COST OF CAPITAL AND CLIMATE RISK IN THE INDONESIAN BONDS MARKET

Abstract

This study analyzes the impact of climate risk, cost of capital, and macroeconomic variables on the Indonesian bond market, focusing on non- environmental and social (ESG)-aware and ESG-aware bonds. The findings reveal the growing significance of ESG factors in the Indonesian bond market, with climate risk negatively impacting ESG-aware bond yields. Our study suggests that policymakers should prioritize initiatives that incentivize green investments and make the industry more aware of ESG factors. Overall, this study provides valuable insights for policymakers and investors on navigating the Indonesian bond market and implementing strategies that align with ESG values.