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Green, Transition, or Neither? How Indonesia’s New TKBI Version 3 Shapes Sustainable Investment


As sustainability becomes a global business priority, demand is surging for projects labeled as "green." But how do banks, investors, and regulators actually determine if a project is truly sustainable? It works much like a nutrition label on food: without standardised testing, anyone can make a healthy claim on the packaging.


In Indonesia, the official standard for this is the Taksonomi untuk Keuangan Berkelanjutan Indonesia (TKBI), or the Indonesia Sustainable Finance Taxonomy.


In February 2026, the Financial Services Authority (Otoritas Jasa Keuangan or OJK) released TKBI Version 3. This updated guide serves as the national framework for classifying economic activities that support the country's climate and social goals, giving the financial sector a clear, science-backed roadmap to direct capital where it matters most.


The "Growing House" Concept: Expanding Scope


The TKBI is built on a "growing house" philosophy—a flexible framework designed to expand as Indonesia's economy and regulatory capabilities evolve.


While Version 2 focused primarily on Construction and Real Estate, Transportation and Storage, and key parts of the Agriculture, Forestry, and Fishing (AFF) sectors, TKBI Version 3 expands the taxonomy to include:


  • AFF Lanjutan (Extended Agriculture, Forestry, and Fishing / AFF): Covering Agriculture (Pertanian), Plantations (Perkebunan), Fisheries and Marine (Perikanan dan Kelautan), Social Forestry (Perhutanan Sosial), and Natural Forest Conservation, Restoration, and Maintenance (Konservasi, Restorasi, dan Pemeliharaan Hutan Alam).

  • Manufacturing: Key industrial production processes.

  • Water & Waste Management: Water supply, sewerage, waste management, and remediation services (WSSWMR).

  • Key Enabling Sectors: Information & Communication (IC) alongside Professional, Scientific & Technical Activities (PST).


Version 3 now acts as a complete framework for Nationally Determined Contribution (NDC) focus sectors and their supporting enabling industries. This expanded scope enhances Indonesia’s competitiveness and market interoperability, aligning national interests with regional standards like the ASEAN Taxonomy.


Green vs. Transition: An Inclusive Spectrum


At its core, the TKBI supports Indonesia’s commitment to reach Net Zero Emissions by 2060 or sooner. Recognising that the industries cannot become carbon-neutral overnight, the taxonomy uses a three-tiered classification system:


  1. Green (Hijau): Activities fully aligned with a 1.5°C climate pathway and long-term environmental targets.

  2. Transition (Transisi): Activities that are not yet net-zero, but are actively reducing emissions on a strict timeframe or enabling short-term decarbonization.

  3. Does Not Meet Classification (Tidak Memenuhi Klasifikasi): Activities within the taxonomy's scope that fail to meet Green or Transition thresholds. (Note: TKBI is not a "negative list" banning funding, but rather a guide for sustainable capital allocation).

The 3 Mandatory Essential Criteria (EC)


Even if an economic activity directly contributes to a climate target, it cannot be classified as "Green" or "Transition" unless it fulfills three foundational safeguards:


  1. Do No Significant Harm (DNSH): An activity helping one environmental goal (like reducing carbon) must not cause significant harm to another (like polluting water sources or destroying local biodiversity).

  2. Remedial Measures to Transition (RMT): If an activity causes actual or potential environmental harm, the business must implement a realistic, actionable plan to eliminate or minimize that impact within five years.

  3. Social Aspects (SA): The TKBI looks beyond environmental metrics. An activity must respect human rights, guarantee workplace safety, provide fair wages, and protect surrounding communities in accordance with national labor laws and international standards (such as ILO conventions and the SDGs).


Inclusive Assessment: Corporations vs. MSMEs


To ensure the framework works for businesses of all sizes, the TKBI applies two different assessment pathways:


  • For Large Corporations: Uses Technical Screening Criteria (TSC)—a detailed set of quantitative thresholds, carbon limits, and qualitative metrics.

  • For MSMEs (UMKM): Uses a Sector-Agnostic Decision Tree (SDT)—a simplified, principle-based checklist designed for smaller businesses that lack the resources for complex emissions modeling.


Market Stability: Sunsetting and Grandfathering


To prevent greenwashing and protect investors, TKBI Version 3 introduces two critical mechanisms:


  • Sunsetting: Sets an expiration date on "Transition" status for TSC. This prevents companies from relying on temporary transitional labels indefinitely and pushes them toward permanent green technologies.

  • Grandfathering: Protects existing financial instruments (like green bonds or loans) when taxonomy rules change, allowing them to keep their original classification for up to 7 years. This gives long-term stability and regulatory certainty to investors.


Turning TKBI Compliance into Real-World Strategy


Navigating complex technical screening criteria, proving your project fulfills the mandatory Essential Criteria, and building a credible roadmap from Transition to Green requires specialised expertise and solid scientific proof.


At Life Cycle Indonesia (LCI), we help businesses bridge the gap between corporate sustainability goals and the technical requirements of TKBI Version 3. By quantifying impacts, LCI provides the scientific data, LCA modeling, and EPD verification needed to ensure your projects stand up to regulatory review and attract global sustainable investment.


The information presented in this article is accurate as of the publication date, based on publicly available data. LCI may periodically update this article to reflect evolving standards and regulations. If there are any inquiries, please contact admin@lifecycleindoensia.com. 

 
 
 
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