Indonesia Environment Fund: Bridging the Financing Gap in Environmental Programs

International development partners have recognized Indonesia’s efforts to better meet its climate and environmental goals by pledging their financial support. However, adequate delivery mechanisms for climate finance are necessary for reaching Indonesia's climate goals.

Recently, the Ministry of Finance and the Ministry of Environment and Forestry has established a public service agency (Badan Layanan Umum or BLU) as a non-structural entity under the Ministry of Finance to manage funds for environmental protection and management, including climate change mitigation and adaptation efforts. The regulatory framework of a BLU provides solid legal basis for a robust and flexible vehicle to fund activities for public interest, including managing money from international donors. This paper aims to unpack the Public Agency for Environment Fund Management (Badan Pengelolaan Dana Lingkungan Hidup—BPDLH) and analyze its role and potential as the “financing hub” for environmental programs in Indonesia. The analysis is supported by a review of the BLU regulatory frameworks, and includes a comparison with seven fund-managing BLUs already in operation.

The report's key findings include:

• the BLU legal vehicle offers flexibility in terms of the sources of finance it can accept, and the funding instruments it can offer. However, in its current form it requires a dual financial reporting system to manage funding sourced from the state budget and those from other sources. Managing this, combined with the financial risks posed by having various revenue sources and funding instruments that will each require a rigorous risk management strategy, will present a challenge.
• while most sources of revenue for past fund-managing BLUs in Indonesia are from state budgets, BPDLH could have diverse sources of revenue, including revenues from international donors and carbon markets, as well as a diverse project portfolio. This means it is secure in its range of beneficiaries, and has potential for large impacts.
• while BPDLH shares the same characteristics with the other fund-managing BLUs in Indonesia on leveraging public and private funds for public services, it is the first BLU with flexibility to source both state funds and international financing.