By Wilson Arafat, GRC Specialist
AS 2026 BEGINS, the global capital market landscape faces multiple pressures: interest rates have not yet fully declined, geopolitical uncertainty is fueling volatility, and investors are increasingly demanding empirical evidence rather than narratives. Meanwhile, Indonesia’s bond market has performed solidly. Market resilience is no longer just a buzzword but demonstrates the ability to absorb shocks and maintain price stability.
However, this stability comes with consequences: as valuations tighten and the scope for capital gains narrows, investors will become more selective in choosing instruments; they will consider not only returns but also credibility and the direction of sustainable policies.
It is at this point that Sustainability-Linked Bonds (SLBs) become relevant as a differentiator and an alternative for transition financing (Ministry of Finance Learning Center, 2024). Unlike thematic bonds that tie funds to specific projects, SLBs link funding costs to the issuer’s sustainability performance, ensuring that commitments do not end as mere promises but are enforced through measurable achievements.
The International Capital Market Association (ICMA, 2024) explains that the core of SLBs lies in the financial and/or structural characteristics linked to the achievement of KPIs, meaning that terms such as coupons may change depending on whether sustainability targets are met or not. With the right design, SLBs can serve as reliable instruments that maintain market confidence through contracts that treat sustainability as a financial variable, rather than merely a “green label.”
With this foundation, the discussion becomes clear and systematic: throughout 2026, it will not only present opportunities for the Indonesian SLB market to expand access to transition financing but also pose challenges that test market integrity, including when managing risk.
Opportunities in Indonesia’s SLB Market
Where do Indonesia’s corporate bond market opportunities lie in 2026? First, through the tangible and measurable corporate financing needs in the field. By December 2025, the issuance of rupiah-denominated corporate bonds—including asset-backed securities (ABS)—hit a record high, reaching approximately Rp 216.68 trillion (PHEI, 2026).
Irmawati Amran (2025), CEO of Pefindo, stated that this performance reflects the strength of Indonesia’s corporate bond market. This trend is expected to continue throughout 2026. The driving force is the need for refinancing amid Bank Indonesia’s (BI) monetary easing cycle, which provides incentives for issuers to replace high-cost old debt with new instruments featuring lower coupons (Ahmad Nasrudin, 2025). PHEI (2026) notes that corporate bond issuance activity in 2026 will remain robust due to the need to fund maturing bonds, which have reached a total of Rp 156.9 trillion.
The need to refinance these maturing bonds will drive an increase in new issuances, supported by expectations of lower funding costs amid monetary easing and significant refinancing needs.
A clear common thread emerging from the above discussion is that refinancing needs in 2026 will once again be high, in line with data on maturing corporate bonds. Thus, this refinancing opportunity is strategic: when companies must re-enter the market to extend their tenors, SLBs can serve as an option that combines funding efficiency with a commitment to transition, as what is “constrained” is performance, not merely capital allocation. In other words, companies are not merely buying time, but also purchasing trust, which they then repay through measurable results.
Then, the second opportunity stems from the resilience of domestic liquidity. Onshore liquidity (the availability of funds, current assets, or currency located and operating within the jurisdictional boundaries of a country) in 2025 is sufficiently adequate, supported by: a combination of interest rate cuts, a reduction in outstanding Bank Indonesia Rupiah Securities (SRBI), central bank purchases of Government Securities (SBN), macroprudential easing, and the redeployment of the government’s Budget Surplus (SAL) to the banking sector.
This foundation increases the likelihood that sustainability-themed instruments will be absorbed by the primary market without being entirely dependent on foreign capital flows, which are highly volatile and prone to fluctuations. The stability of domestic demand also provides an opportunity to establish a reference price for sustainability-labeled instruments. If supported by strong transparency, the SLB has significant potential to form a “quality market,” where market reputation and reporting discipline are reflected in the spread.
The third opportunity arises from the increasingly clear policy framework. POJK 18/2023 assesses that regulations regarding sustainability-linked debt provide a legal framework that encourages the issuance of thematic instruments and expands the sustainable finance market.
Regulatory clarity reduces uncertainty costs and makes it easier for investors to assess governance, reporting, and the consistency of the framework. At this stage, SLBs serve as a bridge for transition financing, particularly for sectors that cannot yet be fully “pure green” but have a measurable roadmap for reducing their environmental impact.
The fourth opportunity stems from global market trends. The International Organization of Securities Commissions (IOSCO, 2025) notes that global sustainable bond issuance in 2024 reached USD 1.1 trillion. Meanwhile, according to S&P Global Ratings’ projections, sustainable bond issuance in 2025 is expected to reach approximately 1 trillion dollars.
S&P Global Ratings further explained that green bonds will continue to dominate the market, while transition bonds and sustainability-linked bonds could help drive total issuance. This indicates that capital is explicitly seeking out sustainability-labeled instruments.
If Indonesian issuers offer SLBs with material KPIs, clear baselines, and disciplined reporting, access to transition-mandated investors can serve as a source of funding diversification and a reputational booster, including signaling the outlook for SLBs in 2026.
Challenges for Indonesia’s ESG Market
Although opportunities abound, Indonesia’s ESG market in 2026 faces three major risks. The first risk concerns the credibility of issuers’ and stakeholders’ KPIs and Sustainability Performance Targets (SPTs). Targets that are merely token efforts and/or lack ambition; are immaterial to the business model; or are too easily achievable will cause ESG to lose its integrity and incentive function.
The OECD (2024) emphasizes the importance of selecting ambitious and material KPIs and SPTs for SLB instruments to function effectively. From an investor’s perspective, flawed KPIs signal that issuers are not yet capable of aligning their transition strategies with auditable metrics. If this occurs, the market will view SLB as nothing more than rhetoric attached to conventional debt instruments.
The second risk is greenwashing, which erodes trust. IOSCO (2025) warns that greenwashing—the misrepresentation of sustainability-related information—can damage investor trust and market integrity.
In SLBs, greenwashing often hides behind loose methodologies, mid-course target changes, or reports with minimal verification. Consequently, this rapidly leads to: damaged reputations, investors pulling back, and rising risk premiums, so that the expected funding cost benefits actually turn into risk premiums that negate the benefits of the funding costs.
The third risk relates to the characteristics of the bond market. When bond valuations are already tight and supply risks are rising, the upside potential for new instruments becomes very limited. The logical consequence—under such market conditions—is that SLBs must offer clear financial value. If the step-up penalty is too small or the interval is too long, the market tends to view it as “ESG without teeth” (ESG that is merely a formality, symbolic, or cosmetic [image-building], without real impact, accountability, or enforcement). Meanwhile, issuers will bear the costs of issuance, reporting, and verification without commensurate compensation.
Anticipation by Issuers and Stakeholders
Addressing the opportunities and challenges outlined above undoubtedly requires design discipline, data governance, and ecosystem orchestration.
First, KPIs must be placed at the heart of the business and linked to the issuer’s key impacts. Meanwhile, SLBs must be based on a transparent baseline; and incentive mechanisms must be significantly meaningful.
As ICMA (2024) emphasizes, variations in financial or structural characteristics are at the core of SLB. This means that incentives must not be merely cosmetic; rather, they must be sufficiently robust to influence investment and operational decisions, with clear consequences if targets are not met.
Second, data and reporting must be treated as market assets. Independent verification, credible second-party opinions, and periodic assurance help investors distinguish good intentions from actual performance.
Third, institutional investors need to raise their due diligence standards: assessing the materiality of KPIs, the consistency of methodologies, and the rules of the game when targets are missed, including restrictions on baseline changes without verifiable justification.
Last but not least, the fourth point: regulators and market participants can promote consistent minimum standards for disclosure and reporting across the market. When minimum standards are enforced, serious issuers will benefit because spreads reflect quality, not just narrative.
Ultimately, SLBs are priced contracts of integrity. Their beauty lies not in labels, but in the courage to link reputation, strategy, and cost of capital into a single, verifiable commitment. The year 2026 presents a golden opportunity for Indonesia’s SLB market to make transition financing the mainstream. (*)
