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Indonesia’s climate risks are increasingly material to infrastructure, cities, supply chains, and financial institutions, yet climate adaptation and resilience are still often treated as matters of public spending, disaster recovery, and donor-supported projects. This creates a gap between the scale of climate risks Indonesia faces and the financial architecture needed to reduce those risks before they materialize. As fiscal space tightens and physical climate risks become more visible on balance sheets, adaptation can no longer remain a fragmented spending agenda; it must become an investable economic sector.
This report introduces a market-building framework for climate adaptation and resilience in Indonesia. Rather than treating adaptation only as a public finance or disaster-response challenge, it frames resilience as an emerging investment domain that requires deliberate market creation. Drawing on adaptation finance tracking from 2019 to 2024, the report identifies where capital currently flows, why private participation remains limited, and what institutional conditions are needed to move from fragmented public spending toward bankable resilience projects. The core proposition is that Indonesia does not only need more adaptation finance; it needs a clearer market architecture that creates predictable demand, strengthens domestic delivery capabilities, shares investment risks strategically, and aggregates projects into investable portfolios.
The report is intended to support policymakers, financial regulators, development partners, banks, investors, project developers, and researchers in building a more coordinated resilience investment market. Its core message is that Indonesia already has several relevant tools, including national adaptation planning, climate budgeting, sustainable finance taxonomy, climate risk stress testing, guarantees, blended finance, and potentially strategic capital institutions, but these tools need to be aligned toward market formation rather than deployed separately.
Key Findings
1. Adaptation finance remains too dependent on public spending.
Indonesia’s climate adaptation and resilience finance is still dominated by public and multilateral sources, while direct private and commercial financing remains limited. Tracked adaptation finance remains dominated by public entities, showing that resilience investments are still structured mainly around public service delivery rather than scalable market opportunities.
2. The main challenge is market formation, not only financing gaps.
Many adaptation investments generate value through avoided losses, reduced volatility, and systemic risk reduction, but because these benefits are long-term, diffuse, and often not directly priced, private capital tends to underinvest unless public policy helps create demand, reduce uncertainty, and structure investable opportunities.
3. Current finance flows are concentrated in large infrastructure and water-sector projects.
Adaptation finance in Indonesia is heavily skewed toward concessional loans and infrastructure-heavy water projects, while climate-sensitive sectors such as agriculture, fisheries, health, real estate, and supply chains remain less developed as investable resilience markets.
4. Indonesia already has policy tools, but they remain fragmented.
National adaptation planning, climate budget tagging, TKBI, climate risk stress testing, public guarantees, blended finance platforms, and state-linked investment institutions could together support resilience market development, but weak coordination across planning, fiscal, financial, and project implementation systems limits their ability to mobilize private capital at scale.
5. Industrial policy can turn resilience into an investable sector.
By creating predictable demand through standards and procurement, building domestic resilience industries and climate-risk analytics, using public risk-sharing instruments to crowd in private finance, and aggregating small projects into investable portfolios, Indonesia can shift adaptation from fragmented project spending toward a scalable market for climate resilience investment.