducted through: (i) planning on climate change mitigation actions; (ii) implementation of climate change mitigation actions; and (iii) monitoring and evaluation of climate change mitigation actions. Article 6 (1) PR No. 98/2021 Efforts to achieve the NDC target through the organization of climate change adaptation shall be conducted to: (i) increase the climate change adaptation capacity; (ii) reduce the level of vulnerability and/or risk of climate change; (iii) take advantage of climate change opportunities; and (iv) reduce potential losses and damages due to climate change. Energy Food Waste Industrial processes and product use Agriculture Forestry Others Water Energy Others Ecosystem Health Sectors in Climate Change Mitigation Sectors in Climate Change Adaptation 1 2 Efforts to Achieve NDC Targets Climate Change Adaptation Article 5 (1) & (2) PR No. 98/2021 Article 31 (1) PR No. 98/2021 Climate Change Mitigation A H R P L e g a l B r i e f
  • 6. CLASSIFICATION OF GREEN TAXONOMY: IDENTIFICATION OF ECONOMIC SECTOR FRAMEWORK Energy 1. Procurement of Electricity, Gas, Steam or Hot Water, and Cold Air 2. Transportation and Warehousing Forestry 1. Arts, Entertainments, and Recreation 2. Agriculture, Forestry, and Fisheries Agriculture 1. Procurement of Electricity, Gas, Steam or Hot Water, and Cold Air 2. Agriculture, Forestry, and Fisheries Waste Water Management, Wastewater Management, Waste Management and Recycling, and Remediation Activities Industrial Processes and Product Use Processing Industry Others 1. Government Administration, Defense and Mandatory Social Security 2. Other Services Activities 3. Rental and Leasing Activities Without Option Rights, Employment, Travel Agent and Other Supporting Business 4. Professional, Scientific, and Technical Activities 5. Information and Communication 6. Arts, Entertainment, and Recreation 7. Construction 8. Education 9. Procurement of Electricity, Gas, Steam or Hot Water, and Cold Air 10. Water Management, Wastewater Management, Waste Management and Recycling, and Remediation Activities 11. Provision of Accommodation, Food, and Beverages 12. Wholesale and Retail Trade; Car and Motorcycle Reparation and Maintenance 13. Mining and Extraction 14. Agriculture, Forestry, and Fisheries 15. Real Estate A H R P L e g a l B r i e f Green Taxonomy requires the classification of economic activities in the business sector as a reference point. Currently, the sector and subsector identification in the Green Taxonomy corresponds to the NDC sector targets stipulated in PR 98/2021 and the 2017 KBLI. Given that the Indonesia Green Taxonomy Edition 1.0 is a living document, it will be updated to reflect the KBLI 2020.
  • 7. CLASSIFICATION OF GREEN TAXONOMY: IDENTIFICATION OF GREEN TAXONOMY’S THRESHOLD The Green Taxonomy can be used to determine the proportion of activities that significantly contribute to environmental goals, such as climate change mitigation and adaptation efforts. To identify the sector thresholds, the Green Taxonomy uses policies that have already been determined by the government in addition to the development of other references that are related. Development on the yellow to green threshold can be based on activities that can serve as references for policy targets that are no longer enforced, among other justifiable arguments. With the Green Taxonomy's classifications and threshold information connected to each activity, it is hoped that it will be able to provide information for all relevant stakeholders in formulating policies, especially in the process of financing or investing in sectors that are included in the green sector and/or vice versa. Green Category Business activities that do no significant harm, apply minimum safeguard, provide positive Impact to the environment and align with the environmental objective of the taxonomy. Business activities that protect, restore, and improve the quality of environmental protection and management, as well as climate change mitigation and adaptation, and comply with the governance standards by government, and apply best practices at both the national and international level. Yellow Category Business activities that do no significant harm. Business activities that meet several green criteria or thresholds. Determination of the benefits of this business activity for environmental protection and management must still be determined through measurement and support from other best practices. Red Category Business activities that are harmful activities. The business activities that do not meet the yellow and/or green criteria or threshold. Reference: Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 34-35. A H R P L e g a l B r i e f
  • 8. Green Category palm oil plantations meet the environmental, economic, and social criteria of the Indonesian Sustainable Palm Oil (ISPO) standard and other international standards, such as the Roundtable on Sustainable Palm Oil (RSPO). Yellow Category palm oil plantations meet the following criteria: o Have implemented ISPO certification. o Have a plantation business assessment (garden class document) issued by the regent or governor in accordance with their authorities. o Have understood the good agriculture and good handling practices . o Have attended integrated pest control training. o Have acquired an agreement document based on Free, Prior and Informed Consent Process/Persetujuan dengan Informasi Awal Tanpa Paksaan (PADIATAPA). o Have developed commodity standar operational procedure and/or certificate from competent officer (i.e. Plant Destruction Organism Control (POPT) and Agricultural Product Quality Supervisor (PMHP)) stating the level of pesticide use and contamination of water sources according to food safety standards. o Have acquired a High Conservation Value (HCV) area assessment or identification document. o Have a workbook/recording-keeping. Red Category palm oil plantations do not meet any of criteria under Yellow Category and Green Category. Identification of Green Taxonomy’s Threshold ILLUSTRATION OF GREEN TAXONOMY: PALM OIL PLANTATION Identification of Economic Sector Framework KBLI Level 1 Agriculture, Forestry and Fisheries KBLI Level 2 Crop Farming, Livestock, Hunting and related activities KBLI Level 3 Annual Crop Farming KBLI Level 4 Oil-Producing Fruit Plantation (Oleaginous) KBLI Level 5 Palm Oil Plantation. *This group includes plantation businesses ranging from land management activities, seeding, nurseries, planting, maintenance and harvesting of oil palm fruit. Including the activities of seeding and seeding of oil palm fruit trees. KBLI Code: 02162 NDC Forestry Reference: Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 38-39. A H R P L e g a l B r i e f
  • 9. IMPLEMENTATION OF GREEN TAXONOMY: REPORTING STRATEGY PLAN Pilot Project 1. Objective: Aims to obtain preliminary information on the Reporter’s portfolio. 2. Reporting Mechanism: Manual (excel-based file). 3. Reporter: (Art. 147 (1) OJK Reg. 12/2021) a. Bank KBMI 3: Banks with core capital of more than Rp14,000,000,000,000.00 (fourteen trillion rupiah) up to Rp70,000,000,000,000.00 (seventy trillion rupiah). b. Bank KBMI 4: Banks with core capital of more than Rp70,000,000,000,000.00 (seventy trillion rupiah). 4. Data Coverage: Productive and Consumptive Credit 5. Types of Report: THI Report and Thematic Report The Green Taxonomy aims to improve reporting by the financial services industry and other related institutions by providing information on criteria and thresholds for classifying economic sectors based on their support for environmental protection and management as well as mitigation and adaptation to climate change. These categories include the green, yellow, and red categories that were elaborated on earlier. Through the classification of green economic sectors and thresholds within the Green Taxonomy, it is anticipated that the Green Taxonomy will serve as a reference in the creation of a reporting system for the financial industry that involves green financing or green instruments. The results of report that basing on Green Taxonomy are expected to provide a more granular and consistent picture regarding the size of the banking portfolio in the economic sector based on its carrying capacity to the environment to then be used as a basis for formulating policies related to sustainable finance. Furthermore, in the context of carrying out the intended reporting, it is necessary to develop an appropriate strategy so that the implementation can run smoothly and in accordance with the expectations of stakeholders. Long-Term Strategy 1. Objective: Aims to complementing the currently running reporting system. 2. Reporting Mechanism: a. Performed systematically. b. Fully embedded with the existing reporting system c. Further data processing by OJK’s application 3. Reporters: a. Financial Services Institutions: Institutions that carry out activities in the banking sector, capital market, insurance, pension funds, financing institutions, and other financial service institutions based on the provisions of laws and regulations in the financial services sector. (Art. 1 (10) Law 4/2023) b. Issuer: Parties who make public offering. (Art. 1 (17) OJK Reg. 3/2021) c. Public Companies: Companies whose shares are owned by at least 300 (three hundred) shareholders and have paid-up capital of at least Rp3,000,000,000.00 (three billion rupiah) or a number of shareholders and paid-up capital determined by OJK. (Art. 1 (18) OJK Reg. 3/2021) 4. Data Coverage: Productive and Consumptive Credit, both small medium enterprises and non-small medium enterprises from individual debtor. 5. Types of Report: Enhanced with Sustainability and Work Plan and Budget Report Short-Term Strategy 1. Objective: Aims to be a "temporary solution" until the ideal version of the report (realized long-term strategy) is available. 2. Reporting Mechanism: APOLO OJK system. 3. Reporter: a. Bank KBMI 1: Banks with core capital up to Rp6,000,000,000,000.00 (six trillion rupiah). b. Bank KBMI 2: Banks with core capital of more than Rp6,000,000,000,000.00 (six trillion rupiah) up to Rp 14,000,000,000,000.00 (fourteen trillion rupiah). c. Bank KBMI 3: Banks with core capital of more than Rp14,000,000,000,000.00 (fourteen trillion rupiah) up to Rp70,000,000,000,000.00 (seventy trillion rupiah). d. Bank KBMI 4: Banks with core capital of more than Rp70,000,000,000,000.00 (seventy trillion rupiah). • As a note, Bank KBMI 3 and 4 will begin fully reporting through APOLO, while Bank KBMI 1 and 2 will first conduct piloting through APOLO. Art. 147 (1) OJK Reg. 12/2021 4. Data Coverage: Productive and Consumptive Credit 5. Types of Report: THI Report and Thematic Report Reference: 1. Material on the Implementation and Reporting Plan of Indonesian Green Taxonomy dated 20 September 2022 prepared by OJK, pg. 10. 2. Indonesia Green Taxonomy Edition 1.0 – 2022, pg. 36-37. 3. Material on the Implementation and Reporting Plan of Indonesian Green Taxonomy dated 20 September 2022 prepared by OJK. 01 02 03 A H R P L e g a l B r i e f Pilot Project Short-Term Strategy Long-Term Strategy
  • 10. We will continue to follow the developments on this topic and provide additional information as it becomes available. If you have any questions on this topic, please contact: Aryangga Pradana Febrianto aryangga@ahrplaw.com Cut Hasri Nabila nabila@ahrplaw.com Merina Elfian merina@ahrplaw.com This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your circumstances before deciding to take any action. World Capital Tower 19th floor Jl. Mega Kuningan Barat No.3, Kuningan Jakarta 12950 Indonesia P: +6221 50917915 +6221 50917916 E: office@ahrplaw.com www.ahrplaw.com