Fear is the biggest driver behind Indonesian companies slashing their carbon emissions, says Muhammad Yusrizki, chairman of Net Zero Hub, a new organisation set up by the Indonesia Chamber of Commerce (KADIN) to persuade corporate Indonesia to decarbonise.
If Indonesian companies do nothing to reduce their carbon footprint, they risk getting kicked out of global supply chains by Western multinationals that only want to work with low-carbon suppliers, or being squeezed by trade rules such as the European Union’s Carbon Border Adjustment Mechanism, which aims to stop European companies from importing high-carbon goods.
“If we cannot comply [with those trade policies], we will not be able to take part in the global economy. We will not be able to survive,” Yusrizki told Eco-Business at the “Cut the tosh” Collaboration Summit in Jakarta, an event designed to get Indonesian firms up to speed on sustainable business trends.
The KADIN Net Zero Hub, which soft-launched in Jakarta last week, aims to encourage local companies to reduce their emissions in support of Indonesia’s national 2060 net-zero target, which was set in November last year amid pressure from the international community for the world’s eighth largest emitter to play ball on climate action.
To date, the focus of emissions reduction in Indonesia has been on the country’s power sector; about 85 per cent of Indonesia’s electricity is generated from fossil fuels, mainly coal, which the country has in abundance.
Yusrizki says there is untapped potential in cutting emissions from the country’s industrial sector, which often uses alternative energy sources to electricity to fuel operations, mainly with fossil fuels for heating and cooling.
We want Indonesian companies to focus on emissions reduction – not emissions offsetting. We don’t want to be an institution that supports greenwashing.
Muhammad Yusrizki, chairman, KADIN Net Zero Hub, Indonesia Chamber of Commerce
Yusrizki says close to 100 companies have already agreed to join the Net Zero Hub and explore making net-zero commitments. The Hub will act as a support group, providing information and guidance on the tools companies need to set climate targets, starting with three of the country’s highest-emitting business sectors: pulp and paper, garment and textiles and food and textiles.
Once companies have sent a commitment letter to Science Based Targets Initiative (SBTi), a framework which aligns companies’ climate goals with targets set by the Paris Agreement, they are considered graduates from the Net Zero Hub.
Multinational companies such as H&M, Nike, Adidas, Nestlé, Unilever and Danone have been recruited to the Hub to bring knowledge and share lessons learned to the companies that are part of their supply chains.
With the G20 Summit in Bali around the corner and all eyes on Indonesia’s climate ambitions, Yusrizki is aiming to inspire as many companies as possible to take climate action to support the country’s climate goals, which have attracted criticism for being insufficient.
“Net-zero can’t be achieved by just a few companies. We have to take an industry-wide perspective to decarbonise the full value chain, as Indonesia is a big part of the business world’s Scope 3 – or supply chain emissions,” he says.
In this interview with Eco-Business, Yusrizki talks about what is driving Indonesian firms to decarbonise, the biggest challenges companies face in reducing emissions, and why firms should not rely on offsets.
What is driving Indonesian companies to join the Net Zero Hub?
The question to ask is: how do Indonesian companies navigate their business strategy and practices in the context of the global net-zero movement? The push factor is global multinationals, financiers and investor – they do no want to see ‘carbon leakage’ in supply chains.
Indonesian companies are mainly exports-focused. Export markets increasingly have climate risk baked into trade policies. That has become a real threat to Indonesian businesses and economy. If we cannot comply [with those trade policies], we will not be able to take part in the global economy. We will not be able to survive.
This new reality is making Indonesian businesses want to step up and accept the net-zero challenge. It is no longer a shame game, but a life and death situation for Indonesian companies.
What are the biggest challenges Indonesian companies face in reducing their emissions?
The biggest challenge is their mindset. Indonesian businesses perceive decarbonisation to be very costly. Yes capital expenditure is required. That is why we need government support in the form of tax breaks to help change the mindset and help the whole ecosystem to transition.
Also, businesses see decarbonisation as a short-term problem. But we cannot achieve the energy transition over a three to five year time horizon. It would likely take 10 to 20 years. Tackling the climate crisis is a long journey, but we have to start now.
What about Indonesia’s energy infrastructure?
The electricity grid is another challenge for Indonesia. Indonesia has one of the highest emissions grids in the world, because it is powered mostly by coal. That is a disadvantage for our economy, because climate has become an important consideration for international investors.
Electricity is controlled by the government and a state-owned enterprise [PLN] and we [the business community] cannot interfere. Electricity is not the only form of energy use; many businesses consume fossil fuels for heat and cooling and we need to decarbonise all forms of energy. But some industries like data centres are electricity-dependant. Which is why we want the government to open up more options for renewables procurement, such as direct investment and the green tariffs that exist in other countries to spur the energy transition.
If developed countries want us to be part of the global supply chain, they cannot leave us behind as they work towards net-zero.
It will take a long time for the whole grid to be decarbonised, which is a problem for multinational garment and textiles companies like H&M, Nike and Adidas, which have signed up to the United Nations Fashion Charter for Climate Action [which commits to a coal phase-out by 2025]. If the grid hasn’t been decarbonised by then, these companies will have to find other options.
What sort of government support are Indonesian businesses looking for as they decarbonise?
I think we have to see economic policies made from a climate perspective. The economy has been built on fossil fuels, but now it is time for climate to be a factor in policymaking, with climate-based incentives and disincentives. Only then will the whole ecosystem start to shift. The private sector wants to move. But it needs to do it hand in hand with the government.
Which companies are Indonesia’s decarbonisation pioneers?
PT Pan Brothers [a garment company which has committed to use at least 30 per cent renewable energy sources across all of its operations by 2030] is one. Their management team is compensated based on climate targets. They work with multinationals like Nike and Adidas, and they have been pressured to change according to those corporate principles.
The theme of the event here in Jakarta is “cut the tosh”, which refers to corporate insincerity in sustainability communications. How much of a problem is greenwashing for the Net Zero Hub?
The Net Zero Hub is a voluntary system for corporate decarbonisation commitments, but we want to make sure that companies follow the correct protocol for disclosures. This is why we are working with OJK [Otoritas Jasa Keuangan, Indonesia’s monetary authority] to enhance regulation on disclosure and are aiming to launch a climate index with the Indonesian Stock Exchange at the B20 Summit.
We also want to make sure that companies set goals according to SBTi, and are supported by technology solutions that do not rely on carbon offsets to achieve their climate targets. Indonesia has a huge potential for nature-based solutions (NbS) as a way to reduce emissions, but we don’t want companies to depend on NbS to decarbonise. SBTi does not recognise NbS or offsetting in emissions reductions – they want to see real emissions reductions.
We want Indonesian companies to focus on emissions reductions – not emissions offsetting. We don’t want to be an institution that supports greenwashing. We want to push for reduction, avoidance, replacement and storage.
What can we expect from corporate Indonesia around the G20 Summit?
We are holding the Indonesia Net Zero Summit in Bali on 11 November. We want to say to the world that the energy transition in Indonesia is not only about the power sector. There is a huge opportunity to reduce emissions from the industrial sector, which often consumes fossil fuels directly rather than uses electricity.
We want 100 companies to have made climate commitments based on SBTi, and show that Indonesia’s private sector is working towards global climate goals. This will help us mobilise more international support, for instance the US$100 billion in climate financing rich countries pledge to help developing countries mitigate and adapt to climate change [in 2009, a pledge that was reaffirmed last year – although this commitment has fallen short].
We want to make a bold statement of Indonesian corporate climate action, because our companies are at risk if we cannot fulfill climate commitments. If developed countries want us to be part of the global supply chain, they cannot leave us behind as they work towards net-zero. They need to work with us, to help us. We are a critical part of the energy transition.