Blended finance push promotes energy access and ESG compliance through sectoral reform and infrastructure investment. ESG BROADCAST shares key takeaways.
World Bank approved a dual-investment package totalling US$2.128 billion to strengthen Indonesia’s clean energy transition and financial sector reforms. These are the first operations supporting the Indonesian government’s long-term development goal of attaining high-income status by 2045. The approval signals a pivotal shift toward sustainable infrastructure and market-aligned regulatory improvements in Southeast Asia’s largest economy.
The headline component, a US$1.5 billion policy reform loan—officially titled the Indonesia Productive and Sustainable Investment Development Policy Loan—targets foundational reforms in the financial sector. The programme will accelerate digital financial inclusion, ease credit infrastructure bottlenecks, and broaden capital markets access. Regulatory refinements include updating industrial estate policies to better reflect global environmental and climate standards, reducing local content stipulations on renewable technology procurement, and introducing land value capture mechanisms to incentivise private capital participation in infrastructure projects.
In parallel, the World Bank sanctioned the Sustainable Least-Cost Electrification-2 (ISLE-2) initiative, deploying a blended finance facility worth over US$628 million. This includes a US$600 million loan from the International Bank for Reconstruction and Development (IBRD) and US$28 million in grants—comprising contributions from the UK’s Energy Sector Management Assistance Program (ESMAP), the IBRD Surplus-Funded Livable Planet Fund, and the Green Climate Fund’s SRMI-2. ISLE-2 will deliver renewable energy access to 3.5 million people in the Kalimantan and Sumatra regions, cut greenhouse gas emissions by 10 percent, and support the addition of 540 megawatts of solar and wind capacity. Power generation costs are expected to decline by 8 percent.
The ISLE-2 project also pilots the World Bank’s new “step-up loan” structure, offering concessional interest rates over a nine-year period and allowing refinancing post-implementation to mobilise private capital further. The operation is aligned with the Bank’s Originate to Distribute framework and the Regional Energy Program, which collectively aim to build national and cross-border energy resilience.
Strategic significance lies in the reinforcement of Indonesia’s ESG compliance landscape through blended finance instruments that embed sustainability into financial and energy systems. Stakeholders in green finance, climate risk disclosure, and responsible business investment will find regulatory certainty and scalable market opportunities. The reforms also open avenues for gender-inclusive economic development, notably through electrification of female-led enterprises.
ESG BROADCAST will continue monitoring the updates related to this topic. Stay tuned to be updated on the related policy and pivotal regulatory shift.
