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OJK to require banks to factor in climate risks starting in 2026
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An illustration of green financing.
(Shutterstock/-)
T
he Financial Services Authority (OJK) is set to require banks to factor climate-related uncertainty into their lending decisions, as experts and international groups say the country’s financial sector may not be sufficiently prepared for the growing risk.
Currently, the OJK only requires banks under its task force for sustainable finance to follow its climate risk stress testing (CRST) program, which will conclude in 2024, but it plans to require all banks to undergo similar testing in 2026.
The stress tests are being used to assess the resilience of individual banks and of the banking sector as a whole against risks from climate change, in addition to more typical economic shocks.
Such testing is in line with calls from international institutions. The Asia Investor Group on Climate Change (AIGCG), which represents investors with a total of US$32 trillion in assets, wrote in August about concerns that climate change risks could be underpriced by many banks in the region.
Anjali Viswamohanan, the director of policy at the AIGCC, also urged financial institutions to "get serious" about analyzing and quantifying their loan risks, especially in industries such as commerce, manufacturing and real estate, which it said were particularly vulnerable to sea level rise.
Yuki M. A. Wardhana, a lecturer at the University of Indonesia (UI), said on Friday that despite the country’s exposure to climate change risk and susceptibility to natural disasters, not many banks in Indonesia had properly accounted for the threats.
