“Peatlands are sexy!” They aren’t words you would normally associate with peatlands, but judging from the large audience that participated in the lively discussion on financing peatland restoration in Indonesia at the “Global Landscapes Forum: Peatlands Matter” conference, held May 18 in Jakarta, it seems to be true. The observation was made by Erwin Widodo, one of the speakers in the World Bank-hosted panel discussion at the event.

For me, it was a great honor to moderate a panel comprised of several of the leading voices in the space: Kindy Syahrir (Deputy Director for Climate Finance and International Policy, Finance Ministry), Agus Purnomo (Managing Director for Sustainability and Strategic Stakeholder Engagement, Golden Agri-Resources), Erwin Widodo (Regional Coordinator, Tropical Forest Alliance 2020), Christoffer Gronstad (Climate Change Counsellor, Royal Norwegian Embassy), and Ernest Bethe (Principal Operations Officer, IFC).

It was the right mix of expertise to address the formidable challenges in securing resources to finance sustainable peatland restoration in Indonesia. These include finding solutions to plug the financing gap, and identifying instruments and the regulatory framework necessary to strengthen the business case for peatland restoration. A significant amount of finance has been pledged. But one of the key issues the panel needed to address was how to redirect available finance towards more efficient and effective outcomes to reach sustainable restoration targets.

Peatland restoration has been at the forefront of President Joko Widodo’s environmental agenda, largely due to its links with the fire and haze that blanket the region in dry years, such as 2015 when the fire catastrophe cost Indonesia $ 16.1 billion. The establishment of the Peatland Restoration Agency (Badan Restorasi Gambut / BRG) in January 2016 was hailed as an important step in addressing devastating forest and land fires. But restoration has proven to be a complex task, even more so as BRG is mandated to restore over two million hectares of degraded peatland by 2020.

Current commitments to finance restoration are falling short of what is needed to finance such an ambitious effort. According to Kindy Syahrir, the Indonesian Ministry of Finance has adopted a strategy of optimizing budget allocations, for example through fertilizer subsidies. Syahrir underlined three pre-conditions needed to mobilize financing, with agreements from stakeholders on 1) landscape-level spatial reform 2) methodology to account for carbon reductions from land use, and 3) Monitoring Reporting and Verification (MRV) systems.

Currently, the Indonesian government is establishing an environment fund, Badan Layanan Umum (BLU), to channel funds including those for results based payments. Once operational, Indonesia could be eligible to leverage up to $2.8 billion per year in international adaptation grants. Draft regulations are also being finalized to support this, e.g. the Payment for Ecosystem Services, and a fiscal instrument that would enable inter-regional transfers to incentivize peatland restoration.

For the private sector, these three pre-conditions must reflect their incentives. A company’s decision to invest in a project will, more often than not, be based on delivery, timing and risk level. Reflecting on his extensive experience working with communities and smallholders, Agus Purnomo noted that companies still find these investments risky.

This private sector perspective links back to the urgent need for a supportive regulatory framework. As Ernest Bethe noted, the current framework is particularly challenging for financial institutions to support independent smallholders. While they are the fastest growing part of Indonesia’s oil palm development, smallholders find it difficult to access reliable finance. Through policy and regulatory reforms, banks will be enabled to achieve more opportunities in engaging with smallholders. This would bridge the gap between what banks can offer in terms of product and input, and what smallholders actually need, considering the lack of land tenure and high interest rates.

As was evident from the unfolding conversation, different stakeholders face different challenges. The ever-articulate Erwin Widodo described Indonesia as a country divided into three “citizen groups”: government, private sector, and civil society. As each perceives an equal right to determine how peatlands should be managed, Widodo emphasized the urgency of opening lines of communication to align perceptions and priorities. To move the peatland restoration agenda forward, key issues that require agreement are 1) improving spatial data, 2) methodology for a national standard on carbon counting, 3) harmonized support from the government (national, provincial and local), and 4) assurance on sources of financing, including mechanisms for disbursement of funds.

Despite these complexities, including in matching funding to projects, there is sustained international interest to support financing. Christoffer Gronstad acknowledged that donor countries, like Norway, find tremendous value in adopting landscape and jurisdictional approaches for peatland restoration. He added that while some may regard REDD as dead, Norway is encouraged by the results achieved so far by Indonesia, and will continue to provide support to the country.

In conclusion, the panel agreed that developing a stronger partnership among government, private sector and civil society is the cornerstone to achieve Indonesia’s peatland restoration target. This would result in better articulation of priorities, create an enabling environment to leverage all potential financing, and ensure continued international support for government-led, high impact, landscape-level sustainable peatlands management in Indonesia.