In August 2023, Indonesia ratified Financial Services Authority Regulation No.14 of 2023 concerning Carbon Trading Through Carbon Exchange ("POJK No.14/2023"). This opens up attractive investment opportunities for foreign nationals interested in participating in carbon market in the country. The regulations outlined below identify several opportunities for foreign investors interested in participating in Indonesia's carbon exchange.
The operation of a carbon exchange involves a platform where carbon products such as carbon credits can be bought and sold. A carbon exchange brings together offerings from projects that reduce carbon emissions or enhance carbon uptake, with demand from companies or other entities in need of carbon credits to fulfil their emission obligations. In this context, the "carbon" being traded is in the form of carbon credits representing reduction or elimination of a certain amount of carbon emissions elsewhere.
According to this regulation, foreign legal entities that have obtained permission or are under the supervision of financial regulatory authorities in their home country are allowed to become shareholders of the carbon exchange organizers. However, foreign share ownership is limited to a maximum of 20% of the total shares with voting rights. This provides an opportunity for foreign investors to have shareholder position and contribute to the management of carbon exchange in Indonesia. Prospective shareholders must meet integrity and eligibility requirements set by Financial Services Authority. This emphasizes the importance of integrity and a good track record for investors seeking involvement in organizing carbon exchange in Indonesia.
POJK No.14/2023 mandates that one of the members of Board of Directors must have knowledge or experience in the field of climate change mitigation and carbon markets. This provides an opportunity for individuals with backgrounds and expertise in environmental and climate sectors to play a role in managing the carbon exchange.
Foreign investment can contribute to operational management of the carbon exchange, either through positions in the Board of Directors or the Board of Commissioners. As part of the leadership, foreign investors can participate in strategic decision-making and contribute to the direction of carbon exchange's development in Indonesia.
Indonesia has significant potential in developing the carbon market as an effort to reduce greenhouse gas emissions and achieve environmental targets. Foreign investors can support the growth of carbon market in this country through increased liquidity, product innovation, and introduction of new technologies. Involvement of foreign investors in organizing the carbon exchange can bring a broad international network. This can enrich the exchange of knowledge, technology, and best practices in carbon market management. For foreign investors, the operation of the carbon exchange can be a form of investment portfolio diversification. Investment in this sector offers not only the potential for financial gain but also a positive impact on the environment.
However, foreign investors need to carefully consider the provisions stipulated in POJK No.14/2023 and ensure that they meet the requirements set by the Financial Services Authority. In this context, consulting with competent legal and financial experts in Indonesia is highly recommended.
If you, as a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author: Dewi Susanti