Indonesia Makes Significant Progress in Sustainable-Finance Reforms

The FINANCIAL -- Emerging markets have become a major force in driving development and fighting climate change as 34 countries have initiated banking reforms to expand sustainable lending, according to the first comprehensive Global Progress Report of the Sustainable Banking Network, an IFC-supported organization of banking regulators and associations.

Those 34 countries account for $42.6 trillion in bank assets—more than 85 percent of total bank assets in emerging markets. Some are wealthier than others, but all of them have made progress in advancing sustainable finance. Eight countries—Indonesia, Bangladesh, Brazil, China, Colombia, Mongolia, Nigeria, and Vietnam—have reached an advanced stage, having implemented large-scale reforms and put in place systems for results measurement. These reforms require banks to assess and report on environmental and social risks in their lending operations and put market incentives in place for banks to lend to green projects.

"This progress is an important step toward achieving the Sustainable Development Goals by 2030," said Ethiopis Tafara, IFC's Vice President for Legal, Compliance Risk and Sustainability. "It shows that even the poorest countries can adopt sustainable finance reforms. The Sustainable Banking Network has demonstrated in a short time how much can be achieved when regulators, policymakers, trade associations and development institutions collaborate to advance sustainable finance."

The report provides practical indicators and tools for countries to apply to their own domestic markets, regardless of their size or stage of development. This is important because it facilitates learning by all members and accelerates the pace of change. It is based on an innovative results-measurement approach that has been agreed by all 34 member countries—a remarkable achievement that is breaking new ground for measuring progress at the global level.

"The intention of the report is to provide practical information to SBN member countries to help them develop public policy. It is a useful guide not only for regulators and the governments, but also for banks, steering them towards what they could and should do from the bottom up," said Edi Setijawan, Sustainable Finance Director, Indonesia Financial Authority (OJK), and a co-Chair of SBN Measurement Working Group that led the development of the unique methodology behind the report.

The report positively underscores Indonesia's Financial Services Authority (OJK)'s comprehensive Sustainable Finance Roadmap, which includes 19 medium and long-term activities to be conducted between 2015 and 2024. The Sustainable Finance Umbrella Policy released in July 2017 was a major milestone of the Roadmap, which introduces requirements such as the preparation of a sustainable finance action plan and sustainability reporting for the largest banks. OJK has also established a number of initiatives to support further adoption of sustainable practices across the banking sector, including the creation of a Sustainable Finance Forum and an annual Sustainable Finance Award. 

Because the new policy covers the entire financial sector, including non-banking institutions, pension funds and insurance, the report suggests practical guidance to assist financial institutions in managing the specific environmental and social risks of their activities. Guidance such as definitions, tools and methodologies could also help encourage green finance flows. The report also points to developing fiscal and non-fiscal incentives for financial institutions and increasing internal capabilities to monitor the implementation of the Sustainable Finance Action Plans produced by banks.


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