This policy brief discusses the environmental and social challenges associated with the nickel industry in Indonesia, which is an important component in the renewable energy transition due to its use in lithium batteries. Despite its role in low-carbon development, the industry poses serious environmental risks, including illegal deforestation and high carbon emissions from smelters due to its reliance on coal-fired power plants. The Indonesian government's ban on nickel ore exports to encourage domestic processing has led to a rapid increase in the number of smelters and furnaces, further exacerbating the situation.
This policy brief highlights the involvement of European and Indonesian national banks in financing nickel projects, despite their commitment to stop funding coal. This document calls for improved investment policies and environmental protection for energy transition projects, taking into account principles such as NDPE (No Deforestation, No Peat, No Exploitation), High Carbon Stock, and anti-deforestation. Foreign investment, especially from China, dominates the industry's financing, with Chinese banks playing a major role in financing the coal-fired power plants that support nickel smelters.
This document underscores the lack of clear investment rules for financial institutions in financing the nickel industry, which is still heavily dependent on coal. This document criticizes the voluntary Indonesian Sustainable Finance Taxonomy (TKBI) guidelines and calls for stricter regulations, as well as incentives to encourage sustainable financing in the industry.
This policy brief concludes with policy recommendations, urging the Indonesian government to revise laws to uphold environmental, social and governance (ESG) principles for investors, immediately establish a Sustainable Finance Committee, and improve sustainable financing regulations. This document also calls on banks to create special policies for mining sector financing, including monitoring during the funding period.
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