Sustainable trade could be an opportunity for Indonesia. Here’s how

Indonesia aims to become a high-income country by 2045. Trade and investment remain important tools for policy-makers delivering a growth agenda, even amid geopolitical tensions.

At present, Indonesia is less integrated into global value chains compared to regional peers, but it is a leading soft commodity exporter. Many of these commodities like palm oil, rubber and paper are linked to sustainable development – providing employment for smallholder farmers, but also associated with the risks of deforestation and rising emissions from land-use change.

Overall, Indonesia is a net exporter when it comes to emissions embedded in trade. Yet, as highlighted by the Centre for Strategic and International Studies (CSIS), it is also one of the main investment destinations in ASEAN. Indonesia could leverage this investment for a green growth agenda. It could target activities that both decarbonize existing exports and build up a position in new low-carbon value chains.

For example, steel products are now among Indonesia’s top exports, and the Ministry of Trade recently announced that Indonesia has climbed in the rankings of global iron and steel exporters.

The International Energy Agency (IEA) indicates the average direct carbon dioxide emissions intensity of steel production must decline by 60% by 2050 relative to today’s levels to meet global energy and climate goals. Deep emissions reductions are achievable with the use of innovative technologies and processes such as hydrogen, carbon capture use and storage, bioenergy and direct electrification, alongside increased steel scrap usage.

Indonesia could evaluate its role and economic opportunities in a regional steel value chain involving significant renewable energy generation and clean technology deployment for green iron and steelmaking.

Indonesia can boost emissions measurement skills

Increasingly, however, business must not only take the decarbonization or sustainability action but provide that information to the supply chain. Supply chain emissions represent a significant part of corporate emissions – about 75%, on average.

Efforts to address these means companies need to understand suppliers’ emissions data. New supply chain sustainability policies around the world will increasingly make this data disclosure compulsory. Emerging border carbon taxes, like the EU Border Carbon Adjustment Mechanism (CBAM), will require a product carbon footprint calculation.

Many companies across South-East Asia and Indonesia have not yet calculated their firm or product carbon footprints, due to a lack of greenhouse gas (GHG) accounting skills and knowledge. Recognizing this gap, a group of private sector stakeholders and civil society in Indonesia have been working on a new tool, aimed at boosting business capacity.

ECOVISEA is a free online GHG emissions calculator, established by East Ventures, a leading venture capital firm in Southeast Asia, and the Indonesian Chambers of Commerce (KADIN Indonesia). ECOVISEA worked with the World Resources Institute (WRI) Indonesia and other partners to develop the calculator based on international corporate standards and conduct capacity-building for users.

Demand for emissions measurement skills are likely to grow as a competitiveness factor in supply chains. Many companies, particularly smaller businesses, may need support to build up that skillset. They will likely also benefit from an enabling environment, including sector decarbonization efforts that align with international standards, or domestic corporate climate disclosure rules.

Tackling land-use emissions with sustainable livelihoods

Similarly, Indonesia’s soft commodity trade is vital to its economy, but also its climate targets. Information traceability will likely be a factor in some export markets – as seen with the EU Regulation on Deforestation-free products (EUDR).

Although implementation of that rule is likely delayed until 30 December 2025, it will eventually mean EU buyers must request information around product origin, harvest geolocation and other factors that should enhance sustainability. Compared to regional peers, Indonesia is the most EUDR-exposed in both value and economic terms.

Land-use change and forestry accounts for 50.13% of Indonesia’s emissions. Its current nationally determined contribution (NDC) under the Paris Agreement aims to reduce emissions from land-use change and agro-industry through increased water efficiency and organic fertilizer use.

The Indonesian government has also recently taken an important step through a National Dashboard for Sustainable Commodity Data and Information to help agriculture players demonstrate compliance with the country’s legal standards and ensure a commodity can be traced back to a specific plot of land.

Supply chain sustainability measures – like the EUDR, but there are other pull factors too – will be successful if they help channel both public and private support into tackling the root causes of land-use change. That will require a lot of collaboration, across domestic and international players.

New technology can help too. Social enterprise Enveritas, for example, combines satellite imagery and artificial intelligence to pinpoint incidences of deforestation, address these and provide assurance for sustainable exports. Indonesia could apply such approaches as part of its efforts.

As part of a joint initiative called Action on Climate and Trade (ACT) developed with the World Trade Organization Secretariat and the World Bank Group, the World Economic Forum has been working with the Government of Indonesia on priorities at the nexus of trade and climate change for the past six months.

Several of the Forum’s communities, those on green trade, the Tropical Forest Alliance, the First Movers Coalition, and the Mobilizing Investment for Clean Energy in Emerging Economies initiative (with a specific focus on Indonesia), among others have shared valuable insights – including from other jurisdictions – for Indonesia’s sustainable trade journey.

Though Indonesia is currently among the world’s largest emitters, it has an opportunity to work across its value chains to drive new, sustainable growth, for the benefit of Indonesia and its trade partners.