Posted on February, 20 2025

Indonesia is particularly vulnerable to climate change impacts due to a complex interplay of political, geographic, and social factors. The energy sector contributes significantly to the emissions of greenhouse gases (GHG) from fossil fuel combustion, with the electricity sector the largest emitter in the country after the industrial and transportation sectors (IEA, 2022).  The primary source of emissions in the country stems from coal-fired generation, followed by oil and gas power generation (IEA, 2022).

In the light of the agenda to transition to a low-carbon economy, the industrial sector is expected to decarbonize its greenhouse gas (GHG) emissions by shifting from fossil fuels to renewable energy sources.
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In 2024, Bank Indonesia Institute, in collaboration with WWF Indonesia supported by WWF´s Greening Financial Regulation Initiative published a first study that aims to assess climate transition risks and their impact on banking credit portfolios of high-emitting and energy-producing sectors. The stress test is based on the 1in1000’s TRISK framework, which evaluates the impact of climate transition risks into banks’ credit risks in the form of probability of default. 

The stress test looks at four high-emitting Greenhouse Gas Emissions sectors: oil & gas, power, coal, and automotive, using scientifically based methodologies and climate scenarios, consistent with those used globally including by the major off-taker companies and importing countries, to prevent the global temperature from exceeding 1.5°C. 

Additionally, the study presents several recommendations based on the analysis to guide central banks, financial regulators, and the broader financial sector in managing climate risks effectively, and what role central banks and financial supervisors can play facilitating the transition to a low carbon economy and support the sectoral rebalancing process of high-risk sectors exposures in banks’ portfolio.

Considering that research on climate-related transition risks on banks’ portfolios in Indonesia has been very limited to date, this is one of the first pilot studies that highlights the critical importance of assessing and effectively managing these risks within the financial sector. 

More details about the study and its key findings can be found here.
 
Further information/ contact:
Rizkia Sari Yudawinata, Sustainable Finance Lead, WWF-Indonesia
Email: Rjoedawinata@wwf.id