FIN4715

Week 3

1
Sourcour-story
Indonesia Green Sukuks
 Motivation
Rich biodiversity; Vulnerable to the adverse impact of climate change

Source:
• Ministry of Finance, Republic of Indonesia, Indonesia’s Green Bond & Green Sukuk Initiative
3
• https://data.worldbank.org/indicator/AG.LND.FRST.K2?locations=ID
 Funding needed
Gap between the funding needed to reach the target and the
availability of national budget

“To reach the 2030 NDC target alone, the country would need
at least 4.52 quadrillion rupiah ($310 billion).
She said the government has earmarked around 4.1 percent of
the state budget for emissions reduction efforts.”
– Minister of Finance, Republic of Indonesia, Sri Mulyani

Financing needed to combat climate change

• Tracking how the budget is spent to combat climate change
• Issued green sukuk in 2018, 2019, 2020, and 2021
Sources:
• http://greengrowth.bappenas.go.id/en/indonesias-updated-ndc-for-a-climate-resilient- future/#:~:text=Minister%20of
%20Finance%20Sri%20Mulyani,quadrillion%20rupiah%20(%24310%20billion).
• Ministry of Finance, 2021, Republic of Indonesia, Green Sukuk Allocation and Impact Report 5
 Bond vs. Sukuk
Bonds
– Fixed income assets
– Conventional bonds
• Pay interest  not Sharia-compliant

Sukuk
• Structured to comply with Sharia: profit sharing, not
interest
• Represents ownership of tangible assets
• Exposed to business risk
– Payments come from profits generated by the asset
– Repayment at maturity comes from the market value of
the assets at that time 6
Is sukuk an equity or a bond?

Pollev.com/deserina
 Sukuk
• Asset-backed sukuk:
• Represents ownership of tangible assets
• Resemble equity instruments
• (In theory) do not guarantee the amount of periodic
payments and repayment of initial investment

• Asset-based sukuk:
• Resemble debt instruments
– Regular stream of payments & repayment at
maturity
8
 Indonesia sovereign green sukuk issuances

2018 global 2019 retail 2020 global

USD 1.25B, 5 year IDR 1.46T, 2 years USD 750M 5 years
Issued: Mar 18 Issued: Nov 19 Issued: Jun 20
Coupon: 3.75% Coupon: 6.75% Coupon: 2.3%
(floating with floor)
2020 retail
2019 global IDR 5.4T, 2 years
USD 750M, 5.5 years Issued: Nov 20
Issued: Feb 19 Coupon: 5.5%
Coupon: 3.9% floating with floor 10
Source: Ministry of Finance, 2021, Republic of Indonesia, Green Sukuk Allocation and Impact Report
 11
Source: Ministry of Finance, Republic of Indonesia, Indonesia’s Green Bond & Green Sukuk Initiative
 Intended objectives of IGS
MITIGATION

“… In 2015, Indonesia has revised its commitment through

Nationally Determined Contribution (“NDC”) to an
unconditional emission reduction target of 29% (from
previously 26%), and conditional reduction target up to 41%
of the business as usual scenario by 2030 (from previously by
2020). The mitigation regulations are focusing on the sectors
of Energy, Waste, Industrial Processes and Product Use
(IPPU), Agriculture, and Forestry.”

Source: The Republic of Indonesia, Green Bond and Green Sukuk Framework 12
 Intended objectives of IGS (cont.)
ADAPTATION

“…The medium-term goal of Indonesia’s climate change

adaptation strategy is to reduce risks on all development
sectors (agriculture, water, energy security, forestry, maritime
and fisheries, health, public service, infrastructure, and urban
system) by 2030 through local capacity strengthening,
improved knowledge management, convergent policy on
climate change adaptation and disaster risks reduction, and
application of adaptive technology.”

Source: The Republic of Indonesia, Green Bond and Green Sukuk Framework 13
 Intended objectives of IGS (cont.)
BIODIVERSITY

“…As the preservation of biodiversity is closely associated

with national prosperity and development, the Indonesian
Biodiversity Strategy and Action Plan (IBSAP) 2015-2020 was
launched to provide an outline for how biodiversity could be
utilized sustainably to improve the economic and
development opportunities…”

Source: The Republic of Indonesia, Green Bond and Green Sukuk Framework 14
 Eligible green sectors
1. Renewable energy (dark green)
2. Sustainable management of natural resources (light to dark green)
3. Energy efficiency (light to medium green)
4. Green tourism (medium to dark green)
5. Resilience to climate change for highly vulnerable areas and
sectors/disaster risk reduction (dark green)
6. Green buildings (light green)
7. Sustainable transport (medium to dark green)
8. Sustainable agriculture (medium to dark green)
9. Waste to energy & waste management (medium to dark green)

Source:
• The Republic of Indonesia, Green Bond and Green Sukuk Framework
• Ministry of Finance, Republic of Indonesia, Indonesia’s Green Bond & Green Sukuk Initiative 15
 Green Projects

16
Source: Ministry of Finance, Republic of Indonesia, Indonesia’s Green Bond & Green Sukuk Initiative
• Issued in 2017, USD 500 million floating rate green
bonds due in 2022
– Quarterly coupon of 3-month USD LIBOR + 0.62%
• DBS financing of Marina Bay Financial Center Tower 3
(MBFC T3)
Source: https://www.dbs.com/iwov-
resources/images/sustainability/reporting/pdf/DBS%20Green%20Bond%20Report%20June%202020.pdf?pid=
18
SG-GROUP-PWEB-MEDIA-PDF-sg-group-pweb-sustainability-pdf-dbs-green-bond-report-june-2020
Source: https://www.dbs.com/iwov-
resources/images/sustainability/reporting/pdf/DBS%20Green%20Bon
d%20Report%20June%202020.pdf?pid=SG-GROUP-PWEB-MEDIA-
PDF-sg-group-pweb-sustainability-pdf-dbs-green-bond-report-june-
2020
19
 Asia’s biggest market for ESG debt hit by
‘greenwashing concerns

…
20
Source: https://www.ft.com/content/15602932-5bb1-49de-90bf-15932bc1aac4