Sustainable Finance Roadmap in Indonesia for the Period 2015-2019

Nov 24 2015


Sustainable development as a new paradigm on achieving economic growth has attracted attention and commitment of many institutions and countries. The issue is so important that the United Nations (UN) cooperated with governments, civil society and other practitioners in economy to formulate sustainable development framework, which is hoped to connect economic interests and environmental sustainability, to provide economic transformation process, to expand access for society to get out of poverty, and to implement law enforcement.

This matter is based on a consideration that social and environmental problems have not been included in economic calculation so far, but have become important elements that require attention. Compromising with profit-oriented interests does not necessarily means legitimating lessened attention and commitment to protect environment and better social life.

Global initiatives from some international financial institutions have been made to support sustainable development. Some of the initiatives are the Rio Declaration, which contains developed countries` commitment to reduce greenhouse gas emission globally and to help developing countries to implement economic development programs that are environmentally friendly as well; the Equator Principles (EP) that is implemented by 70 financial institutions committed not to give loan to projects worth USD 10 million or above if debtor candidate does not comply with the prevailing social and environmental regulations and to follow procedures stipulated in EP; and United Nations Environment Programme Finance Initiative (UNEP-FI), which has been established since 1972 and until 2013 has more than 200 members from financial institutions, including two banks from Indonesia, namely BNI and Bank Jabar Banten.

Other international initiatives include Global Reporting Initiative (GRI). GRI guidelines are adopted from the UN Environment Programme (the donor of UN Development Fund), one of the guidelines for making sustainability reporting. Sustainability reporting is a report made by a company in effort to accountably disclose or communicate to the whole stakeholders about economic, environmental and social performance.

Indonesia as a member of G20 has also shown its commitment in Pittsburgh Summit in 2009 to reduce greenhouse gas emission by 2020. Indonesia`s commitment to cut greenhouse gas emission by 26 percent independently and 41 percent with international support has been realized into National Action Plan on Reducing Greenhouse Gas Emission (RAN-GRK). The plan says that the 26 percent greenhouse gas emission reduction will derive from forestry and peat soil (50 percent), energy and transportation (3.8 percent), agriculture (18 percent), industry (1.8 percent) and waste (5.9 percent). Aside from that, government has also included sustainable development framework in National Medium-Term Development Plan and National Long-Term Development Plan containing four aspects in sustainable development, namely social, economy, environment and institutional.

As one of authorities in Indonesia, Financial Services Authority (OJK) certainly has the role to realize the commitment through sustainable finance program. The program is implemented through cooperation with various parties in order to create financial support for institutions performing sustainable finance principles. Sustainable finance program is not only intended to increase financing, but also to enhance resilience and competitiveness of financial services institutions.

The course of action to enhance resilience and competitiveness is based on a consideration that sustainable finance is a new challenge as well as an opportunity that enables financial services institutions to grow and develop more stably. Furthermore, in effort to achieve it through systematic measures, OJK has cooperated with several related institutions to draft Sustainable Finance Roadmap.

The roadmap is intended to explain about targeted conditions in relation to sustainable finance in Indonesia for medium-term period (2015-2019) and long-term period (2015-2024) for financial services industry under OJK`s supervision, also to set up and to create a milestone of improvement for sustainable finance. This roadmap will function as a reference for OJK, practitioners in financial services industry and other parties having interests in supporting sustainable development, especially government, industry players and international institutions.

In line with high demand on energy to support development, sustainable finance program in early next year will prioritize the efforts to develop new and renewable energy and energy conservation. Indonesia, which is now in need of reasonably high economic growth to take benefits from demographic bonus and to get out of middle-income trap, requires quite large energy supply. Support for energy sector will come with support for developing priority economic sectors, that is sectors having big multiplier effect such as agriculture in general term, processing industry, infrastructure, micro, small and medium and enterprises (UMKM) and energy.

In the long run, fund channeling to strategic industry sectors using sustainable financing concept is expected to boost sustainable economic growth, which will eventually create bigger market for financial services industry. Bigger market will be generated in line with economic growth it produces. That will in time give positive impact to sustainability of financial services sector in particular, and is also expected to decrease Indonesia`s balance of payments deficit.

OJK, being the authority that supervises financial services institutions, wishes to express gratitude and appreciation for International Finance Corporation (IFC) of the World Bank and Swiss State Secretariat for Economic Affairs (SECO) that have cooperated in giving inputs on some alternative studies in developing sustainable finance for this Sustainable Finance Roadmap book. Additionally, OJK also wishes to thank to several parties that have given their contributions on the roadmap, among others are: Financial Services Industry Association, Environment and Forestry Ministry, National Development Planning Board (Bappenas), Agriculture Ministry, Cooperative and Small and Medium Enterprises Ministry, Industry Ministry, Energy and Mineral Resources Ministry, German Federal Ministry for Economic Cooperation and Development (BMZ), Regional Economic Development- Gesellschaft für Internationale Zusammenarbeit (RED-GIZ) and United States Agency for International Development (USAID).

OJK warmly welcomes national and international involvement to support the sustainable finance initiative. Lastly, I hope that our endeavor to build this nation with sustainable finance will be given ease of practice and be guided by Allah SWT. Thank you.

Chairman of OJK Board of Commissioners

Muliaman D. Hadad

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