Broking and solutions company, WTW has announced the launch of a new sovereign risk management programme developed to help Indonesia plan and implement an orderly long-term low carbon transition.
The announcement was made during the G20 Leaders’ Summit in Bali.
As the world’s largest thermal coal exporter, Indonesia is highly exposed to climate transition risks, due to the country’s economic reliance on the export of coal, amidst an accelerating decline in the fuel’s use in power generation, even in emerging markets.
The WTW Low Carbon Transition Project, which is funded by Agence Française de Développement (AFD), will work directly with Indonesia’s government, its central bank and the Financial Services Authority (OJK) to understand the impact a global climate transition will have on the country’s finances.
At the same time, the project will also assist Indonesia in designing its own orderly transition, while maintaining both economic and financial stability.
Matt Huxham, Director, Sovereign Transition Risk, Climate and Resilience Hub at WTW, said: “Countries often design climate mitigation plans as if operating in a vacuum. National plans required by the Paris Climate Agreement do not typically reference transition risks – especially those caused by wider regional and global decarbonisation trends. For many developing countries, these risks are exceptionally large and could seriously impact the strength of their public finances if not factored into planning. This would increase the cost and jeopardise the viability of transition plans and, ultimately, our chance of being able to meet Paris Agreement goals.”
Furthermore, WTW’s unique Climate Transition Value at Risk (CTVaR) methodology will be used to measure Indonesia’s transition risk.
Kameswara Natakusumah, Head of Indonesia and Head of Corporate Risk and Broking at WTW, added: “The major benefit of our CTVaR methodology that we use to measure transition risk is that we do not just look at the downside risks. This project will develop detailed Indonesia-specific scenarios and valuable new data. The analysis will enable us to identify opportunities, providing a solid basis to underpin the right investments that are resilient to and benefit from the trends driving Indonesia’s own journey to net zero.”
In addition, WTW noted that its Indonesia project will also develop assessments of transition pathways in a range of economic areas that includes transport, industry and land-related sectors.
The project will also include insights on the challenges facing certain workers, communities and local governments, which will help them build resilience to upcoming structural changes and guide the government in identifying vulnerable groups and regions.
WTW also stated that the project is expected to generate outputs that support the Indonesian government in its negotiations with international partners around a Just Energy Transition Partnership, which will help to facilitate the early retirement of coal fired power plants, and the development of carbon markets and related financing designed to help preserve Indonesia’s rainforests.
Huxham, said: “Our long-term collaboration with AFD, as funder and partner, has been instrumental. We look forward to working closely with the agency’s local network, as well as with researchers from Indonesian public institutions, to ensure that we are developing accurate findings and broadening awareness of climate transition analysis at the same time.”
Yann Martres, AFD Country Director in Indonesia, commented: “Our work in Indonesia on low-carbon transition pathways is one of our most ambitious yet. A key objective of this work led by WTW is to support Indonesia in designing and implementing an orderly transition across many economic sectors, such as coal, oil, gas and industry. This work is fully in line with AFD’s mandate in Indonesia, which aims to support Indonesian transition towards a low carbon development through fair and resilient pathways.”
Earlier this week, it was also announced that WTW has designed a parametric risk transfer for Global Shield funded UNICEF initiative.
