Indonesia Risks Greenwashing Charge by Labelling New Coal Plants as Green

Indonesia's Financial Services Authority is considering classifying newly built coal-fired power plants aimed at energy transition purposes as green activities under the national green taxonomy, a move IEEFA warns would make Indonesia the first jurisdiction globally to label coal as a sustainable investment. No existing green or sustainable finance taxonomy — including those of China, Russia and the European Union — recognises coal power as a green activity.

Indonesia's original green taxonomy, published in January 2022, was praised for reserving the green label exclusively for renewable energy projects. The taxonomy uses a traffic light system: green for activities protecting or improving the environment, yellow for activities not significantly harmful, and red for activities harmful to the environment. Under the proposed revision, coal-fired power plants developed for purposes such as supplying smelter projects could be reclassified from yellow or red to green, on the rationale that they support energy transition goals. Indonesia would become the first country in the world to make this classification, reversing a course taken even by China, which removed fossil fuel projects from its green taxonomy in mid-2021.

IEEFA warns that labelling coal as green sends misleading signals to sustainability-focused investors seeking assurance on the environmental alignment of their assets, increases due diligence burden, and raises transaction costs. This risks Indonesia losing high-quality foreign direct investment and rendering its taxonomy ineffective as a market signal. The Australian Consumer and Competition Commission has precedent in warning businesses against misleading environmental conduct, and IEEFA notes that Indonesia's credibility in international sustainable finance markets could be materially damaged. Financial institutions supporting coal investments on the basis of a green taxonomy label would also face questions about their own decarbonisation commitments.

IEEFA argues that Indonesia does not need to label coal as green in order to finance coal projects — withholding the green designation does not prevent conventional capital from funding them. Muddying the taxonomy in the name of energy transition priorities conflates transition necessity with investor assurance, a distinction that international capital markets take seriously. The EU's experience in 2022 — when financial firms managing over €50 trillion in assets criticised the European Commission for labelling gas as sustainable — demonstrates the scale of potential investor backlash. IEEFA calls on Indonesia's OJK to maintain science-based taxonomy integrity and pursue coal transition financing through dedicated transition finance frameworks rather than by diluting green standards.

Key figure — €50 trillion in assets under management represented by financial firms that criticised the EU taxonomy for labelling gas as sustainable, illustrating the scale of investor sensitivity to greenwashing in green taxonomies.