Indonesia’s Climate Finance Experiment – OpEd

June 1, 2026 
By Jonathan Manullang


Having grown up in North Sumatra, I have seen how ecological exploitation by companies such as Toba Pulp Lestari and Agincourt Resources reshapes both landscapes and lives. When flash floods and landslides struck the island in November 2025—destroying homes, displacing hundreds of thousands, and delaying aid for weeks—the scale of that vulnerability became unmistakable.

What these disasters revealed was the limits of a disaster governance model that still relies on reacting after the fact. In response, a new generation of Indonesian climate finance proposals signals a broader shift toward financialised climate governance, in which resilience is increasingly packaged, priced, and transferred through global capital markets.

An Indonesian student team from Columbia University was selected as a finalist in the 2026 Kellogg-Morgan Stanley Sustainable Investing Challenge with its proposal, Nusantara Resilient Capital (NRC). The project seeks to deploy a fully collateralised parametric catastrophe bond to transfer Sumatra’s sovereign flood risk to capital markets. It would also ring-fence surplus returns for upstream reforestation. Though still conceptual, the proposal responds to a clear gap exposed by the November 2025 floods, which caused an estimated US$3.2 billion in losses and displaced nearly 400,000 people. Its premise is straightforward: disaster response must move from delayed aid to pre-arranged, market-based liquidity.

The competition’s winning entry was even more ambitious. It proposed the AAA Fund—a blended finance credit facility designed to address the degradation of Indonesia’s coastal mangrove ecosystems while generating returns through blue carbon credits. Like NRC, the fund remains a proposal, but it reflects a broader trend: the growing effort to link ecological restoration with financial returns.


Since the 2004 tsunami in Aceh, disaster governance has been characterised by a largely reactive orientation, with strong emphasis on emergency budget reallocations, international humanitarian aid, and extensive post-crisis reconstruction efforts. At the same time, Indonesia’s development model—historically dependent on extractive industries—has intensified environmental vulnerability while generating uneven state capacity across regions. As climate shocks increase in both frequency and scale, this system is becoming fiscally and politically untenable, creating the conditions for the turn toward market-based, financialised solutions.

Disaster management is increasingly treated as a question of macroeconomic stability and long-term governance. The turn toward climate finance reflects an attempt to mobilise capital beyond the state and to reduce dependence on post-disaster borrowing and aid. Indonesia is positioning itself as a laboratory for financialised climate governance in Southeast Asia.

The NRC proposal illustrates this shift at the sovereign level. By combining parametric catastrophe bonds with nature-based restoration, NRC turns climate risk into a tradable financial instrument: payouts are automatically triggered when environmental thresholds are exceeded, enabling rapid disbursement. In doing so, it addresses a central weakness of conventional disaster response—delays in funding—while reframing ecosystems as infrastructure within systems of risk pricing and capital allocation.

At a different scale, the AAA Fund focuses on coastal resilience through a blended finance structure that works with local cooperatives. Its core strategy is silvofishery—integrating mangrove restoration with shrimp aquaculture. Restored mangroves generate blue carbon credits for international markets, while cooperatives produce shrimp for export supply chains that increasingly demand traceability and low-carbon production. The model aims to create a feedback loop in which ecological restoration and rural livelihoods reinforce one another.

These initiatives operate at different levels: NRC targets sovereign risk, while the AAA Fund focuses on local economic restructuring.

The AAA Fund’s reliance on global carbon markets makes it structurally fragile. Carbon prices remain volatile and unevenly regulated, and the credibility of offset markets continues to be contested. This introduces a fundamental mismatch: ecological restoration unfolds over decades, while investors expect measurable returns within much shorter timeframes. The risk is growing with the possibility that restoration projects are shaped more by market signals than by ecological or community needs.

Technical and institutional constraints reinforce this problem. Measuring blue carbon requires satellite monitoring, soil sampling, and internationally accredited verification systems—processes that are expensive and often dominated by external actors. This raises a familiar concern in Indonesia’s resource sectors: that value is captured by intermediaries while local communities assume the burden of implementation.

Governance challenges further complicate the picture. Cooperative models are vulnerable to elite capture, weak accountability, and contested revenue distribution. In coastal regions, overlapping claims between customary authorities, state agencies, and private concessions make even basic questions of ownership difficult to resolve. Who controls restored mangroves? Who owns the carbon credits? These are not abstract concerns, they are likely flashpoints in a context where land and resource governance has long been politically sensitive.


The NRC model faces a different set of risks. Parametric insurance systems depend on predefined triggers that may not align with lived realities. Communities may experience severe flooding without meeting the thresholds required to release funds—a problem known as basis risk. In a social context where mutual assistance (gotong royong) remains central, such discrepancies could erode trust in formal financial mechanisms.

These initiatives transform environmental governance by embedding it within financial systems. As ecosystems are incorporated into carbon pricing systems, their value is increasingly determined by global markets. It risks reproducing, in new form, the dynamics that have long characterised Indonesia’s extractive economy: the external valuation of natural resources, the marginalisation of local priorities, and the uneven distribution of benefits.

Yet dismissing these experiments outright would be a mistake. Indonesia faces a genuine fiscal and ecological constraint. Traditional approaches—reliance on aid, reconstruction spending, and sovereign borrowing—are no longer sufficient to manage escalating climate risks. The turn toward climate finance is, in part, a pragmatic response to these pressures.

The more important question is what kind of system is being built. If resilience is to be made investable, under what conditions can it avoid reproducing extractive logics? And who ultimately shapes the terms of that investment?

Indonesia’s climate finance experiment suggests that the answer will not lie in technical design alone. It will depend on political choices about regulation, ownership, and accountability—on whether the state can mediate between global capital, ecological realities, and local interests.

The stakes are regional. If current trends continue, Southeast Asia may see the emergence of a model in which resilience is increasingly priced, traded, and governed through financial markets. Whether this model enhances genuine adaptive capacity or entrenches new forms of dependency will depend on how these tensions are resolved.