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51�Թ�� Business School’s event showcased female leaders driving sustainable investing, ESG innovation and long-term value creation.

Main image: 51�Թ�� Business School | Fergus Burnett

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Balancing climate ambition and energy security: The case for renewable acceleration in Indonesia

Milica Fomicov — Wed, 15 Jan 2025 12:14:02 +0000

Balancing climate ambition and energy security: The case for renewable acceleration in Indonesia

Milica Fomicov Wed, 15/01/2025 - 12:14

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For a nation rich in natural sources for renewable power generation and with aggressive targets to decarbonise, Indonesia currently exploits just a fraction of its potential renewable power – could it accelerate the transition?

Indonesia harnesses just 0.3 per cent of an estimated 3.7 TW of potential renewable electricity. Yet the Southeast Asian nation has ambitions to slash its use of coal by 2040 – well ahead of a previous 2056 target. By then, the government aims to generate 75 GW of renewable energy, reaching climate neutrality by 2050 – a decade earlier than previously pledged.

These are highly ambitious targets for a nation reliant on coal for 67 per cent of power generation, compared to 12 per cent from renewables. Indonesia is the world’s fifth largest operator of coal fuelled electricity and seventh largest emitter of greenhouse gases.

But if the region’s largest economy can overcome barriers to adopting clean energy, could it become a trailblazer for other emerging economies in balancing energy security, economic growth and climate action?

Today, Indonesia’s energy sector requires not only hefty investment, but also radical reform.

These climate targets require an estimated 1.2 trillion USD by 2050 for clean energy generation, storage and transmission as per the Institute for Energy Economics and Financial Analysis.

But despite its vast potential, investment in renewables in Southeast Asia has been scant to date. Funds have poured into Vietnam, with Indonesia lagging, despite its huge potential. For every USD invested in Southeast Asian renewables, another goes into fossil fuels – well above levels of Latin America at 0.2 USD and China at 0.3 USD.

Huge investment is also required to modernise distribution grids and energy storage across the islands to meet growing demand. Many islands and remote communities would benefit from the creation of local microgrids

What are the barriers to renewable investment?

Spread across a huge archipelago of some 17,000 islands, Indonesia faces logistical and political hurdles as well as financial. Renewable energy is often far from where it’s most required by industry.

State owned energy utility Perusahaan Listrik Negara (PLN) holds a monopoly over energy generation, transmission and distribution. While the grid – currently designed around central coal fired stations - needs to modernise, private investment is hampered by PLN’s control of licences even in locations where it doesn’t currently operate, but might do so in the future.

There is also a shortage of renewable procurement possibilities. Industrial consumers could potentially generate their own green power from localised renewables rather than relying upon the centralised grid. But such projects might be dispersed far across the archipelago, and investors are often deterred by small scale, distant projects.

While renewable energy technology has improved and prices have fallen, the cost of financing remains high, partly down to uncertainty over energy policy. This reluctance will continue as long as Indonesia’s existing subsidies on coal and gas continue to influence energy prices.

Huge investment is also required to modernise distribution grids and energy storage across the islands to meet growing demand. Many islands and remote communities would benefit from the creation of local microgrids, but again this is constrained by PLN’s control of operations.

Progress has also been slow from Indonesia’s Just Energy Transition Plan (JETP), unveiled in 2022, which targets 20 billion USD to help Indonesia cut emissions. Although the US has withdrawn as a partner, the remaining nine international partners maintain this won’t hinder commitment, although only a fraction of funds pledged have been disbursed to date.

Policy priorities – how to unlock Indonesia’s renewable energy

Indonesia’s existing subsidies for fossil fuels should be addressed to create a level playing field for renewable energy. Contracts with fossil fuel power plants are too inflexible and could be renegotiated to accelerate the move away from coal.

More efficient and transparent costing for renewables, assisted by improved clean energy auctions would benefit the market. New feasibility studies and the acquisition of land would help improve the pipeline of new renewables projects.

Better mechanisms for international finance and a healthy domestic finance market would help drive investment.

State utility PLN could press ahead with ‘power wheeling’ – allowing private companies to sell renewable electricity directly to corporate customers using state-owned transmission and distribution infrastructure. This could unlock private investment for renewables and accelerate their development, as well as generating income for PLN – access to renewable energy can help attract investment from major global firms.

Positive steps towards innovation

An innovative ‘de-dieselisation’ (or diesel replacement) programme is underway to help Indonesia’s islands shift to renewables - some 2,000 islands currently rely upon diesel or have no energy supply. Since 2022, PLN has begun replacing more than 5,000 diesel power plants with renewable energy with the aim of bringing reliable cheap and clean power to communities. A first wave saw solar power installed in 94 locations, enabled by private investment, and future sites will also use biomass and mini-hydro generation. Ultimately the project aims to deliver 265 MW of renewable energy and provide 1.1 million new and improved connections, as well as creating some 350,000 jobs.

Further positive steps have been identified in our 51�Թ�� Business School and IEA ASEAN renewables report, including a JETP supported pledge to accelerate the closure of coal power plants and the announced early closure of a plant in West Java scheduled for this year. New policy initiatives in motion such as the New and Renewable Energy Bill could pave the way for more private investment.

Collaboration among international investors, the Indonesian government and the private sector is critical – but this can’t happen without policies to open Indonesia’s energy sector to competition and level the playing field for renewables, ultimately creating a more diversified energy market.

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With vast untapped resources and bold climate goals, Indonesia stands at a crossroads in its clean energy transition

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Adapting to a changing climate: how businesses can mitigate physical environmental risks

Michael Wilkins — Wed, 15 Jan 2025 12:14:02 +0000

Adapting to a changing climate: how businesses can mitigate physical environmental risks

Michael Wilkins Wed, 15/01/2025 - 12:14

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Global warming is causing sea levels to rise, heatwaves to increase in severity, and floods and storms to be more common. Rural areas are often perceived to bear the brunt of these physical impacts, but urban areas are not immune. Cities are likely to face major climate-related physical disruption in the near future. Impacts such as heatwaves and heavy rainfall may cost the UK, for example, as much as 1.5 per cent of GDP by 2045, according to estimates.

Planning and investment in adaptation is key in preparing for and mitigating this toll, including flood protection, nature restoration and green infrastructure. However, research shows that businesses could be underestimating investor losses from physical climate risks by as much as 70 per cent, rising to 82 per cent when extreme risks such as cyclones and floods are also taken into account.

Financing change

To address this issue, businesses need to be able to attract the requisite investment to fund climate adaptation projects. Blended finance mechanisms can help with this, combining public and private resources to reduce investor risk. Specific market instruments such as catastrophe bonds, environmental impact bonds and insurance premium incentives can also mitigate risk.

Similarly, grant funding can help to cover project development costs and protect against initial losses, while government guarantees can help to reduce perceived risks for investors. More radically, a switch to results-based financing may help to shift industry focus away from tokenistic actions and towards achieving specific adaptation outcomes.

Recent research from 51�Թ��’s Centre for Climate Finance and Investment explores some of these approaches in detail. The research focuses on how climate adaptation and resilience measures can be financed to protect London and the UK from physical climate threats, including lessons from Copenhagen and Singapore.

Firms should be looking to integrate physical climate adaptation into their net-zero strategies, making it a shared responsibility across the C-suite.

First steps in adaptation

Currently, firms frequently rely on commercial risk assessments using corporate-level scoring systems. These lack transparency and are difficult to reproduce, and they tend to miss the crucial location-specific vulnerabilities that climate change is rapidly exacerbating.

Compounding the issue, small and medium-sized enterprises (SMEs) often lack the tools and information to effectively carry out more accurate assessments, or lack the management will to address an issue that sits beyond the typical risk management horizon of 3-10 years. Climate adaptation projects are also tricky to fund, being highly site-specific and resource-intensive.

Culturally too, there is an issue with how firms view adaptation. World Economic Forum research found that while 60 per cent of businesses see climate mitigation as a very high priority, only 27 per cent felt the same about climate adaptation. This suggests many view climate risk as a general social responsibility or business opportunity, rather than an immediate threat necessitating practical action.

Taking steps

As an initial step, switching from corporate risk scoring to asset-level damage assessments would help provide businesses a more accurate picture in terms of climate risk pricing, particularly when it comes to highlighting vulnerabilities specific to a particular site or area. The findings can then inform continuity, crisis and recovery plans for climate-related physical events, from water supply stresses to natural disasters.

More broadly, firms should be looking to integrate physical climate adaptation into their net-zero strategies, making it a shared responsibility across the C-suite. Businesses can support this approach by conducting capability audits to measure how well climate resilience is embedded throughout different parts of the organisation.

Following this process, single points of failure can be addressed through such actions as diversifying supply chains and delivery routes. At the same time, businesses can create contingency plans to support the safety, health and productivity of their workforces in case of specific failures or risks occurring, and look to partner with stakeholders to develop system-wide responses.

Policy support

Realistically, these steps are unlikely to take place at the required pace and scale without adequate policy support. Governments need to build on existing reporting requirements from the Task Force on Climate-Related Financial Disclosures, mandating the type of comprehensive climate risk assessments and plans discussed above.

The International Sustainability Standards Board provides a framework for this, but policymakers still have a key role to play in terms of ensuring that businesses substantively engage with adaptation planning, rather than treating it as an inconvenient compliance exercise.

To help with this, governments can stipulate penalties for non-cooperation and provide financial incentives, including targeted financial support for climate adaptation project development at the same level that already exists for climate mitigation work.

Policymakers can also help to scale projects by coordinating stakeholders to encourage collaboration, and by streamlining regulatory processes to support investment. The establishment of dedicated offices, such as the UK’s Regulatory Innovation Office, can help to reduce regulatory barriers to climate adaptation technologies.

Future outlook

Looking long-term, adaptation policies can be explicitly linked to economic growth objectives, highlighting how climate resilience supports economic development. This includes incorporating adaptation into industrial strategies and innovation policies, ensuring that climate resilience becomes a cornerstone of economic competitiveness rather than an additional burden.

This is crucial, given the urgent need for businesses, investors and policymakers to start viewing physical climate adaptation not just as a social responsibility or an investment opportunity, but as an existential threat.

Edited 23 June 2025: This article’s strapline was changed for accuracy and to better reflect the findings of the research.

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As physical climate risks intensify, new research from 51�Թ��’s Centre for Climate Finance and Investment reveals how climate adaptation and resilience measures can be financed to protect businesses in London and the UK from these threats

Main image: Korakrich Suntornnites / iStock via Getty Images Plus

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Are investors falling out of love with ESG?: Forbes quotes CCFI's Mike Wilkins

Evie Burrows-Taylor — Mon, 06 Jan 2025 10:38:43 +0000

Are investors falling out of love with ESG?: Forbes quotes CCFI's Mike Wilkins Evie Burrows-Taylor Mon, 06/01/2025 - 10:38

19 December 2024

Corporate Social Responsibility

Bloomberg speaks to Raffaele Della Croce about the climate adaptation lessons London can learn from Singapore and Copenhagen

Evie Burrows-Taylor — Wed, 18 Dec 2024 15:37:59 +0000

Bloomberg speaks to Raffaele Della Croce about the climate adaptation lessons London can learn from Singapore and Copenhagen Evie Burrows-Taylor Wed, 18/12/2024 - 15:37

3 December 2024

Sustainability

The selfish case for climate finance: The Financial Times covers new report by Professor Patrick Bolton

Evie Burrows-Taylor — Tue, 03 Dec 2024 15:01:39 +0000

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Mike Wilkins speaks to the Associated Press about climate finance measures at COP29

Evie Burrows-Taylor — Tue, 19 Nov 2024 14:48:31 +0000

Mike Wilkins speaks to the Associated Press about climate finance measures at COP29 Evie Burrows-Taylor Tue, 19/11/2024 - 14:48

11 November 2024

What's holding back the green transition?

Mirabelle Muûls — Mon, 11 Nov 2024 12:21:54 +0000

What's holding back the green transition?

Mirabelle Muûls Mon, 11/11/2024 - 12:21

12 November 2024

New research from 51�Թ�� Business School reveals what’s stopping businesses from taking action to protect our overheated planet.

A wide commitment to reach net zero climate goals by 2050 requires a concerted effort from industry and business to make drastic cuts to emissions, consume less and introduce cleaner ways of producing. But this requires major investments.

While multinationals such as Apple have already set zero emissions goals, smaller companies can find it harder to commit. Modest as their individual impact is, combined, they make a substantial difference.

Switching to cleaner ways of doing business requires money and expertise – and we wanted to discover what exactly is hampering progress. How easy is it for smaller firms to find the funds for cleaner technology and methods? How crucial are managers when implementing greener strategies? How important is it for firms to set goals to limit their use of energy and water, and reduce pollution?

Better environmental investments

Our early analysis revealed that firms differ significantly in how much money they can borrow, and the competence of their environmental leadership. Both these factors affect corporate carbon footprints: less money means fewer green investments and better management makes for better environmental investments.

We’ve looked in depth at nearly 11,000 companies in 22 European emerging economies, collaborating with the European Bank for Reconstruction and Development. Our information came from a vast wealth of records including the European Pollutant Release and Transfer Register, which holds information on emissions and pollution for industrial facilities, as well as bank data. Crucially, face-to-face surveys with business managers yielded detailed insights into firms’ investments in green technology, the quality of environmental management and availability of credit.

We delved deep into the data and used econometric tools to show that it was indeed credit access and green management practices that prompted a shift in environmental performance.

Nearly all growth in energy demand and greenhouse gas emissions in the coming three decades will come from less developed economies

In order to measure the availability of finance at the level of individual firms, we looked at where banks’ branches are located, and what constraints they were placed under, particularly during the credit squeeze that followed the 2008 global financial crisis.

We also looked at whether corporate knowhow about greener practices tends to spread within regions. Managers in areas that have experienced extreme weather such as flooding, heatwaves and fierce storms tend to be more switched on about the need to improve their businesses’ climate performance. They are also more open to better management, and these insights trickle down among firms.

This work reinforced our initial findings. If businesses can’t borrow the money, they’re less likely to invest in more climate-friendly, but costly, green machinery and vehicles, our analysis shows, or in more efficient heating, lighting and cooling. Only 12 per cent of businesses invested in generating their own green energy. We found too that access to finance is less crucial for “low-hanging fruit” improvements such as energy-efficiency measures.

Weak and ineffective green management appears to hamper most types of green investments.

Why focus on emerging markets?

Nearly all growth in energy demand and greenhouse gas emissions in the coming three decades will come from less developed economies, research shows. These are the countries that desperately need investment to clean up their polluting industries – green investment at this stage could ensure a cleaner transition in the future. It’s a cost-effective way to help fight climate change.

Our analysis also warns against false claims. Although economic decline can herald a short-term drop in emissions, thanks to less activity, the picture is bleaker in the longer term. This is true of the global financial crisis and also of the pandemic – the economic fallout from the crisis damaged longer term green investments because cash was hard to find.

Firms differ significantly in how much money they can borrow, and the competence of their environmental leadership

In areas where banks were hardest hit by the global financial crisis, we showed that carbon emissions were 5.6 per cent higher than they would have been, had banks not deleveraged in the wake of the event. We also find that companies’ weak green management has resulted in emissions 2.3 per cent higher than they might have been with better expertise. And the scarcity of credit in some areas means emissions have been 4.5 per cent above where they would be, had they been able to borrow more cash.

Investing in the environment

Our results provide hope. Some actions are relatively cheap to implement and could lead to businesses cutting emissions – if they set out and stick to an environmental strategy, for instance, and fix clear green targets. Competent managers can also help raise their firms’ green investments and have an impact across a wide range of issues such as emissions, pollution and cleaner practices.

Weak and ineffective green management appears to hamper most types of green investments

These results offer environmental policy makers a broader mix of options beyond the established carbon taxes and carbon markets. Targeted policies could include further requirements to measure and declare emissions and environmental impacts. Development banks could boost credit lines for green investments – more access to finance ensures that businesses invest significantly in the green transition.

Not only should businesses invest in innovative new tech, but also adopt cleaner production technologies that already exist. And stronger environmental leadership within companies would help businesses make more progress towards green goals. These are opportunities that developing economies can’t afford to miss.

This article draws on findings from "Managerial and Financial Barriers to the Green Transition" by Ralph De Haas (European Bank for Reconstruction and Development), Ralf Martin (51�Թ��), Mirabelle Muûls (51�Թ��) Helena Schweiger (European Bank for Reconstruction and Development).