Digital twin technology may serve as a practical enabler to ensure that sustainable investments deliver measurable and real-world impact, as the green finance transition continues to deepen.
As Indonesia accelerates its green transition through strategic frameworks such as the Just Energy Transition Partnership (JETP) and its enhanced Nationally Determined Contributions (NDCs), the role of sustainable finance becomes increasingly pivotal. Beyond merely allocating capital to environmental initiatives, green finance must ensure that the impact of these investments is tangible, measurable, and accountable.
To assess the impact, the Environmental, Social, and Governance (ESG) framework has become a widely adopted standard. ESG refers to a set of criteria used to evaluate the sustainability performance of businesses and investments, guiding both investment decision-making and corporate reporting on non-financial risks and outcomes.
However, current ESG evaluation methods face several limitations.
Foremost among these challenges is the lack of a universally accepted reporting standard. In its absence, a multitude of overlapping sustainability frameworks, disclosure requirements, and proprietary ESG rating systems have emerged. This fragmented ecosystem forces companies to interpret and prioritise ESG criteria in inconsistent ways by choosing which aspects of sustainability to highlight, which data to disclose, and which metrics to emphasise. Consequently, ESG compliance may become highly subjective, with companies taking varied approaches depending on their industry, scale, and geographic context.
Another major obstacle stems from the limited availability and questionable quality of ESG-related data. Smaller companies, in particular, often lack the financial resources and technical expertise needed to collect, manage, and report comprehensive sustainability information.
Digital twin
To address these challenges, technological innovation offers a promising solution.
One such advancement is the use of a digital twin, a virtual representation of a physical object or system that mirrors its real-world counterpart throughout its lifecycle. Continuously updated with real-time data and powered by simulation, machine learning, and advanced analytics, digital twins may provide a dynamic, high-fidelity view of sustainability performance. This capability presents a compelling opportunity to strengthen ESG assessments by enhancing data accuracy, traceability, and decision-making in green finance. Digital twin holds the potential to empower a wide range of organisations to simulate real-world scenarios and predict their potential outcomes with greater accuracy.
Although still in its early stages of adoption, digital twin has already been applied in critical sectors such as energy, transportation, and infrastructure, where real-time data integration and predictive modelling enhance operational efficiency and resilience. Globally, countries like Singapore, the United Kingdom, and the Netherlands are also exploring the use of digital twins to advance ESG-related goals across diverse industries.
In the United Kingdom, the National Digital Twin Programme enables infrastructure-backed ESG financing through real-time data. Furthermore, Dutch TwinEU pilots integrate digital twins of water systems to ensure green bond performance is independently verifiable. Moreover, in Singapore, Virtual Singapore’s urban-scale model informs green infrastructure projects and ESG-linked investment decisions.
What about Indonesia?
In Indonesia, digital twin has been explored in Jakarta to simulate complex urban scenarios such as flooding and traffic congestion. By creating real-time virtual models of the city’s infrastructure, these initiatives aim to enhance disaster preparedness, optimise traffic management, and support more responsive urban governance.
Furthermore, digital twin has also been applied in the development of toll road infrastructure for Indonesia’s new capital, Ibu Kota Nusantara (IKN). By enabling seamless collaboration among engineers, field personnel, and project stakeholders, the digital twin solution significantly optimised the construction process, eliminating the need for 20,000 truck movements during the early phase and reducing diesel fuel consumption by 32,800 litres. This translated into cost savings of approximately Rp590 million, while also minimising the project’s environmental footprint.
Yet, the integration of digital twin into the financial services sector, particularly for green finance, remains largely untapped, both globally and in Indonesia. This presents a timely opportunity to harness real-time, verifiable data to strengthen ESG monitoring and enhance accountability in green finance.
Building on Indonesia’s existing regulatory landscape, such as the Indonesia Taxonomy for Sustainable Finance Version 2 launched by the Indonesia Financial Services Authority and IFSA Regulation No. 51 Year 2017 on Implementation of Sustainable Finance for Financial Services Institutions, Issuers, and Public Companies, there is an opportunity to pilot digital twin integration in high-impact sectors.
Green bonds issued for renewable energy, smart city developments, or infrastructure projects could benefit from real-time and verifiable performance data. Incorporating digital twin into sustainability-linked loan agreements or ESG risk assessments could enhance transparency while minimising the risk of greenwashing. This approach could also contribute to financial innovation and support Indonesia’s efforts to align with the global standard for climate-related disclosures.
Integrating digital twin into the financial services sector may face challenges, including high implementation costs, limited technical capacity within financial services institutions, the need for interoperable and trustworthy data systems to support seamless integration, as well as evolving regulatory direction surrounding this emerging field. However, these hurdles are not insurmountable and can present an opportunity for innovation.
Indonesia could consider initiating strategic pilot projects, fostering proactive regulatory engagement, and pursuing cross-border knowledge exchange with international jurisdictions already advancing in this space. Such efforts would lay the groundwork for a more transparent, data-driven, and technologically enabled green finance ecosystem.
As Indonesia refines its green finance architecture, adopting digital twin technology could provide a valuable pathway to strengthen ESG transparency, credibility, and accountability. This innovation may serve as a practical enabler to ensure that sustainable investments deliver measurable and real-world impact, as the green finance transition continues to deepen.
The author of this article, Alya Nabila, is a Legal Analyst at OJK. Any opinions expressed in this article are those of the author and do not necessarily reflect the views of Indonesia Expat.