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Surging coal financing casts doubt on banks’ ESG commitments
Coal financing grew 68.95 percent year-on-year (yoy) in June, handily outpacing overall loan growth of 12.36 percent.
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Banking on coal: Excavators pile up coal on June 20, 2024, at a storage facility near the Batanghari River in Muaro Jambi regency, Jambi. (Antara/Wahdi Septiawan)
D
espite their public commitment to environmental, social and governance (ESG) principles, Indonesian banks continue to increase lending to coal-related businesses, including funding for coal-fired power plants supplying electricity to the national grid or mineral smelters.
Analysts point to a lack of concrete timelines for phasing out coal financing and say the trend belies lenders’ sustainability pledges.
They suggest meaningful change would require political pressure from the highest ranks of government, because many of the lenders providing coal-related funding are state-owned enterprises (SOEs).
Data from the Financial Services Authority (OJK) reveals that total outstanding loans from domestic banks reached Rp 7.5 quadrillion (US$472.76 billion) in June, up 12.36 percent year-on-year (yoy).
However, loans to the mining sector grew much faster, surging 28.9 percent in the year to June after experiencing 20 percent yoy growth, with coal financing driving the growth, increasing by a staggering 68.95 percent yoy, up from 33.65 percent yoy in June 2023.
The share of mining loans in total bank lending rose from 3.8 percent to 4.4 percent.
SOE banks account for much of this surge.
