The rise of sustainable commodity-focused jurisdictions in Indonesia

Indonesia’s move towards a sustainable economy

As a country with the wealth of natural resources, Indonesia’s government has committed itself towards a greener sustainable economy by cutting down fossil fuel and investing in products with sustainable measures. Indonesia’s move towards a sustainable economy is not only an economic goal, but it is also an environmental necessity as amidst the urgency against the COVID-19 pandemic, Indonesia is currently vulnerable to environmental risk related with climate change, biodiversity loss, and natural resources degradation.

The importance of sustainable commodities

One way to work towards a sustainable economy is through the selection of sustainable commodities which are traded and invested at a premium value while still taking account the importance of its environment. Sustainable commodities are heavily considered based on the factors that it does not damage the environment, it has infinite potential, and the ethics of production are preserved.

Within Indonesia, it has been proven that commodities that thrive within environmental and natural preservation have better quality. These key sustainable commodities include coffee, cacao, coconut, spices, palm oil, rubber, and non-timber forest products.

Sustainable model and impact investing opportunities

To encourage green growth governance in the economy, a favorable business model should be one where multiple stakeholders across different boards as the government, private sectors, and non-governmental organizations, can collaborate together.

Indonesia has the Sustainable Districts Association, or Lingkar Temu Kabupaten Lestari (LTKL), a collective forum established through eight district governments promoting sustainable development. LTKL has introduced a mindset of economics by providing tools to the local government by advocating better policy. The goal is to achieve better host economic sustainability and sustain the private sectors to join in collectively.

The priority is on adding long-term value through growing partnerships with local entrepreneurs and ensuring better investment in systems, good governance, and financial literacy.

This form of support shows that there is high potential in impact investing—investing in commercially viable businesses, in this case, sustainable commodities to ensure environmental and social impact towards the livelihood and communities in Indonesia.

According to a McKinsey & Co. report, Indonesia’s economy is growing fast to be the 7th largest economy by 2030 with an estimated growth of 7% GDP per year and a USD 23 billion potential in impact investment opportunities within a 5-year timespan. This positive growth is a result of the effort in marketing commodities in the domestic market, a growing potential due to Indonesia’s market size which can also help in reducing carbon emissions.

Challenges to impact investing

With this potential, impact investing in Indonesia still faces a number of its challenges. Indonesia is a large archipelago with more than 17,000 islands and over 700 languages; no culture from the western or eastern islands are the same. The breadth and immensity of the country have its own cultural barriers, moreover, due to its size, investing in sustainable commodities, may face logistics hurdles and also with infrastructure constraints, a possible delay for products in reaching its intended market.

One key challenge is financial accessibility. For large-scale commodity producers, the challenge is in monetary scalability—seeking opportunity for company fundraising. Financial loans from the bank are often met with discouragement as Indonesia’s banking system are unable to accept warehouse guarantees and would need collateral.

On the other hand, for the investors, the setback is the understanding of the ecosystem; impact investing promotes equity investment—a profit-sharing model—, which is often met with distrust by immediate investors. Moreover, high taxation and hedging costs often become an investment discouragement.

Lastly, a focus on sustainable commodities requires agriculture efficiency; producers of commodities often face difficulty in maintaining consistency of harvesting capabilities. Scalability to develop products also becomes an issue because of the lack of resources that can help in planting or research and development of their commodity.

Building a safe haven for impact investing

As a response to these challenges, as an organization, Supernova Ecosystem was established in the market as a catalyst to boost impact investing and commercialize sustainable business at a subnational level in Indonesia.

Supernova, among other stakeholders, exists in building pipelines of investable companies and projects. The aim is to be among the ecosystem contributors, in this case includes, supply, the producers of local commodities; demand, the buyers of local commodities; and enablers, entities that optimize the transaction between supply and demand.

In each ecosystem chain, Supernova helps in answering supply and demand ambition and build relevant business models that direct towards sustainability and resilience of the environment and community.

Jurisdiction-based impact development in Indonesia

With a fresh start in August 2020, Supernova has already established 30 partners on board and mapped the intended intervention needed for each partner. And through the short period, focus group discussion through jurisdiction areas across Indonesia from Aceh, Musi Banyuasin, Sintang, West Java, Central Java, DI Yogyakarta, East Java, Bone Bolango, and West Papua has been conducted.

These workshops are crucial in mapping out the sustainable commodity chain and identify gaps, commercial readiness, and a final push for sustainable scalability.

Written by Athina Dinda for Supernova Ecosystem.

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