ESG investment

Digest: Sustainable Indonesian Startups to watch in 2020

FinanceAsia unearths Indonesia’s most exciting and eco-conscious companies to emerge from the country which faces huge environmental problems associated with high-population density and rapid industrialisation.

Jakarta is sinking. The city’s return to the earth, at a rate of 10cm a year according the Bandung Institute of Technology, is anything except gentle.

The city had always been prone to annual flooding during the December to February rainy season, but not like this. In the first two weeks of 2020 alone, extreme inundations killed 66 residents and displaced hundreds of others.

When the floods have passed, the earthquakes and mudslides come. Overcrowding, mismanagement of resources and rising sea levels due to global warming have induced this rash of extreme events across Jakarta - and it will only get worse. 

With funding from the United Arab Emirates government and Softbank, Indonesian leader Joko Widodo has announced plans to move the national capital to Borneo. This may seem drastic, but it is only a temporary solution that - literally - won’t hold water for long unless further action is taken.

Indonesia’s carbon dioxide emissions per capita have more than tripled over the past four decades and continue to grow at an annual rate of 2.2% according to research by the Asia Development Bank (ADB).

The nation of Indonesia holds more than 17,500 islands within its bounds and 81,000 kilometres of coastline. These are highly populated areas: 42 million Indonesians live less than ten metres above sea level and in 2011, the World Bank estimated that a “one metre rise in sea level could inundate 405,000 hectares of land.” 

The archipelago is extremely vulnerable to the economic effects of climate change, which is expected to inflict a loss of -77.93% on Indonesia’s GDP per capita in the next eighty years, the ADB predicts.

As the importance of sustainability rises to the forefront of public thought like never before.

As the world warms, typhoons, floods and other natural disasters will increase and 40% of Indonesians live in areas likely to be hit by these extreme weather events, the World Bank approximates.

For the past four years, extreme weather has ranked as the most likely top global risk by World Economic Forum attendees. As the effects of climate change grow more pronounced, investors will need to adjust their portfolios accordingly.

Indonesia recently launched its Environmental Fund Management Agency in October 2019 with $148 million from land reclamation payments and environmental fines to fund environment-centric companies. 

As the Indonesian government goes about building a new national capital, we have chosen six local startups that will be instrumental in shaping a sustainable, eco-conscious world.

From seaweed cups and mushroom leather to smart cities and AI-powered fisheries, these Indonesian startups have built sustainability into their business models. These companies will build the future of their country and the region; people will be depending on them to find innovative and alternative solutions to preserve nature and better manage resources.

The startups selected by FinanceAsia are young and forward-looking, having recently completed their seed to B round of funding. While some have received venture capital support, sustainability is a community affair; half of the startups profiled have earned government and institutional grants.

MycoTech

Founded by five friends in 2012, MycoTech is led by CEO Adi Reza. The startup manufactures two materials, a wood-like panelling and a leather-esque textile, both created from harvested mushroom fibres.

From a modest mushroom-growing operation in the family kitchen, the MycoTech founders realised the vegetable could be used for more than eating. 

“We started by selling mushrooms as a gourmet food, but we were more interested by the technology aspect,” Reza told FinanceAsia in an interview. “So, we saved our profits and started research.”

Mycelium is among the largest and oldest living things on earth and could also be an alternative to the resource-depleting materials we currently rely on. A cow takes four years to reach maturity, decades more for a tree; in contrast, mycelium grows in seven days at a fraction of the cost. 

In collaboration with labs in Singapore and Switzerland, the startup developed its first product after years of research in 2015. “Our first project was to create a building from mushroom technology,” the chief executive explained, “by replacing parts of particle board with mycelium fibres.”

As testament to this vision, a tree structure stands in the MycoTech headquarters. Made entirely from interlocking panels of mycelium particle board, no screws or adhesives were used to build the structure. 

While a far cry from a home or office building, the tree hints at the technology’s potential. “One day, this material could replace concrete and wood,” Reza believes.

But that’s just the beginning. In 2018, the startup broadened its offerings to include a leather-like material to replace the pollution-prone tanneries that dot the country.

“The leather industry is chemical-intensive,” Reza said. “In Indonesia, leather is sourced from manufacturers without proper facilities to treat the wastewater.” 

The synthetic treatments applied to animal hides are often washed down the drain into rivers and communal water sources. In contrast, MycoTech’s ‘leather’ is naturally dyed and treated. 

The startup sells the materials to commercial vendors; the mushroom leather can be made into watches, purses, shoes, and bags.

The eco-friendly mushroom leather is in hot demand. The startup has 33 buyers now, but there is a long waiting list. With production capabilities of 4,200 square foot per year, the startup is a long way from meeting demand for its goods that Reza says exceeds 50,000 square feet.

Shoes made from the mushroom leather won’t decompose on your feet. In fact, the material takes slightly longer than cotton to break down, the co-founder assures.

MycoTech received six-figures in seed funding from 500 Startups and two angel investors, in addition to government grants totalling $300,000.

MycoTech has more than 200 mushroom farmers growing the fungus from which the mycelium fibre is derived.

The startup is looking to expand outside Indonesia through partnerships with global houseware and clothing retailers - several product launches are coming soon, so be on the lookout for your own mushroom hide recliner.

Warung Pintar

Warung Pintar - meaning ‘smart stall’ in Bahasa Indonesian - is transforming the way the country’s roadside shops conduct business by leveraging customer data to promote more sustainable and profitable practices.

Founded in 2017 by Agung Bezharie Hadinegoro, Harya Putra and Sofian Hadiwijya, this startup is combining the latest in data analytics and artificial intelligence to bring these small stalls into the 21st century.

“In the process of digitising warungs’ supply chains, we are building up a B2B procurement model that is more transparent,” Warung Pintar chief executive Agung Bezharie Hadinegoro told FinanceAsia.

Roadside stalls sell fast moving consumer goods (FMCG) including cosmetics, processed foods, bottled drinks and dry goods like coffee and tea. Most of these items are traded through traditional marketplaces in Indonesia - this is both inefficient and wasteful.

With Warung Pintar’s help, stall owners can cater more accurately to the customer's preferences while also making better choices about where to source goods from.

“Supply chain management provides opportunities through which private sector companies can extend their influence in pollution control,” the World Bank noted in a guidance report

Warung Pintar raised $27.5 million in a B round of funding last year, with contributions from LINE Ventures, Pavilion Capital and East Ventures. This brought total funding to just over $35 million to date.

The startup has put this capital towards expanding supply chain capabilities and broadening its geographic base.

Hadinegoro started Warung Pintar as a hobby while working for venture capital group East Ventures. After quitting his consulting role to develop the side project into a business, his VC former employer was among the first backers.

The startup gives kiosks a makeover: electric yellow paint, not to mention wi-fi for customers, digital point-of-service (POS) and mobile phone charging stations. Warung Pintar claims to boost profitability of these stalls by 41% on average and as of February 2020 more than 10,000 have joined.

As more warungs sign on, Hadinegoro is looking to expand the scope of his business to help modernise the supply chain of his clients. This means moving into rural areas, where the startup’s penetration rate is still low.

Supporting community-based micro-businesses is at the startup’s core; Warung Pintar acquired Indonesian farm-to-market tech platform LimaKilo last year.

Evoware

Founded by David Christian in 2016, this Jakarta-based manufacturer of biodegradable containers and shopping bags is on a mission to reduce plastic consumption in Indonesia and around the world.

There is a serious need for Evoware’s goods. Over 75% of all plastic ever produced is now waste, according to the WWF. 

The startup has received funding from notable institutional investors like DBS Bank along with grants from international environmental advocacy groups.

Most recently, Evoware joined the Ellen MacArthur Foundation’s New Plastics Accelerator programme after launching its biodegradable sachet product. Made from organic material, the small packet can hold sugar, flavourings or other dry goods and will dissolve in hot water.

Asides from sachets, the company has sold approximately 8.5 million straws, 4.5 million bags and 1.2 million bottles, as well as thousands of cutlery pieces and cups.

The cups, containers, plates and more produced by Evoware have a shelf life of two years; the company estimates more than 15 million plastic items have been replaced by its own products.

Evoware won the international Circular Design Challenge award in 2018 for its tasty answer to plastic consumption and waste. As well as biodegradable, the startup’s containers are edible, thanks to the farmed seaweed they are made from.

The startup is well located given its reliance on the marine plant. Indonesia is the second largest producer of seaweed in the world after China, accounting for 38% of the global market, according to international NGO Rikolto.

Many small fishing communities along the country’s coast operate small-scale seaweed farms on the side. The crop requires minimal feeding and is generally low maintenance.

“[The seaweed industry] also does not require elaborate set ups and causes little harm to the seabed and fishery resources,” a report by the United Nations’ Food and Agriculture Organisation noted.

QLUE

Founded by Rama Raditya and Andre Hutalung in 2014, QLUE started out as a civic engagement application where people could report problems in their neighbourhood. The startup has since morphed into an artificial intelligence-backed data aggregation tool with aspirations to become the country’s first smart city super-platform.

“We are a subscription-based software solution for smart cities,” Raditya told FinanceAsia. “The main idea is to capture problems as much as we can, as accurately as possible and as soon as possible.”

The startup specialises in traffic control and smart governance solutions, two very real issues facing Indonesia’s embattled capital. Jakarta is the world’s third most polluted city after Mexico City and Bangkok; local government research found that air pollution costs the city roughly $9.2 million a year to clean up.

By monitoring and manipulating traffic flow via traffic lights and street planning, QLUE’s data-based solutions could have a very real impact on the daily lives - and deaths - of city residents. 

Jakarta alone recorded over 10,000 deaths due to pollution from particulates and chemicals in the air in 2010. Researchers predict this figure will reach 16,400 by 2025. Already, 57.8% of residents in Indonesia’s most populated city suffer from illnesses attributed to air pollution, a United Nations investigation found.

Lowering this figure will be high on the government’s list of priorities as it sets about building the new capital city. More than half of the world’s population lives in cities and this figure is expected to reach 70% by 2050, according to the United Nations.

“Cities are the most efficient way for humans to live and this efficiency creates wealth,” a February 2020 Schroders report noted. “[But] like tech stocks, only a select group of cities will succeed.”

Indonesia is determined that its new capital will be one of the select few and QLUE has partnered with the Indonesian government to build the nation’s new ‘smart city’ in Borneo. 

While the new capital city is being built, QLUE continues to roll out its services across the country in both the public and private sectors. The startup has a presence in every province across Indonesia and more than half the nation’s cities. 

Its services for private companies extend beyond traffic control. In its mobile phone app form, users can report crimes to authorities and monitor suspicious customers. 

The startup has also partnered with the National Police Force to help track criminals with an in-house facial recognition software that can be used for people counting, intrusion detection, vehicle classification and licence plate recognition.

Currently profitable, QLUE is amid another funding round to fuel expansion within Indonesia. The startup has tested the software in Malaysia, but for now its focus is at home.

eFishery

Founded in 2013 by Gibran Huzaifah, Muhammad Ihsan Akhirulsyah and Chrisna Aditya, digital fish feeding company eFishery cinched its Series A round of funding in 2019.

The Indonesian agritech startup has raised $5.2 million to date from VCs including 500 Startups and Wavemaker Partners, in addition to a grant from the GSMA Ecosystem Accelerator.

eFishery is banking on Indonesia’s hearty appetite for seafood. The nation’s fisheries netted $4.6 billion in 2019, while Indonesia’s total aquaculture production topped 6.2 million tonnes in 2017, according to UN Food and Agriculture Organisation data.

Globally, half of all seafood we consume is farmed and the impact of the practice on the environment is significant. Excess fish food releases harmful levels of nitrogen and phosphorus into the water, causing algae blooms that choke the ecosystem’s sunlight and oxygen supply.

The frequency and severity of algae blooms increase as water temperatures rise. If the world stays on its current track of global warming, surface water temperatures of oceans will increase up to 4 degrees Celsius by the end of the century a 2013 Intergovernmental Panel on Climate Change report found.

“Algal blooms endanger human health, the environment and [the] economy,” the US Envronmental Protection Agency reported in 2019. Their effects will only grow worse if left unchecked.

One way to reduce the risk of algae blooms is to reduce the amount of organic waste in the oceans. eFishery uses automated mechanisms to distribute food. This eliminates the twin issues of overfeeding and underfeeding - both of which severely impact fish and shrimp farmers’ bottom lines.

Aquaculture farmers can download the eFishery app and use it to create an automatic feeding schedule. In-water sensors detect vibrations caused by fish movement to gauge the school’s hunger and dispense food accordingly. This cuts costs for farmers and reduces accumulated waste in the ecosystem. 

Hundreds of aquaculture farms in 19 provinces across Indonesia currently use eFishery’s feeder services and are reaping the environmental and economic rewards. Co-founder and chief executive Huzaifah claims that farmers see an average revenue increase of 50%.

The startup is profitable and in the process of testing markets overseas in Bangladesh, Vietnam and Thailand. As eFishery looks at expanding abroad, it has also increased its offerings at home.

Last year, the startup launched an online fish and seafood grocery store in partnership with farmers using its feeder product. Customers can pick from a variety of fish species and see from which farmer their order is coming from.

KLIN

Medical waste management startup KLIN - which stands for Kebersihan Lingkungan Indonesia National - is a Bali-based company founded by Arnaud Quetat-Riou and Tristan de Gouvion Saint Cyr in 2013. The startup is tackling two issues plaguing the islands: rising mountains of medical waste and a wave of marine pollution. 

The latter problem is highly visible and affects the community every day. “When local fishermen cast their nets, they get some fish and the other half is trash,” Quetat-Riou explained. 

Government authorities are well-aware of the problem and last year committed $1 billion to tackling the literal ocean of debris engulfing the archipelago. But reducing plastic use is a partial solution. KLIN, which has a use for these non-recyclable plastics, has found a complete answer - and it involves more waste.

The World Health Organisation estimates hospital beds in developed countries produce half a kilogram of waste a day, while that figure falls to 0.2 kg in developing nations. These materials may be infectious or contaminated, making their disposal a highly regulated and tiresome process.

KLIN is hoping to ease this burden on hospitals in Indonesia, which often dispose of waste in unsustainable ways. Sounds straightforward, but before launching, Quetat-Riou had to secure more than 28 licences from the government, a process which took nearly six years.

The KLIN factory finished construction in December 2019. Now operational, the startup charges to collect waste from Bali’s hospitals and encourages fishermen to collect non-recyclable plastics from the sea, for which it pays a small fee.

These two elements, medical waste and non-recyclable plastic, are the key ingredients in KLIN’s recipe for eco-friendly incineration.

“The technology that we used to process waves that's been around for 50 years, but we brought kind of a fresh twist to it,” the chief executive said.

The plastic is processed into combustible bricks before being used as fuel. “We bring the chamber to a high temperature with the waste and plastic inside,” he said. Instead of burning, the high heat splits the matter into its base molecules of gas, liquid and solid. This provides the energy necessary to process the medical waste.

No gas is used in the incineration process, which reduces emissions to nearly zero. Leftover ashes are given to local construction companies to use in asphalt.

While KLIN currently operates one factory, the technology behind the incineration process is highly transferable. “This is highly scalable,” co-founder and strategic advisor de Gouvion Saint Cyr noted.

The startup is a healthy bet for investors because it is one of the only foreign firms in Indonesia to gain access. “International waste companies have tried public and private partnerships, they have put a lot of money on the table and gotten absolutely nowhere,” de Gouvion Saint Cyr added.

Bootstrapped until now, the startup is looking to take on outside capital as it eyes enlarging the size of its factory and reach. Its demands are modest; KLIN seeks approximately $5 million to meet capital requirements.

¬ Haymarket Media Limited. All rights reserved.