The world's 18th-largest economy is poised to be a sustainable development model for developing nations

Known as the "Asian miracle" in the 1980s and early 1990s for opening its doors to foreign direct investment (FDI), Indonesia today is experiencing another kind of miracle: It has emerged as an unusually strong survivor of the international financial crisis. Combined with its growing commitment to sustainable development, the world's fourth most-populous nation is well-positioned to spark the interest of socially responsible investors, especially those interested in investing in climate solutions andbiodiversity in a large market.

According to Forbes' 2011 "Best Countries for Business" list, Indonesia has "weathered the global financial crisis relatively smoothly because of its heavy reliance on domestic consumption as the driver of economic growth. Increasing investment by both local and foreign investors is also supporting solid growth."[1]

In 2010, Indonesia's growth rate (in real GDP) was 6.1 percent. While much less than India (11.1) and China (10.3), it far outstripped Japan (3.9), Germany (3.5), Canada (3.0), the United States (2.8), Australia (2.7), France, (1.4) and the United Kingdom (1.2). This year, its growth will most likely come in at 6.4 percent, with the World Bank forecasting 6.2 percent growth in 2012, saying, "International financial markets remain turbulent, but Indonesia's economy is relatively well-positioned to weather future external shocks and steps have been taken to improve crisis preparedness such as increasing the flexibility of any fiscal response and the creation of a government bond stabilization framework."[2][3]

A BIODIVERSITY SECOND ONLY TO BRAZIL

One one hand, Southeast Asia's largest economy is known for the being the home of a wide array of flora and fauna: Its startling level of biodiversity is second only to Brazil's. On the other hand, it is known for facing seemingly intractable challenges in regard to land use management, with deforestation topping the list. As a result, its populations of tigers, rhinoceros, elephants, leopards, primates and a host of other threatened species have been drastically reduced. In particular, the habitat of the critically endangered Sumatran orangutan (pictured) has been rapidly disappearing due to the destruction of rainforest to make room for palm plantations to harvest palm oil, an ubiquitous ingredient found in 50 percent of all consumer goods. (Click here for tips on how to avoid palm oil.)[4][5]

Additionally, all that forest clearcutting is putting a lot of carbon dioxide into the atmosphere. Deforestation in Indonesia and Brazil accounts for 60 percent of the world's total greenhouse gas emissions (GHG), which represents up to a fifth of the world's carbon output. And unfortunately, GHG emissions from deforestation are not covered by the Kyoto agreement.[6]

"Between 1985 and 2005, Borneo lost an average of 850,000 ha of forest area annually, or roughly a third of the island's rainforest in total due to indiscriminate logging or forests being cleared for oil palm plantations," according to a February 2011 paper by the Centre for Non-Traditional Security Studies. "These problems are major factors contributing to soil loss, land degradation, siltation, changes in water retention and run-off patterns, and food insecurity...In addition, transmigration, uncontrolled shifting cultivation and poorly planned development projects also contribute to the loss of natural ecosystems and have resulted in increased fire activity."[7]

PRIME TARGET FOR CONSERVATION INVESTMENT

These mutually exclusive conditions -- high biodiversity and high deforestation -- have made Indonesia a prime target for innovative conservation investment solutions. In addition to being a pilot nation of the United Nations REDD+ (Reducing Emission from Deforestation and Forest Degradation) initiative, Indonesia signed a deal with Norway in May 2010 to reduce deforestation, a pact that includes a two-year moratorium on new logging permits, with the Scandinavian nation investing USD 1 billion in the project.[8][9]

The International Finance Corporation (IFC) has plans to invest USD 500 million in 2012 to support sustainable forestry in Indonesia. "Managed sustainable forestry is all about ensuring people realize that trees have a value when they are still standing as well as when they are felled and turned into timber products," said Peter Collins, an analysis partner of Forestry Research Associates, a forestry management and investment consultancy based on Bainbridge Island, Washington, about the plan.[10]

KEHATI-SRI: INDONESIA'S FIRST SRI INDEX

In 2009, Indonesia's first socially responsible investing (SRI) index was launched by KEHATI, a non-profit biodiversity and conservation foundation founded in 1995 with a 10-year endowment fund from the United States. Supported by the Indonesian Stock Exchange (IDX) with research provided by the Kuala Lumpur-based CSR/SRI firm OWW Consulting, the KEHATI-SRI Index tracks the performance of Indonesian firms that have deployed significant sustainable practices, setting a best-practice benchmark for both businesses and investors.[11][12]

"Today's businesses play an important role in the conservation of our natural resources and the protection of biodiversity," said KEHATI CEO, Dr. Damayanti Buchoril. "In our discussions with Indonesian companies we have seen efforts from companies to implement...responsibility for the environment," he said, noting that the KEHATI-SRI-Index was launched "to promote best practices in Indonesia and to make the efforts transparent to our international network of responsible investors."[13]

"We welcome the development of this index, and congratulate KEHATI -- the first PRI signatory in Indonesia -- for its leadership in driving it," said James Gifford, the executive director of the UN-backed Principles for Responsible Investment (PRI), which has over 850 institutional investors from 37 nations as signatories, representing USD 25 trillion in assets. "Investors need to know which Indonesian companies are managing emerging environmental, social and corporate governance issues well, as they now realise these companies are the ones that are best placed to deliver returns over the longer term."[14][15]

FOLLOWING THE BEAT OF A SUSTAINABLE DRUM

With money pouring in from governments, NGOs and the private sector, investors looking for a high-growth economy with big market potential that's not China or India and a government that's clamping down on deforestation and setting the stage for sustainable future, Indonesia is on target to holding on to its "Asian miracle" title.

Indonesia is "in a unique position to become a model for developing countries in mitigating and adapting to climate change," according to the 2009 World Bank Group (WBG) report, Investing in Indonesia's Institutions for Inclusive and Sustainable Development. "The WBG aims to help Indonesia fulfill this role by opening doors to new international investment instruments designed to help countries address climate change, such as climate investment funds, the Adaptation Fund, and global carbon markets. The WBG will also support coordination and facilitate partnerships with the private sector and civil society for the implementation of the National Action Plan for Climate Change."[16]

There is a percussion instrument indigenous to Bali and Java -- two of Indonesia's most well-known islands -- called the gamelan, a set of metal gongs, drums and xylophones. Its name comes from the Javanese word "gamels," which means "to strike." Today, it's becoming clear that Indoneisia is a place where socially responsible investors should be striking -- while the market is hot.