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[ANALYSIS] Improving sustainable finance in Indonesia
As for now, Indonesia and China are entering the maturing stage of 38 countries in the Sustainable Banking Network (SBN), initiated by the International Financial Corporation (IFC).
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T
he COVID-19 pandemic has changed the views of investors who do not only look at the profit side but also see the sustainability aspects of a project. Sustainability practices have become an important factor embedded in the business and operational activities as consumers and the government are more aware about values and risk on social and environment aspects.
As for now, Indonesia and China are entering the maturing stage of 38 countries in the Sustainable Banking Network (SBN), initiated by the International Financial Corporation (IFC). This assessment is based on the extent to which sustainable finance has been implemented and what impact it has had. One way this is gauged is by measuring banks that participate in green finance.
Chinese banking regulators and central banks have issued guidelines to improve Chinese banks' ESG practices and accelerate green lending since 2012. Green lending by Chinese banks totaled US$1.37 trillion in the first quarter of 2019, up 4.3 percent from the beginning of the year and worth 9.9 percent of total loans.
The Indonesian regulator, the Financial Services Authority (OJK), introduced a 10-year strategic road map for sustainable financial market development in 2014. This was followed by an umbrella policy to green the entire financial system, a set of sustainability reporting requirements, a definition of green loans and a green bond framework. With the guidance and supervision of the OJK, eight major Indonesian banks have initiated the implementation of policies to systematically green their investment portfolios.
Indonesia, which has passed stage I of the strategic sustainable finance plan (2014-2019), is in the process implementing the road map for Phase II of Sustainable Finance (2020-2024). In Phase I, activities to strengthen sustainable finance are focused on the basic regulatory framework and reporting system, increasing understanding, knowledge and competence of human resources in service industry players.
The achievement of the road map for sustainable finance Phase I has shown that Indonesian banks have begun to perceive this as something important for sustainability in banking practices. The achievement of Phase I of the sustainable finance initiative is seen from four aspects, namely policy, regulation, awareness and collaboration (institutional cooperation).
The policy aspect emphasises that banks participating in green finance need to implement eight principles of sustainable finance, the Sustainable Finance Action Plan (RAKB), the allocation of Social and Environmental Responsibility Funds and a sustainability report. From the regulatory aspect, the OJK has issued regulations regarding sustainable finance, green bonds, incentives to reduce levies by 25 percent of registration fees and green bond registration statements, as well as technical guidelines for banks on implementing the voluntary OJK Regulation No. 51/2017 on the implementation of sustainable finance for financial services institutions.
