BACKGROUND

The Indonesian economy is recovering after experiencing negative economic growth due to the COVID-19 pandemic. The country’s GDP grew by 5.31 percent in 2022, which was higher than the 3.71% growth rate in 2021. Compared to other expenditure components, the investment sector contributed to such positive growth, accounting for up to 27.6% of nominal GDP (CEIC, 2023). Actual investment in the country reached Rp1.207 billion in 2022, exceeding the national target of Rp1.200 billion. When compared to the number of investments in 2021, this was 34% higher, representing the highest investment growth in the country’s history (DPMPTKP, 2022).

According to actual investment, Foreign Direct Investment (FDI) accounted for 54.2% of the total actual investment. In 2021, the primary metal industry, metal goods, non-machinery, and equipment, received nearly a quarter of the total FDI. West Java, North Maluku, and Central Sulawesi were the top three FDI-destined provinces. On the other hand, actual domestic investment in 2021 was heavily concentrated in the housing, transportation and communications, and construction industries. Nevertheless, the allocated FDI for agricultural and forestry-related sectors was relatively low, and the number of domestic investments in the sectors was relatively high, accounting for up to 7% of total domestic investment.

Peatlands, also known as fens or bogs in Western countries and referred to as “lahan gambut” in Indonesia, are a distinctive type of wetland that constitutes approximately half of the world’s wetland areas.

They can be found on every continent except Antarctica (Winrock International, A). In total, the world’s peatland ecosystem covers an area of 398 million hectares, about 34 to 45 million hectares of which is in tropical climates, with roughly 56.6% (25 million hectares) located in South East Asian countries (Yuwati, 2021).

These waterlogged ecosystems, rich in organic matter, began forming around 12,000 years ago, shortly after the last ice age. The constant saturation of the soil slows down the decomposition of deceased plants, transforming them into a dense, dark-coloured, and malleable substance known as peat, which effectively stores the carbon that the plants had previously absorbed (Winrock International, B).

Jurisdictional Approach to Address the Climate Crisis in Indonesia

The current and projected climate crisis will increase the average temperature significantly. The Paris Agreement has been adopted to keep the temperature at well below 2 degrees Celcius (°C) possibly not to exceed 1.5 °C, but the window of opportunity is closing rapidly1.

About 6.6 billion tons of heat- inducing carbon dioxide-equivalent of greenhouse gases (GtCO2e) were emitted worldwide by land-based sector, out of the total 58.1 GtCO2e in 20192. Addressing the climate crisis, therefore, requires significant reductions and avoiding of emissions of greenhouse gases and increasing sequestration and storage capacity of these gases, including and especially that of nature in the land-based sector. The New York Declaration on Forests (NYDF) was signed by countries and corporations in 2014 to halve deforestation by 2020 and reverse it by 2030. But instead, deforestation increased3. The world lost about 26 million ha between 2014-20184.

Most recently, jurisdictional approach is gaining momentum as a way to consolidate efforts toward land-based sustainability, including and especially reduction of deforestation and degradation of forests. Jurisdictional approach has grown out of landscape approach in which production and protection will be harmonized in synergy, spatially and participatorily.

About This Study

As the 26th UN Climate Change Conference of the Parties (COP26) President, the UK launched the Forest, Agriculture and Commodity Trade (FACT) Dialogue with Indonesia as co-chairs. This government-to-government dialogue brings together the largest producers and consumers of internationally traded agricultural commodities (such as palm oil, soya, cocoa, beef and timber) to protect forests and other ecosystems while promoting trade and development. In the run-up to the 2022 G20 summit, the Tropical Forest Alliance (TFA), under the Gordon and Betty Moore Foundation (GBMF) grants, conducts targeted technical expert discussions in key producer countries that will help garner input and knowledge to steer the G20 debate and proposal under the FACT Roadmap’s Market and Trade Action 3.

This policy brief wraps up the results of the discussion and provides strategic recommendations for policymakers, practitioners, and the general public which identify, build, and mainstream understanding of key factors – from a producer-country perspective – necessary for establishing common expectations among producers and consumer countries around sustainable production as well as effectively developing a ‘guiding partnership framework’ between producer and consumer countries built based on Indonesia’s trade perspective.

Executive Summary

This policy brief documents and explains the lessons learned on how the Siak Regency stakeholders enabled a sustainable balance between the social, economic, and environmental needs and priorities through a jurisdictional approach to regional development.

On 22 July 2016, in the commemoration of World Environment Day, the Minister of Environment and Forestry declared Siak Regency a Kabupaten Hijau (Green Regency).

Restoring the Ecosystem

Threats to Peatland

The conversion and degradation of peatland ecosystems threatens biodiversity, increases the risk of fires, increases carbon emissions, reduces soil quality, and can have a negative impact on local community wellbeing and livelihoods.

The drivers of peatland forest conversion and degradation are complex and varied, and include the expansion of oil palm plantations, the development of industrial timber forests (Hutan Tanaman Industri/HTI); the expansion of food stock agriculture; illegal logging; land and forest encroachment; forest fires; mining activities; and land banking.

A Brief History of Key Developments

Mischief of peat ecosystem due to conversion and degradation is causing degradation of biodiversity, an increase of carbon emission, the reduction of soil quality and disruption of local community livelihood, up until social conflict. This mischief is caused by expansion of oil palm plantation, the development of Industrial Timber Forest (Hutan Tanaman Industri/HTI), expansion of food stock agriculture, illegal logging, land and forest encroachment, forest fire, mining activity, and land banking.

The initiative of Green House Gas (GHG) Emission reduction had been going on globally. This initiative was taken as an improvement on the current global condition that is being threatened by global warming and climate change. The Kyoto Protocol in 1997 establishes the Clean Development Mechanism (CDM), a United Nations-run carbon offset scheme. Indonesia ratifies the Kyoto Protocol via government act number 17/2004 as a follow-up and a basic reference for policies related to climate change that ruled in act number 6/1994.

Summary and Key Messages

Mangroves provide a vital link between terrestrial and oceanic carbon cycles and are one of the most carbon-dense vegetated ecosystems globally, due in part to their high rates of carbon sequestration compared to other ecosystems. The value of mangroves restoration extends far beyond climate change mitigation, they support communities and biodiversity resilience by regulating nutrients, sustaining fisheries, and protecting coasts from storms.

Conservation and restoration of mangroves provide an important opportunity for climate change countermeasure. Restoring 1.6 million hectares of disturbed and degraded mangrove in Indonesia to a healthy state would reduce emission up to 59.4 million tons of CO2 emissions over the next 10 years, and open the door to new economic opportunities such as carbon economy, eco-tourism, and sustainable fisheries.

The advantages of the private sector and financial institutions investment to scaling up mangrove restoration are their leverage to push for faster change through engagement and capital allocation. This trend is expected to strengthen as the new generations of investors, increasingly aware of the environment, social, and governance (ESG) issues, seek investments aligned with their values. Equally, the project itself would profit from the same rigorous approach to project diligence, selection, and feasibility assessment, as done in standard portfolio management.

The government and financial services regulator need to create a supportive enabling environment with efficient and effective incentives, standards and regulations, improved data management, and concessional finance. For the interest of the private sector, nature risks stemming from both impact and dependency on healthy mangroves can be incorporated into investment decisions through risk measurement and reporting. This will encourage financial services to operate with consideration of their financing decision impacts on businesses sustainability and ecosystem integrity (greening finance). In addition, more innovation in finance in developing projects with sufficient cash flow and returns, as well as financial instruments with an attractive risk-return profile, is needed (financing green).

Abstract

Global pressure to ‘clean’ and ‘green’ the agricultural supply chain is increasing, requiring exported agricultural goods to meet certain standards and regulations. Such pressure mainly comes from developed countries as consumers. In this regard, small and medium producers in exporting developing countries are at the highest risk of further marginalization and market exclusion. They lack access to training, information, farm inputs, and financial support to practice sustainable agriculture. Most of the smallholders also have low production levels and live below poverty. To this, current agricultural sustainability frameworks must be urgently reviewed.

We propose enhanced cooperation between producer and consumer countries in the form of: 1) An establishment of communication on agreed framework and institutional arrangements on sustainable agricultural commodities; 2) Stepwise/staging approach and indicators to support transition toward a more sustainable agriculture 3) Umbrella program to support technology transfer and adoption; 4) Investment hub and innovative financing schemes to facilitate trade and investment for smallholders.

Summary and Key Messages

Mangrove restoration has significant natural climate solution, as mangroves and other terrestrial and coastal ecosystems are an important sink and natural tool for climate mitigation. Adaptation is another contribution to the climate solution that mangrove ecosystems play in their communities. Mangrove restoration is considered a win-win investment, providing mitigation and adaptation solutions to climate change while also supporting the implementation of other international pledges and agreements for the SDG Agenda 2030.

Blue carbon of mangroves opens up opportunities in capitalizing the carbon capture and storage to gain economic incentives as well as expediting countries with mangroves to achieve NDC targets for mitigation commitment to the Paris Agreement. Capitalizing on blue carbon will generate the required revenues to enable business endeavours in mangrove conservation and restoration as well as the revenues from the non-carbon benefits of the improved mangrove habitats.

The design of blue carbon pricing systems is important to ensure they provide strong and long-lived investment incentives and are effective at driving emissions reductions and mangroves protection and sustainable management. Effective blue carbon pricing requires well-designed systems that drive deep economic and business transformation. Complementary policy measures are necessary, for example to incentivise innovation, build up social-economy safety net and overcome behavioural barriers.

Transformation of business process from traditional, grant-funded project to income generating business type of restoration by capitalizing blue carbon is crucial to remove the barriers and time-limitations of traditional funding, and allows the business to become self-sustainable, providing more stability and the opportunity to make a bigger impact for mangrove conservation and restoration.

Global Concern for Deforestation-free and Sustainable Supply Chains of Soft Commodities

Global demand for soft commodities continues to increase as the world’s population is expected to grow to almost 10 billion by 2050, accompanied by economic growth. These trends put pressure on land use as well as pose challenges for soft commodities supply chain sustainability.

Various elements of society, including businesses, have started to jack up their awareness of this issue. In November 2015, 14 US-based FMCG companies, such as General Mills, Mars Inc, and PepsiCo, signed a joint letter urging world leaders to adopt a strong global climate deal at the COP21 climate conference in Paris. The corporations emphasized in their letter that the government, civil society, and industry all had a role to play in combating climate change, and one of the three commitments they disclose was to increase the efforts to make their supply chains more sustainable (WWF, 2016). Five years later, at COP26, an ambitious strategy was announced by 12 of the largest agri-commodity traders including Wilmar and GAR from South-East Asia. They pledged to develop a sectoral roadmap initiative to keep temperature increase within 1.5 degrees. Numerous factors contribute to this trend, including consumer rejection of products that contribute to negative environmental and social outcomes; the naming and shaming of companies that engage in environmentally damaging manufacturing and sourcing processes; and increased investor awareness of market and reputational risks associated with commodity-driven deforestation (Pirard et al., 2015).

A variety of approaches have been implemented to support sustainable supply chain efforts, one of which is the implementation of sustainability standards through commodity certification. The table below maps some of the certifications for the main commodities in Indonesia.