Green Investment Policy Framework: Assessing Opportunities for Indonesia–Nordic Cooperation

Green investment is quickly becoming a key instrument in supporting global climate transition, especially in developing countries facing massive funding challenges and large-scale infrastructure needs. Indonesia, with its long-term climate targets and commitments, requires a steady and continuous stream of green investment. On the other hand, the Nordic countries are renowned pioneers in the development of sustainable green investment policy and mechanism. This article hence discusses how a green investment framework between Indonesia and Nordic countries can complement one another, and what policy challenges will necessitate deeper attention to ensure the Nordic-Indonesia green investment cooperation creates tangible results.

To begin with, Nordic countries develop a green investment framework that combines market instruments, like green bonds and carbon pricing, with a consistent long-term fiscal policy. Transparency, ESG standards, and clear regulations are the core foundations in attracting private investment to the green sector. Because of the fact that this policy approach focuses not only on climate targets but also on policy stability and institutional credibility as signals to investors, as can be seen from the Nordic examples, then public financial institutions, including regional development banks, play a crucial role in mitigating risk and mobilizing private capital. In other words, the experience of the Nordic countries shows that the success of green investments depends heavily on policy consistency and the capacity of supporting institutions.

Meanwhile, Indonesia has developed a number of strategic regulations to induce green investment, including via Indonesia’s own state budget and decarbonization strategy. Reflecting the archipelago’s attempt at expanding its green investment base, both the Indonesian government and public financial institutions have also placed sustainable finance as a policy priority to support the transition toward a low-carbon economy. Be that as it may, much like other developing countries, there are many challenges regarding implementation and policy consistency that remain influential toward how investors perceive their investment risks. In this regard, the Indonesian green policy framework remains in a strengthening phase, with the need for increased institutional capacity as a key success factor.

It is not a stretch to state that Nordic-Indonesia green investment cooperation is imbued with a large potential should it be accordingly propped up by a harmonized incentive and policy framework. Regardless, it is better to comprehend the Nordic-Indonesian cooperation as one of a complimentary relationship framework, where Indonesia’s green development needs are supported by the policy and financing experience of Nordic countries. To establish a bridge between disparate policy frameworks, mechanisms like institutional cooperation and policy dialogues can be employed. To add, the interborder flow of green investment can be facilitated by trade and investment agreements, helped by financial institutions and chambers of commerce. Furthermore, based on each party’s comparative advantages, sectors such as green infrastructure, circular economy, and renewable energy offer concrete opportunities for collaboration.

This is not to say that all would be smooth sailing. The glaring differences between regulatory regimes and perceptions of investment risk in Indonesia and the Nordics still exist as key challenges. To build certainty for investors, a crucial role will be played by policy harmonization and improving regulatory quality. Both Indonesia and the Nordics must also maintain regular and continuous policy dialogues to address any comprehension gap and amplify stakeholders’ trust.

Finally, what do the policy implications of this collaboration emphasize? It highlights that the nucleus of a successful green investment is built by combining the institutional capacity and the quality of implementation with capital interest. In other words, with a structured approach, Indonesia-Nordic green investment cooperation has the potential to contribute to achieving green development goals more effectively.

Omar Rasya Joenoes is a Research Fellow at the Central European Institute of Asian Studies. He recently finished his doctoral student in the Department of Political Science at Universität Wien.