Green investments, financing gain traction in Indonesia despite lack of investor awareness

Riska Rahman

The Jakarta Post

 

The “green is the new black” sustainability trend has reached the financial world as investors and financial institutions are slowly turning to invest in environment, social and governance (ESG)-compliant assets in Indonesia.

Rising awareness of the mounting environmental and social problems has prompted global investors, both institutional and retail, to invest in sustainable assets that comply with ESG standards. Although this type of investment has been gaining popularity in the developed markets for the past several years, Indonesia seems slow in adopting the trend.

For BNP Paribas Asset Management Indonesia, sustainable mutual funds only accounted for 4 percent of its total assets under management as of September 2019. The fund manager currently offers three ESG-compliant mutual fund products to its clients that adhere to the sustainable and responsible investment (SRI) method in choosing assets for its portfolio.

“But we believe that these products will be more in demand among investors,” said BNP Paribas Asset Management Indonesia director Maya Kamdani in an emailed response to The Jakarta Post.

Other than emphasizing the sustainability of the investment, the products also look at the impact of the investment as the company would donate a portion of the investment to charitable foundations to help those in need.

Global sustainable investment reached $30.7 trillion in the five major markets of Europe, the United States, Japan, Canada and Australia/New Zealand. Europe continues to manage the highest proportion of 46 percent of global sustainable investing assets, followed by the United States with 39 percent and Japan with 7 percent, according to the Global Sustainable Investment Alliance (GSIA) sustainable investment review 2018.

Mutual fund data research firm Infovesta Utama head of investment research, Wawan Hendrayana, told the Post on Nov. 4 that education on ESG products was essential in building awareness among investors, especially for retail investors as most of them are usually more concerned about short-term return on their investments.

“This will help them realize that investing in ESG-compliant stocks will not only have a big impact on the world, but also on their own profit,” he said.
He further explained that companies that fit the ESG criteria were usually well-established companies that were able to gain profits and provide more sustainable long-term returns for investors.

The performance of “sustainable” funds is comparable to that of conventional equity funds – they neither underperform nor outperform – according to the International Monetary Fund’s (IMF) October 2019 Global Financial Stability Report.

Given the increasing appetite for ESG-compliant assets, particularly for foreign investors, the Indonesia Stock Exchange (IDX) is also planning to launch three new ESG indices gradually starting in the first half of 2020.

IDX development director Hasan Fawzi said the bourse was partnering up with several overseas index providers and nongovernment organizations to design the indices as it will assess the companies’ environmental and social impact, as well as their governance that will fit the ESG criteria.

The government also jumped in to provide green investment options for investors, as well as to pool funding for the country’s many infrastructure projects.

Following the issuance of its first US dollar-denominated sovereign green sukuk (Islamic bonds) in 2018, the government has been actively issuing green conventional bonds and sukuk.  

The most recent sharia-compliant debt instrument, the ST-006 green savings retail sukuk, which offered an annual return of 6.75 percent, was aimed at financing green national infrastructure projects of the Transportation Ministry and the Public Works and Housing Ministry.

Despite the fact that some companies also issued green bonds in an effort to raise funding for green projects, Anugerah Sekuritas Indonesia fixed income analyst Ramdhan Ario Maruto said these green bonds were mostly intended to pool funds from foreign investors as they were more concerned about sustainability issues. 

Similar to mutual fund investors, fixed income investors are deemed to be conventional as they are more concerned about the coupon of the bonds instead of what the funds will be used for.

With the rising popularity of the note among issuers, Ramdhan hoped it would increase awareness among domestic investors and encourage other companies, particularly construction firms that relate directly to infrastructure projects, to issue more green bonds in the future.

“This will in turn create a stricter supervision on the funded infrastructure projects to stay true to its purpose,” he said.