Green money: Environment Minister Gusti Muhammad Hatta (right) and Bank Indonesia governor Darmin Nasution (left) prepare to sign an agreement to improve the financial sector’s role in preserving and managing the environment in Jakarta on Friday. JP/P. J. Leo

“There will be technical meetings between BI and the Forestry Ministry, along with several training workshops,” he said, adding that the ministry would need the help of banks so companies that borrowed from them could help keep the environment healthy.

BI’s Darmin said modern banking systems needed more sophisticated mechanisms in the provision of loans to environmentally friendly firms.

“Environmental issues are becoming more significant, affecting risks for loans disbursed to companies,” he said.

“If a company conducts practices that threaten the environment, its credit should also be threatened. So we are preparing regulations that would factor in environmental issues into the health level of the company, its products and its credit.”

Clear legal ground is expected as the outcome of the two institutions’ cooperation, both officials said, aimed at providing a healthier environment for Indonesians.

Apart from that, tougher ground rules for companies to apply environmentally friendly practices would also eliminate banks’ potential bad credit due to the risks of detrimental practices for businesses, Darmin added.

BI deputy governor Muliaman Hadad said the BI regulation on green banking was actually drafted in 2005, but needed to be evaluated to determine if it was still relevant to support a sustainable commitment to provide a healthier environment.

“We will inform the banking industry about the new regulation once we have sorted things out on paper legally. As for now, we need the cooperation of the Forestry Ministry for the implementation and coordination to make the regulation work,” Muliaman said.

As reported earlier, studies on the green banking regulation have been made since the middle of this year. BI chief researcher Suhaedi previously said the new regulation 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,” Suhaedi said, adding that banks should avoid lending to companies or projects that harmed the environment. (est)

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