Monday, October 2, 2023

Corporate Indonesia at the Center of Our Shared Net-Zero Ambitions and Green Growth

Marc Schmidt
April 27, 2023 | 5:02 pm
A resident harvested Lumbu Kuning and Lumbu Hijau varieties of garlic during the first garlic harvest in Temanggung, Central Java. (Antara Photo/Anis Efizudin)
A resident harvested Lumbu Kuning and Lumbu Hijau varieties of garlic during the first garlic harvest in Temanggung, Central Java. (Antara Photo/Anis Efizudin)

The battle for net zero will be won or lost in Asia, as this dynamic region continues to act as the engine for global economic growth. At the core of this growth, Indonesia will take center stage in the net-zero transition with major economic opportunities through green growth.

Asia is home to more than half the world's population and is now responsible for more than half of global primary energy consumption. This remarkable shift was accelerated over the last three decades as the region catalyzed economic ambitions into accelerating growth. 

Indonesia, as the world's fourth most populous country and fourth largest Asian economy measured in purchasing power parity, is continuing to accelerate its growth, with various economic policies and forms introduced in recent years expected to boost the economic development in the country further.

However, this rapid growth has come with challenges as Indonesia's emissions burden has soared alongside its economic development.


The country is now the leading contributor of annual greenhouse gas (GHG) emissions in Southeast Asia, with a 39 percent share across Asean nations, and is the fifth largest emitter of GHG globally.

Indonesia's energy demand paints a telling picture of regional expansion in recent decades. Over the past decade, the country's primary energy demand has grown at an average annual rate of 3.3 percent, higher than the global average of 2.3 percent.

Indonesia is a country whose power is, quite literally, on the rise. The country's pivotal role in global supply chains is also a testament to Indonesia's complex economic balance, creating a complex web of interregional embedded emissions.

As a result, Indonesia finds itself at the center of the global climate crisis – one of the most vital engines for global economic growth and one of the most vulnerable countries to the impacts of unchecked emissions growth.

The world is already struggling to align with the necessary changes to achieve the vital 1.5°C Paris Agreement pathway—a fact laid out in stark words in the recent IPCC Sixth Assessment Report.

The implications for Indonesia on our current trajectory are extreme. Unchecked emissions growth in the region poses the threat of rising temperatures by 3.2°C, which could deliver a 37 percent decline in GDP for Southeast Asia byMainlycularly the agricultural sector contributes 14 percent of Indonesia's GDP. It provides almost a quarter of the country's employment, which would be impacted by crop failures and lower yields, reducing agricultural output and negatively impacting the livelihoods of millions of farmers.

These economic implications stand alongside far-reaching social and health considerations.

Solving this climate challenge poses a particularly complex problem for Indonesia - the country is diverse and nuanced, and delivering a just energy transition that balances security, affordability, and sustainability is vital to address both mitigation and adaptation through fair and inclusive action, ensuring that no community is left behind.

To achieve the International Energy Agency's (IEA) Sustainable Development Scenario (SDS), Indonesia would need to significantly reduce its greenhouse gas emissions from the energy sector, particularly by transitioning away from coal-fired power generation and increasing the share of renewable energy in its energy mix.

According to the IAEA's SDS, Indonesia's energy-related CO2 emissions would need to decline by around 70 percent by 2050 compared to 2020 levels. Indonesian private and state-owned companies have a unique opportunity and responsibility to accelerate change, but they also stand to reap enormous benefits from making lasting corporate climate action.

The World Economic Forum's whitepaper "Accelerating Asia's Advantage: YourGuide to Corporate Climate Action," in collaboration with the Boston Consulting Group (BCG) and explores this critical imperative for change and the remarkable business benefits which could be unlocked across the country.

The report shows that Asia could unlock 43 percent of the $10.1 trillion – a stunning $4.3 trillion –revenue opportunity available by 2030 from activities like the expansion of renewable power, energy efficiency in buildings, transportation, and agriculture, as well as greater circularity in producing industries.

The job growth story is equally compelling, with more than half (58 percent) of the 395 million jobs required to service those opportunities in Asia. Big business significant responsibilities for Indonesia's growth storyIndonesian companies have an essential role in realizing this opportunity and tackling overarching climate risks.

They will need to implement processes to adapt to a warming world while mitigating the impacts of an expanding climate crisis. The direction of travel is already apparent. The Science Based Targets initiative (SBTi) reveals that, in 2019, net-zero pledges covered just 16 percent of the global economy.

As we look at the landscape today, that figure has reached 90 percent of the global GDP, reflecting a powerful transformation in global attitudes toward addressing climate change. As of April 2023, only 34 Indonesian companies had submitted targets to SBTi and had them approved.

Like the nuanced challenges faced by nations across the region, there is no single response sufficient to address the complex challenges corporations face holistically.

Companies will need to define and implement both adaptation and mitigation strategies formed around best practice experience and a deep understanding of corporate climate action.

Recognizing these complex challenges, the whitepaper presents a new Corporate Action Framework which outlines short, medium, and long-term best practices to steer a strategic journey for companies regardless of industry or size.

The new report also provides clear case studies of Asian businesses driving tangible climate outcomes in critical vital industries, including real estate, energy, transport, and agriculture.

The approach now incorporates the need for immediate action that prioritizes climate action across the organization. It seeks to enable transformation by mobilizing an organization and supporting the ecosystem to action change.

Finally, it looks to unlock new growth in existing and emerging value chains, empowering corporations across Indonesia to capture their share of the multi-billion-dollar value unlocked by this vital transition.

The report, and indeed the evidence, is clear— unmitigated climate change is the biggest threat of our generation to our companies, communities, and countries. Corporate inaction on climate has an integrative business case, while timely corporate climate action will yield tremendous growth opportunities.

It's time for Indonesian corporate leaders to make bold changes for the good of their business, the nation, and the region.

Marc Schmidt is the managing director and partner at Boston Consulting Group. Paul Marriott is the president of Asia-Pacific Japan at SAP.

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