Adaro’s coal spin off: A test of its green transition

PT Adaro Energy Indonesia plans to sell its thermal coal mining unit, valued at US$2.5 billion. This move could redefine Indonesia’s second largest coal producer. But is this a bold leap towards a greener business model, or just a strategic PR play?

First flagged in 2021, Adaro’s decision to finally spin off its coal business marks a pivotal moment in Indonesia’s energy landscape, sending strong signals to both domestic and international markets. For a company that has thrived on coal profits, this move shows that even Indonesia’s most established coal players are feeling the pressure of the global energy transition.

While Adaro frames the sale as part of its alignment with the global trend, the move will face intense scrutiny, particularly as it unfolds via a public offering.

This is Adaro’s opportunity to prove its commitment to a more sustainable business and demonstrate leadership in responsible divestments. How it navigates the sale will define its sustainability narrative moving forward.

The scrutiny of coal divestment

Fossil fuel companies are under the microscope for their green claims. As the world’s largest exporter of thermal coal, Indonesia—and by extension, Adaro—is at the heart of this global spotlight.

Presumably, Adaro is spinning off its coal business to attract a new investor base—one focused on sustainability and long-term value in a low-carbon future. These investors want more than simply offloading coal operations, typically seen as a token gesture and an abandonment of responsibility. They want to see genuine commitments to sustainability. That’s the challenge for Adaro.

A public offering opens the door to a wide array of shareholders, an extra layer of complexity. If the buyers aren’t committed to reducing emissions, it could backfire on Adaro, as seen in past examples such as Australian mining giants Rio Tinto and BHP, where their coal exits were criticised for not reducing coal production but merely shifting the carbon burden to other players.

While Adaro can’t directly control who buys shares in a public offering, it can influence the process. Targeting and engaging ESG-conscious institutional investors and funds with ‘just transition’ mandates as potential buyers would not only align the sale with climate-friendlier goals but also foster a shareholder base committed to minimising the environmental impact of coal operations.

A responsible divestment will be key to securing the capital and partners necessary to build that green profile.

Avoiding the greenwashing trap

The greatest risk Adaro faces is being accused of greenwashing—selling off coal assets while turning a blind eye to how those assets will be managed. If the new owners prioritise profits over climate responsibility, Adaro’s sustainability profile could take a hit.

To mitigate this, the company should consider innovative steps such as linking the sale to near-term climate goals. For example, this could involve Adaro taking a discount on the sale if the new entity—under new ownership—meets specified emission reduction or phaseout targets, akin to the sustainability-linked financing concept. While rare and untested in a public offering situation, this approach would help Adaro avoid the greenwashing narrative and reinforce its long-term commitment to Indonesia’s energy transition.

This could prevent the perception that Adaro is simply offloading the problem.

The real test: Adaro’s post-divestment strategy

Selling coal assets is only half the equation. What really matters is what Adaro does next.

Investors will be watching closely to see what the diversified coal giant does next with its other coal-related businesses, including the coal power generation, and how the company reinvests the proceeds. If the capital is poured into renewable energy projects, energy storage, or critical minerals like nickel and aluminium, at scale—while meeting international sustainability standards—it could solidify Adaro’s shift away from coal.

To maintain credibility, Adaro needs a clear post-divestment roadmap, showing measurable milestones toward its goal of generating over half its revenue from non-coal sources by 2030, for example. By setting near-term targets and outlining exactly how proceeds from the sale will support green investments, Adaro can give stakeholders something tangible to track. This transparency will be key to maintaining investor confidence and strengthening Adaro’s sustainable finance profile.

A Defining Moment for Adaro’s Green Strategy

Ultimately, how Adaro handles this spin off could define its role in Southeast Asia’s energy transition. This isn’t just about divesting from coal; it’s about showcasing real leadership for the coal sector in moving towards a greener, more sustainable business model. If Adaro plays its cards right—by aligning the sale with clear climate or phaseout goals and doubling down on its green energy ambitions—it could emerge as a front-runner in the region’s shift to cleaner energy.

This sale isn’t just a financial transaction; it’s a litmus test for Adaro’s commitment to sustainability.