BI working on new regulation so banks can back green projects

Bank Indonesia (BI) and the Environment Ministry are currently formulating a set of regulations so that banks can take a wider financing role in green projects.

BI chief researcher Suhaedi said in Jakarta on Tuesday that the policy may require banks to include environmental risks during the due diligence process, when banks assess the qualities of their potential borrowers.

“The due diligence process in loan disbursement needs to be toughened up and environmental impacts need to be included among the lending requirements,” he said in a discussion at the Dharmawangsa Hotel in Jakarta.

According to Suhaedi, banks needed to avoid lending to projects or companies which could cause harm to the environment.

“There are risks to the loans, other than credit risks, but also concerning regulations and reputation risks,” he added.

The policy, which is currently still being discussed with the environment ministry, may mix the BI regulation (PBI) on risk management and regulation No. 32/2009 on environmental protection and management, according to the materials presented in the discussions.

Suhaedi explained that a green banking policy would include risk management for commercial banks in hopes of improving environmental protection.

In a simulation presented to seminar participants, Suhaedi showed that after filing for a loan application, companies or projects seeking green finance will need to go through an assessment of environmental risks before being approved by the lender.

That way, Suhaedi said, banking practices will support sustainable development.

BI, he added, views green banking as part of sustainable development in the banking system. “The BI role in the stability of the financial system is highly relevant to the principles of sustainable development in banking practices.”

By applying environmentally friendly regulations, banks are expected to become role models in sustainable development, he said.

“[But the policy] would not be introduced this year. It has not been decided yet. We’ll see when,” he told reporters after making a presentation.

Fransisca Nelwan Mok, a managing director of corporate banking at Mandiri Sekuritas, agreed that banks needed to take a role in saving the environment.

“Climate change is a certainty and banks could play a role in fulfilling the government’s target to reduce emission,” she said.

Loans for environmental-friendly projects and companies differ from other regular loans, Fransisca added, mentioning longer tenure and more competitive interest rates.

Up to the first half of this year, the country’s largest bank by assets, Bank Mandiri, booked Rp 49.6 trillion in loans for environment-friendly projects. (est)