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Towards a sustainable financial system in Indonesia

Volz, Ulrich
External Publications (2015)

Geneva: UNEP

Placing Indonesia’s economy onto a green and sustainable development pathway, as envisaged in the National Long Term Development Plan, will require a large mobilisation of investment. Funds for this investment will need to come from both the private and public sectors, including both domestic and international sources. Today, the majority of Indonesian banks, as well as non-bank-financial institutions, do not consider environmental, social and governance factors in their lending or investment process as a main consideration. While climate change is seen as a threat to Indonesia’s long-term economic development, lending and investment horizons remain short-term. Addressing ‘real economy’ barriers, such as fossil fuel subsidies and gaps in enforcement of environmental regulation, is critical to mobilising green investment. However, such policies are not the only tools for influencing investment flows. The Indonesian Government has begun to take steps to green some aspects of the financial system. In December 2014, OJK, the financial regulatory authority, launched a Roadmap for Sustainable Finance in Indonesia, which lays down a comprehensive work plan for promoting sustainable finance for the period 2015-2019. The Roadmap will constitute an integral part of OJK’s Master Plan for Indonesia’s Financial Service Sector. Despite being at an early stage, the Roadmap is unique internationally as a systematic plan grown out of a decade of development of sustainable finance in Indonesia. As part of this Roadmap, OJK might develop a binding regulatory framework for green finance which, among others, could include the establishment of compulsory environmental and social management systems and associated reporting in both banking and capital markets.

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