Indonesia's Financial Services Authority (OJK) Releases Sustainable Finance Roadmap
Indonesia's Financial Services Authority (OJK), the government agency that regulates and supervises the financial services sector of Indonesia, released a roadmap for the development of the sustainable finance sector, both for the middle-long period (2015-2019) and the long-term period (2015-2024). OJK Chairman Muliaman Hadad explained that these roadmaps, made in cooperation with the Ministry of Forestry and Environment, contain guidelines and directions for the development of sustainable finance in Indonesia.
The main theme of sustainable finance is to generate profit while taking into account sustainability of the environment. Through these roadmaps Hadad hopes that those sectors that potentially damage the environment will receive less bank financing in the future. Examples of such sectors are agriculture, energy, and fishery. Or in case bank financing cannot be reduced in certain sectors, then there has to be the good intention of conducting business in such a way that the environment experiences the least possible negative impact.
Eight banks are involved in the first phase of the program: Bank Artha Graha Internasional, Bank Central Asia (BCA), Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank BRI Syariah, Bank Mandiri, and Bank Jawa Barat dan Banten. These banks will implement the new guidelines in January 2016. Hadad hopes to see more banks participate in the program. There are currently 118 banks in Indonesia.
The OJK also involves the capital and insurance markets in the roadmap through the development of green bonds (used to finance projects that have a positive environmental impact). Globally, green bonds have gained momentum with a value that has risen from USD $11 billion in 2013 to USD $65.5 billion in mid-2015. Non-bank financial institutions are encouraged to provide insurance protection to companies that uphold environmentally friendly practices.
Leonard Tampubolon, Deputy Minister for Economic Affairs at Bappenas, said the financial sector is one of the decisive forces that contribute to, whether or not, Indonesia can achieve its sustainable development goals. However, the availability of funds is limited amid persistent uncertainty in the financial markets ahead of looming higher US interest rates and China's economic slowdown.
The commitment of the eight Indonesian banks to take into account sustainable environmental practices when making lending decisions (for example in the controversial palm oil sector) is important to safeguard the environment and sets a good example for other banks that are yet to join, says Tampubolon.
Budi Gunadi Sadikin, General Director at Bank Mandiri, said his company received USD $200 million in funding facilities from France-based Agence Francaise Developement (AFD) to be used for sustainable finance. Other institutions, such as the Washington-based International Finance Corporation (part of the World Bank Group) and the United States Agency for International Development (USAID), are also eager to participate in this program. Bank Mandiri targets to finance projects such as biomass power generation technology or micro hydro power.
Swiss-based World Wide Fund for Nature (WWF) stated in a report released in May 2015 that only four major banks in Indonesia, Malaysia and Singapore have been using environmental factors as part of their credit-decision process so far.