Green banking practices are badly needed to ensure sustainable development in Indonesia.

To be honest, most business activities in the country today tend to emphasize the achievement of financial profits and ignore environmental conservation, thus creating a number of ecological disasters that have caused increased environmental degradation.

Air, soil and water pollution, erosion, floods, forest fires, landslides and land subsidence are a few examples of common ecological disasters that we often witness and experience in this country. To a certain extent, these disasters are triggered by business activities that ignore the protection of the environment.

Actually, with its ability to finance projects, Indonesia'€™s banking industry can play a pivotal role in protecting the environment and in helping create business entities that are more environmentally friendly by implementing the so-called green banking concept.

Simply put, green banking can be defined as promoting environmentally friendly practices by adopting environmentally responsible financing.

According to P. Sahoo and BP Nayak (2008), green banking strategies involve at least two elements.

First, managing environmental risks. Banks have to design proper environmental management systems to evaluate the risks involved in the investment projects.

The risks can be internalized by introducing differential interest rates and other techniques. Moreover, a bank can refrain from financing high-risk projects.

Secondly, identifying opportunities for innovative environmentally oriented financial products and services that support commercial development with environmental benefits. These includes investment in renewable energy projects, biodiversity conservation, energy efficiency, investment in cleaner production processes and technologies, bonds and mutual funds meant for environmental investments, etc.

One of the main objectives of green banking is to maintain an ecological balance, which in turn will ensure the realization of sustainable development.

Through the concept of green banking, banks must be more selective in distributing loans and investments to their customers. Apart from that, they must also actively educate each of their customers in environmentally friendly business practices.

In this respect, bank customers are encouraged to always consider environmental risk factors in any business they run if they want to keep on gaining financial support from the banking industry.

So far, Bank Indonesia (BI) and the Environment Ministry have signed a memorandum of understanding to cooperate on establishing ground rules for environmentally friendly banking practices.

BI, as the central bank, has also issued a regulation, namely Peraturan Bank Indonesia No 14/15/PBI/2012 on commercial bank asset quality assessment, particularly with regard to environmental aspects.

What BI has done constitutes the initial moves to encourage Indonesia'€™s banking industry to put more emphasis on the preservation of the environment by lending more to environmentally friendly customers and to limit lending to non-environmentally friendly ones.

And in line with the Bank Indonesia directive, several Indonesian banks have now initiated green banking practices. Take, for example, the nation'€™s biggest bank by assets, state-owned Bank Mandiri. The bank has cooperated with Agence Française de Développement (AFD) to actively finance some renewable energy and energy efficiency projects in Indonesia.

State-owned Bank Negara Indonesia (BNI) has also started implementing a green banking policy. Aside from having introduced green mortgages in Indonesia, BNI has been assigned by the Environment Ministry to become a bank to channel soft loans for environmental projects, such as the Pollution Abatement Equipment scheme, which was funded by the Japan Bank for International Cooperation (JBIC) and German financing firm Kreditanstalt für Wiederaufbau (KfW). Under the scheme, BNI grants soft loans for investments in pollution control equipment and industrial efficiency to Indonesia'€™s SMEs.

Surely, we hope that eventually all banks operating in our country will be able to fully implement green banking policies so that they can contribute more to the creation of business activities that not only focus on generating huge financial profits, but also focus on generating substantial benefits for the preservation of our environment.

The author is a freelance writer based in Cimahi, West Java

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