Jakarta, March 4, 2024. The Financial Services Authority (OJK) continues to realize real support for the development of sustainable finance in Indonesia towards achieving the Net Zero Emissions (NZE) target in 2060 through the signing of NZE support commitments by seven banks and the launch of the Climate Risk Management & Scenario Analysis (CRMS) guide.

OJK and the banking industry's support for climate change risk management was conveyed at the Indonesian Banking Road to Net Zero Emissions event which was opened by OJK Chairman of the Board of Commissioners Mahendra Siregar accompanied by OJK Chief Executive of Banking Supervision Dian Ediana Rae in Jakarta, Monday.

On the occasion, Chairman of the OJK Board of Commissioners Mahendra Siregar said that OJK as a regulator in the financial services sector has taken concrete action in formulating strategies and policies to support Net Zero Emission obligations.

"We published four products and one internal product in the OJK Road to Net Zero Emission because as an organization we must have a commitment step and a strategy of activities carried out in fulfilling the Net Zero Emission," Mahendra said.

Meanwhile, Chief Executive of Banking Supervision Dian Ediana Rae said that CRMS is part of a series of OJK policies in supporting sustainable finance.

"The CRMS guidelines are expected to be a bridging policy before the enactment of international standards related to the management and supervision of climate-related financial risks. In its application, this guide also cannot stand alone and is closely related to supporting the implementation of OJK's current and future sustainable finance policies," Dian said.

The issuance of the CRMS guide aims to assist banks in measuring climate impacts on their business performance and sustainability through standardization of climate risk management frameworks, establishment of uniform scenarios and methodological frameworks, and supported by data sources and references.

CRMS is an integrated framework covering aspects of governance, strategy, risk management and disclosure to assess the resilience of banks' business models and strategies in the face of climate change in the short, medium and long term.

The CRMS guide consists of six books that are a complementary whole. The first book is the climate risk management framework which is supported by five other books namely:

1. Technical guidance on climate risk measurement;
2. Carbon emission calculation methodology;
3. Supporting data on Indonesia's physical risk potential;
4. Supporting data for Indonesia's macroeconomic projections; and
5. Working paper on reporting climate risk impacts and carbon emissions from banks to OJK.

The concept of CRMS is to find the balance by implementing appropriate transition policies so that transition risks and physical risks can be better controlled. Banks are expected to know the impact of each climate scenario on changes in their performance early by considering the main drivers of climate risk, namely physical risks such as potential disasters and transition risks such as carbon prices as the main trigger for changes in debtor conditions.

This will ultimately encourage banks to determine business strategies and risk mitigation towards the transition of financing allocation from carbon-intensive sectors to a low-carbon economy.

The climate risk aspect is one of the important aspects in making financing decisions to ensure the sustainability of the investment portfolio. Integration of climate-related risks into governance, business strategy, and risk management framework is crucial as a form of application of the precautionary principle and the principle of just and fair transition for all in realizing the achievement of NZE in 2060 or earlier.

The CRMS guidelines are motivated by various factors including Indonesia's geographical vulnerability, the development of global commitments, and international standards related to climate change issues, especially in the banking sector.

In line with the global policy direction, several countries in the world have also initiated the application of climate risk management to the banking and other financial industries.

To strengthen the implementation of climate risk management, OJK has mandated the integration of climate risk in the banking sector through the issuance of POJK No. 17/2023 concerning Commercial Bank Governance which regulates the obligation to implement climate risk in aspects of governance, strategy, and banking risk management.

The preparation of the CRMS Guidelines has taken into account common practices and international standards that are adapted to the Indonesian context and national interests.

Of course, this CRMS guidance will be a living document that will be updated regularly in accordance with global policy direction, best practices in the financial industry and stakeholder demands.

The CRMS guidance is expected to be a bridging policy before the enactment of international standards related to the management and supervision of climate-related financial risks. In its application, this guide also cannot stand alone and is closely related to supporting the implementation of OJK's sustainable finance policy going forward, namely as:

1. Encouraging the involvement of banks in the Carbon Exchange as stipulated in POJK No. 14/2023 as an option to reduce the risk of carbon emissions for banking financing assets.
2. Technical guidance in the implementation of Climate Risk Management for Banks as mandated by POJK No.17/2023.
3. Encouragement of banking involvement in the issuance of Debt Securities/Sustainable Sukuk (EBUS) instruments as stipulated in POJK No.18/2023.
4. Risk measurement tools for banking financing assets, especially in the high carbon sector, refer to the Taxonomy for Indonesian Sustainable Finance (TKBI) criteria as an effort to reduce risk, so that banks will strive to encourage the transition of financing in accordance with the direction of the taxonomy.

On this occasion, there were seven banks namely Bank Mandiri, BNI, BRI, BCA, CIMB Niaga, Bank Syariah Indonesia and Bank Jabar Banten that committed to provide support in the form of participation and concrete steps to achieve Indonesia's NZE target. In addition, collaboration and synergy with institutions are the main milestones for the successful implementation of climate risk management in banking. Appreciation is given to the parties who have contributed to the preparation of the CRMS guidelines, including KLHK, BNPB, BMKG and Prospera.

Climate Risk Management & Scenario Analysis can be downloaded in the following links:

Book 1_Overview - CRMS OJK 2024.pdf
Book 2_Technical Guidelines - CRMS OJK 2024.pdf
Book 3_Carbon Emission Calculation Method - CRMS OJK 2024.pdf
Book 4_Macroeconomic Data - CRMS OJK 2024.pdf
Book 5_Disaster Data - CRMS OJK 2024.pdf
Book 6_Worksheet - CRMS OJK 2024.pdf