Adjie Harisandi (The Jakarta Post)
Wed April 29, 2015
The Indonesian economy recorded relatively stable growth between 2009 and 2013 with an average annual rate of 5.9%. However, this growth marked an even higher growth in energy consumption during this period, at an average of 7.1 percent per year, outpacing economic growth.
This means that to support economic growth of 1%, even greater growth in energy consumption was needed, amounting to 1.2%. In addition, the environmental degradation caused by this situation should not be lightly dismissed. According to data from the World Resources Institute, Indonesia was the sixth largest emitter of carbon dioxide in the world after China, the United States, the EU, India and Russia in 2011.
Between 2006 and 2010, Indonesia also recorded the highest growth in carbon dioxide emissions among the ASEAN-5 countries (Indonesia, Malaysia, Thailand, Singapore and the Philippines), averaging 5% per year. . In fact, the Indonesian government already has a series of regulations to promote sustainable economic development. An example of such regulations is Presidential Regulation 5/2006 on the national energy policy to achieve an energy elasticity of less than 1 in 2025. There is also Presidential Regulation 61/2011 on the National Action Plan to Reduce Gas Emissions Greenhouse effect. However, progress towards achieving these goals appears slow compared to the above figures.
Recently, the Financial Services Authority (OJK) released a Green Finance Roadmap, which aimed to define the conditions necessary to achieve sustainable finance in Indonesia in the medium and long term, as well as to identify and develop milestones showing improvements related to sustainable finance. .
This roadmap is to be appreciated knowing that the Indonesian economy still presents features of waste in terms of energy consumption as well as environmental degradation.
If you look at the financial markets in Indonesia today, banks still play a dominant role in financing the economy. Data from the Indonesian Stock Exchange (IDX) on the recapitalization of public offerings of stocks and corporate bonds indicate that between 2010 and 2014, an average of 106.150 billion rupees ($ 8.17 billion) was issued.
Meanwhile, the banking sector during the same period has been able to add a total of loans to an average of 447.2 trillion rupees each year. In terms of assets, Indonesian banks still retained the largest value in 2014, at 5.615 trillion rupees. In addition, the Indonesian capital market assets registered in the Indonesian Central Securities Depository and the assets of non-bank financial institutions amounted to Rp 3.2 quadrillion and Rp 1.5 quadrillion respectively (as of September 2014) . This shows that the Indonesian financial markets are still dominated by the banking sector. Therefore, banks may in fact be the key to sustainable economic development in Indonesia.
However, the performance of banks in green finance is still weak. A survey of 29 banks conducted by Bank Indonesia (BI) in 2012 showed that the bank book for green finance only represented 1.28% of the total credit of the banks surveyed. This green portfolio was dominated by hydroelectric mini-micro finance. Moreover, judging by a survey conducted by BI of 16 leading banks in Indonesia in 2012, only 31.3% had a green banking policy. BI regulations have in fact paid great attention to the importance of environmental issues. For example, the BI regulation n Â° 14/15 / PBI / 2012 requires banks to consider the efforts made by debtors to preserve the environment as an aspect of the assessment of credit quality. But it seems that to increase the role of banks in green finance, relying solely on such regulations is not enough.
The financial sector, especially banking, in Indonesia could play a greater role in promoting sustainable economic development. According to a study by Deplhi International Ltd. titled “???? The role of financial institutions in achieving sustainable development â???? presented to the European Commission in 1997, one of the alternative definitions of sustainable development is a development process that leaves at least the same amount of capital, natural and man-made, to future generations as current generations have access.
This clearly shows that sustainable development is closely linked to the distribution of capital not only between economic agents but also between generations and that these are the main activities of financial markets. As a practical example, a bank as a lender can prioritize the chosen projects, whether it is choosing an environmentally friendly debtor or not, energy efficient or not. Banks as lenders also have considerable influence in the management of companies, so they can also help or even guide its debtor to be more aware of the reduction of the environmental impact of its activities. Banks can also develop financial products to encourage sustainable development. For example, the â? ? ? ? ? have been implemented in several countries. The programs provide interest reductions for home loans that meet environmental criteria.
With its power and control over the allocation of capital in the Indonesian economy, the banking sector can certainly have a major impact and accelerate sustainable development in Indonesia. However, the banking sector cannot move on its own. Clear government rules and guidelines should be issued to clarify the application of sustainable finance principles to the banking sector. Simple, clear and unambiguous incentives and disincentives for economic actors should also be put in place to allow all stakeholders to move forward in harmony to achieve these principles. In terms of resources, the skills and capacities of the banking sector and environmental regulators with regard to the principles of sustainable finance should be improved.
Finally, there should be synergy between banking institutions, environmental regulators and local governments in implementing the principles of sustainable finance. All stakeholders must understand that the principles of sustainable finance are in the national interest, and not just in the interest of certain institutions or regions.
The writer is an industry analyst at Banque Mandiri