How will the world’s biggest coal exporter wean itself off the fuel?

It has been a big week for climate and environmental news from Brussels.

First, EU environment ministers scrapped a commitment to ratchet up the bloc’s greenhouse gas emissions reduction target. The U-turn came after Poland, Hungary and Italy objected to a pledge to increase the bloc’s emissions reduction target from 55 per cent by 2030 to 57 per cent, compared with 1990 levels.

Then, members of the European parliament shot down rightwing lawmakers’ attempts to block new sustainability reporting standards. Now, more than 50,000 companies will need to report how their businesses affect the EU’s environment. Kenza will be writing more about this on Monday. Stay tuned.

For today, Kaori Yoshida dives into Indonesia’s “Just Energy Transition Partnership” investment plan. Next month, Indonesia is expected to unveil the details of its plan which aims to ease costs for developing countries to decarbonise. If confirmed, it will be the second nation to do so since the model was announced at Glasgow’s COP26 in 2021.

And I report on the Securities and Exchange Commission dropping “ESG” from its 2024 examination priorities. So what’s next for Washington’s scrutiny of the ESG sector?

Thanks for reading. — Patrick Temple-West

Indonesia faces ‘one of the most complex arrangements’ in finalising JETP plan

Developing nations have long lamented the lack of funds available to drive the green energy transition. The “Just Energy Transition Partnership” (JETP) approach — the first example of which, announced during COP26, promised $8.5bn in financing for South Africa — aims to help alleviate that financing gap by funnelling funds from wealthy nations. Since then, the JETP model has expanded to four more countries.

In the coming weeks, eyes will be on Indonesia, south-east Asia’s biggest economy, which is set to release its JETP investment plan for public comment in early November — following a three-month delay. The final version is expected to be published within the month.

Indonesia’s JETP investment plan will mobilise $20bn through a mix of grants, concessional loans, market-rate loans as well as private investments, which will be used for the country’s clean energy transition.

Half of the cash will come from a group of developed economies led by the US and Japan, and half from financial companies that are part of the Glasgow Financial Alliance for Net Zero. If approved, this will be the second JETP investment plan to have been confirmed, after South Africa finalised its plan last year.

The hope is that if Indonesia, the world’s biggest coal exporter, can successfully wean itself off the fossil fuel, then other developing nations will follow suit.

But as Indonesia’s delay suggests, devising the details of the plan — a prerequisite for funds to begin to flow in — came with a host of challenges. Notably, the need to adjust the plan’s target as baseline emissions continue increasing.

The Indonesia JETP initial target set peak annual CO₂ emissions at 290 megatonnes and proposed increasing the nation’s proportion of renewables to 34 per cent of its energy mix by 2030. But the target soon became unrealistic as the growth and capacity of captive power plants were found to be far more significant than previously thought, according to Fabby Tumiwa, executive director at the Institute for Essential Services Reform (IESR), a Jakarta-based energy think-tank.

If all planned captive power plants, which are used and managed by industry for their own consumption, are built, “the baseline emission would change from 360 megatonnes of CO₂ annually to more than 450 megatonnes”, he told Moral Money.

Partners’ lack of interest in funding early retirement of coal plants was another issue. “There is no financing available from [developed economy JETP partners] for this,” Tumiwa said. 

Investors have proved hesitant to finance coal retirement projects, in part due to fears that this could be considered a form of financial support for the coal power sector, depending on how the projects are structured.

While Tumiwa admitted that the Indonesian case is “one of the most complex arrangements”, he said the challenges it faced, such as the developed country governments’ reluctance to fund certain projects, will have been noted by other emerging economies.

“Other JETP countries [such as Vietnam] are now looking at Indonesia’s experience,” Tumiwa said. (Kaori Yoshida, Nikkei)

SEC drops ESG from exam priorities list

Back in April 2021, the Securities and Exchange Commission rocked financial firms with an unprecedented announcement: the agency was on the hunt for greenwashing in environmental, social and governance (ESG) investing.

It was the first time the SEC made such a strong statement about greenwashing risks. Since then, it has heavily scrutinised ESG as the agency’s exams division (which is responsible for its investigations) kept watch on the market throughout 2022.

But earlier this week, the SEC announced its examination priorities for 2024. Notably, ESG was left out of the report.

SEC watchers and enforcement lawyers quickly noticed the omission. They wondered privately whether the SEC’s ESG scrutiny had come to an end. Surely the SEC cannot prioritise everything it is required to police in financial markets. The agency knows that when you prioritise everything, you prioritise nothing.

But the death of the SEC’s ESG scrutiny might be greatly exaggerated, Jason Brown, a partner at law firm Ropes & Gray told me.

“I don’t think that the omission of ESG from the exam priorities is a signal that the SEC will no longer focus on ESG,” said Brown, who is the firm’s co-head of the private funds regulatory practice. “ESG was a major focus of investment adviser exams in 2023, and we have not seen a slowdown yet. The issues that they were looking into, primarily greenwashing, [will be] just as relevant in 2024 as they were in 2023.” 

Last month, German asset manager DWS agreed to pay the SEC $19mn to settle greenwashing allegations, the agency’s biggest ESG penalty against an investment adviser. The SEC’s enforcement division last year settled ESG cases with BNY Mellon and Goldman Sachs.

And we have previously reported that the SEC has subpoenaed other firms as part of ESG investigations. Several more settlements are expected in the months ahead.

The SEC’s initial ESG sweep might be over, but the agency is still advancing more greenwashing enforcement cases. That should keep the ESG sector on edge going into 2024. (Patrick Temple-West)

Smart read

Here’s a punchy piece from Harvard University’s Lina Thomas and Martin Söndergaard on the need to “un-grift” the troubled carbon offset market.