OJK: Sustainable Finance Roadmap, Facilitating Financial Services Institutions to Innovate

Nov 24 2015


Financial Services Authority, Jakarta, November 24, 2015: Issues on climate change and other problems in development are interconnected, consequently they require more comprehensive solutions. Potential impacts inflicted by the problems certainly can be minimized through good cooperation between government and related institutions.

In a bid to support the effort to find solutions for development problems due to climate change, Financial Services Authority (OJK), with its role to guard economic development in the aspect of providing funding for development from financial services institution and also as the authority that supervises financial services institutions, also takes part in the effort by issuing Sustainable Finance Roadmap. The roadmap contains guidance and policy direction for sustainable finance development in Indonesia and is a realization of cooperation between OJK and government, particularly Environment and Forestry Ministry.

In effort to support sustainable development, government through cooperation with Centre for Climate Change Financing and Multilateral Policy (PKPPIM), Fiscal Policy Office (BKF) and Finance Ministry, has recently released Strategic Planning and Budgeting for Green Development intended for sustainable development in Indonesia for the period 2015-2019.

"With those efforts, OJK hopes it can help development programs by taking into account other aspects besides economy, namely social and environmental aspects. This is definitely a part of the efforts to support sustainable development in national scale," said Chairman of OJK Board of Commissioners Muliaman D. Hadad.

Apart from that, with the intermediation function that financial services sector carries out, financial sector plays a significant role as an agent that accelerates development and increases economic growth, which eventually can improve social prosperity. Financing the sectors having big multiplier effect can boost sustainable growth. In order to prevent bubble economy, financial sector must work in line with real sector.

Initial step towards sustainable economy can start from financing the industries that have performed environmental and social risk management. Therefore, financial services industry has to conduct screening in each industry that will be financed. For instance, OJK regulations in banking industry require banks to have environmental documents such as a proper environmental impact analysis (Amdal) document at the time when a bank gives financing. The next step is that banking industry also needs to understand contents of the environmental document as it is highly beneficial in identifying environmental and social risks. Public financial services institutions are also required to submit sustainability report to public periodically.

"Among the initiatives that OJK has been done are cooperating with Environment and Forestry Ministry, Energy and Mineral Resources Ministry, Marine Affairs and Fisheries Ministry, Industry Ministry, and other related ministries in effort to educate practitioners in financial services sector so that they understand about strategic environmentally friendly projects.  For instance, banks are encouraged to increase their profit through sectors that have big multiplier effect. This will eventually create a stable and sustainable financial system," added Muliaman.

As for capital market, green bond/green sukuk and environmental insurance have started to be assessed for development. Green bond market continues to develop globally. Total amount of issued green bond in 2013 reached USD 11 billion, but as of mid 2015, global green bond outstanding reached USD 65.5 billion. Green bond is expected to fill in the lack of long-term funding resources that banks provide very limitedly so far.

"Sustainable Finance Roadmap is also expected to facilitate financial services institutions in banking, capital market and non-bank financial industries to continually create innovations in their products and services in accordance with the growing needs in society and also with development," said Muliaman.

The advantages include more access to financing a green economy, which has become government policy. For example, financing for long-term investment through green bond or green index issuance is required in order to develop renewable energy industry, aside from working capital from banks and insurance support.

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