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The study of environmental damage has become popular after the Covid-19 pandemic, especially in
Indonesia today. The Indonesian government's strong commitment to changing the economic order
towards sustainability (green) has been conveyed directly by President Jokowi.
there are several factors that cause environmental damage :
1. Banking activity (where banks still provide credit or financing loans to non-green and high carbon
sectors.)
2. human awareness and human activity (As the main actor of development, the awareness of every
community towards environmental sustainability is very important. where there are still
environmental problems caused by human factors including overpopulation, pollution, burning fossil
fuels, and deforestation).
3. Greedy growth.
The role of banks is certainly needed to streamline the concept of a sustainable economy in
Indonesia. Banks, the main source of financing in the industry, certainly have a big impact on the
creation of environmental damage by the industry. Directly, banking activities will not affect the
ecosystem, but the financing and distribution of funds to the Industry are largely supported by bank
loans. With the concept of green banking, banks are more selective in channeling funds to industrial
sectors and pay attention to business plans or business activities carried out.
green financial system is defined as a sustainable financial concept to create banking products and
services to encourage environmentally friendly investment and sustainable development.
Slide 3:
The phenomenon of global warming reaching 1.5°C, resulting in the decline of coral reefs reaching 70
- 90% and will harm borrowers in the tourism industry who depend on coral ecosystems and
ultimately industry players decide to increase the amount of loans to cover the risk of default.
In the current era, banks are not only faced with market and operational risks but also climate risks
that cause bank performance to decline so that banks are now starting to shift financing and
investment to low-carbon and energy-efficient sectors. The challenges of climate change can pose
potential threats to the stability of financial markets, prices, and the macro economy, all of which are
key mandates of central banks and financial regulators.
Slide 5 :
• Bank Indonesia Regulation No. 7/2/PBI/2005 regarding the Assessment of Asset Quality of
Commercial Banks and Bank Indonesia Circular Letter No. 7/3/DPNP dated January 31, 2005
regarding the Assessment of Asset Quality of Commercial Banks which among others regulates the
need for commercial banks to pay attention to the efforts made by debtors in order to preserve the
environment.
• Bank Indonesia Regulation No. 14/15/PBI/2012 concerning Assessment of Asset Quality of
Commercial Banks, where BI encourages banks to increasingly consider environmental feasibility
factors in assessing a business prospect by requiring creditors who apply for funding to banks to
conduct an environmental feasibility assessment of the business activities they carry out in
accordance with regulations prepared by the government
• Financial Services Authority Regulations No.51/POJK.03/2017 on the Implementation of Sustainable
Finance for Financial Services Institutions (FSIs), Issuers and Public Companies.
• Law No. 4 of 2023 articles 223-224
Slide 8:
the banking profitability has a significant positive effect on green banking index, Green banking
directs banks to be more environmentally responsible by developing inclusive bank strategies that
can ensure sustainable economic development.
green banking is an environmentally friendly banking practice that encourages its clients to reduce
the carbon footprint of their businesses.
Profitability, proxied by ROA, has a significant influence on green banking, proxied by the green
banking index, which has an effect on showing a positive direction. A positive relationship means that
any increase in profitability will have implications for increasing the value of the green banking index.
The greater the profitability, the greater the banking funding for implementing green banking
practices to realize a green economy.
Slide 9:
In 2023, Bank Indonesia's mandate related to sustainable finance is regulated in Law No. 4 of 2023
concerning Development and Strengthening of the Financial Sector, emphasizing the authority of
Bank Indonesia to regulate and develop sustainable finance and coordinate with OJK and the
Ministry of Finance as stated in articles 223-224. As a form of expansion of the strong role of
macroprudential policy, BI has the authority to create arrangements and develop inclusive financing
and sustainable finance.
In Indonesia, the implementation of green banking is still in the "awareness" stage, so a punishment
system cannot be implemented for banking industries that do not implement green banking.