Legal Accountability for Climate-Related Financial Risk and Greenwashing

Reconstructing Sustainable Finance Law in Developing Countries through Indonesia's Regulatory Experience

Abstract

Climate change has become a systemic financial risk, prompting the incorporation of sustainability considerations into financial regulation. However, the rapid expansion of ESG disclosure requirements and sustainable finance has not been matched by equally robust mechanisms of legal accountability, thereby increasing the risks of greenwashing and investor harm. This study analyzes global developments in climate-related financial regulation, evaluates Indonesia's sustainable finance legal framework, and develops a model of legal accountability for greenwashing. Employing normative legal research with comparative-transnational and regulatory governance approaches, the study examines international standards and Indonesia's regulatory framework, particularly policies issued by the Financial Services Authority (OJK) and the Indonesian Sustainable Finance Taxonomy (TKBI). The findings reveal a persistent gap between sustainability disclosure obligations and mechanisms for verification, supervision, and legal accountability. To address this gap, the study develops the Climate Financial Liability Framework, which integrates four interconnected pillars: materiality-based disclosure, independent sustainability assurance, risk-based supervision, and legal liability for greenwashing. The framework reorients sustainable finance governance from disclosure-based regulation toward accountability-based regulation. The study concludes that strengthening Indonesia's sustainable finance regime requires clearer ESG verification standards, more effective climate-risk-based supervision, proportionate liability mechanisms, and closer alignment with international sustainability standards. The proposed framework offers a regulatory model for strengthening market integrity and investor protection in Indonesia and other emerging economies.