The Sovereign Green Sukuk: An Analysis of Its Process and Barriers to Funding Renewable Energy Projects in Indonesia

Sammanfattning: Indonesia launched a sovereign green sukuk in 2018 to fund green projects that can contribute to addressing climate change and achieving the Sustainable Development Goals. This issuance also marked  the first sovereigngreen sukuk issuance in the world. Since then, Indonesia has issued five sovereign green sukuks and has mobilized 3.23 billion USD from these issuances. The money raised from these sovereign green sukuks has been directed to five eligible sectors: sustainable transportation, energy efficiency, renewable energy, waste toenergy and waste management, and resilience to climate change for disaster risk areas. This study aims to assess firstly how the money raised by the Indonesian sovereign green sukuk flows to the renewable energy powerplant projects. Secondly, this research also aims to identify what kind of barriers influence the flows of greensukuk money to the renewable energy power plant projects. A literature review is carried out to outline the barriers that have been known to exist in green bond and green sukuk financial flows from the previous research. Meanwhile, an exploratory single case study is employed to explore the flow of money and identify the barriersin Indonesia. The findings were analyzed using thematic analysis.   Results show that there are two key actors in implementing the flow of money: the Ministry of Finance and the Ministry of Energy and Mineral Resources. The Ministry of Finance has a role as an issuer of the sovereigngreen sukuk. On the other hand, The Ministry of Energy and Mineral Resources has a role as the project ownerin the renewable energy sector. Therefore, it requires good coordination between them since each ministry hasdifferent responsibilities and priorities. Meanwhile, there are three frameworks that determine the mechanismof the flow of finance. Firstly, the state budget. Secondly, the Law No. 19/2008 concerning Sovereign Sukuk and its subordinate legislation, which is the Government Regulation No. 56/2011 concerning Project Financingthrough Sovereign Sukuk Issuance. Lastly, the Republic of Indonesia Green Bond and Green Sukuk Framework.The involvement of these frameworks shows that the implementation of the sovereign green sukuk must alignto the management of the state budget, must be compliant with the sovereign sukuk law and its subordinate legislation, and must follow the green principles according to the Republic of Indonesia Green Bond and Green Sukuk Framework. This study also shows two main barriers: the lack of coordination between ministries and the lack of capacity in some of the regional governments. The lack of coordination between ministries has affected the formulation of the impact report. Since the impact report is one of the key components in the sovereign green sukuk, the delay in delivering the impact report and the lack of quality in providing theinformation in the impact report can diminish the investor’s confidence. Meanwhile, the lack of capacity insome of the regional governments to manage and operate the renewable energy power plants funded by the green sukuk has led these projects could not give the impact as expected in reducing emission and achieving the SDGs target in the rural areas.   Based on these results, this study suggests these recommendations: (1) The Ministry of Finance should consider establishing a directorate dedicated to exclusively handling green finance; (2) The ministries that own the projects should raise their awareness in reporting the impact of the green projects; (3) The coordination between the ministries should be improved in ensuring solid implementation in the issuance, allocation, and reporting phase; (4) The Ministry of Energy and Mineral Resources should ensure that the plan to build renewable energypower plants from the green sukuk are well-planned and well-executed. (5) The regional governments should increase their technical and financial capacity to ensure the sustainability of the renewable energy power plantsthey manage.