Jurnal Bina Mulia Hukum

Volume …, Number…, Month… 20.. P-ISSN: 2528-7273 E-ISSN: 2540-9034

Article received Date… Month… Year…, article Date… Month… Year…, article published Date…
Month … Year…, Publication Page:…

THE LAW OF GREENWASHING IN INDONESIAN BANK INDUSTRY:

SCOPE AND STATUS QUO
Maichle Delpiero1, Tarsisius Murwadji2, Nun Harietti3

ABSTRACT
Climate change has transformed into a humanitarian crisis that has been anticipated by
the international community at international conferences. The main breakthrough in
organizing the COP was the birth of the Paris Agreement which required participating
countries to contribute to eliminating climate change’s impact through achieving the
targets in the Nationally Determined Contribution (NDC). One of the concrete steps
taken is through the implementation of sustainable finance, through the Environmental,
Social, Governance (ESG) principles, in the economic sector, especially bank industry,
considering their vital role in financing sustainable projects. In its development, the
implementation of sustainable finance was diverted by various aberrant practices,
namely greenwashing. Greenwashing is a misleading act in offering green
products/services to consumers. HSBC greenwashing case is the evidence of the
greenwashing evolution. HSBC placed two advertisements for green credentials that are
inconsistent with their contribution by credit disbursement in coal industry and violated
the CAP Code. This research will analyze about greenwashing in the Indonesian banking
industry and answer 2 (two) main issues on the scope and status quo of greenwashing
regulations in Indonesian banking industry. This study uses normative juridical
originating from secondary data in the form of laws and regulations, journals and articles
that are relevant to greenwashing. This research results that, first, the scope of
greenwashing regulations in Indonesia may be found in numbers regulations such as the
Criminal Code, Civil Code, Consumer Law, Environmental Law, and FSAR 51/2017. The
status quo for greenwashing in the banking industry in Indonesia is still partial and
inadequate.

Keywords: Bank, Climate Change, ESG, Greenwashing, Sustainable Finance.

1
Faculty of Law, Padjadjaran University, Indonesia, maichledelpiero@gmail.com
2
Faculty of Law, Padjadjaran University, Indonesia, t.murwadji@unpad.ac.id
3
Faculty of Law, Padjadjaran University, Indonesia, nun.harrieti@unpad.ac.id
1 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

INTRODUCTION
The multidimensional crisis is shaking human civilization through a
phenomenon known as the perfect storm. This phenomenon is triggered by
various events that occur in the world which are then wrapped in an acronym,
namely 5C, which consists of Climate Change, Covid-19, Commodity Price, Cost
of Living, Conflict.4 Among all these global events, the climate change crisis has
become a hot topic that has emerged in the world and has even received
status as a red code of humanity by the Intergovernmental Panel on Climate
Change (“IPCC”).5 This is because climate change does not only threaten the
earth, but also threatens human life.
In anticipating climate change, the world community has begun to actively
address this issue in forums and conferences at the international level, one of
which is the Conference of the Parties ("COP"). COP is the highest decision
maker of the United Nations Framework Convention on Climate Change
(“UNFCCC”) which was officially formed in 1992 at the Earth Summit in Rio de
Janeiro, Brazil. The key to holding this COP is to review and assess the
implementation of the UNFCCC and other instruments with the aim of
reducing GHG emissions and combating climate change. One of the main
breakthroughs in organizing this COP was the birth of the Paris Agreement
which was ratified at the 21st COP in Paris.
The Paris Agreement contains 3 (three) main objectives to be achieved: (a)
Holding the increase in the global average temperature to well below 2°C
above pre-industrial levels and pursuing efforts to limit the temperature
increase to 1.5°C above pre-industrial levels, recognizing that this would
significantly reduce the risks and impacts of climate change; (b) Increasing the
ability to adapt to the adverse impacts of climate change and foster climate
resilience and low greenhouse gas emissions development, in a manner that
does not threaten food production; and (c) Making finance flows consistent

4
Coordinating Ministry for Economic Affairs of the Republic of Indonesia, “Press Release
HM.4.6/289/SET.M.EKON.3/6/2022: Coordinating Minister for Airlangga Indonesia Has Strong Capital to
Face The Perfect Storm”, <https://www.ekon. go.id/publikasi/detail/4215/menko-airlangga-indonesia-
punya-modal-kuat-to-deal with-the-perfect-storm>, accessed on 13 December 2022.
5
IPCC, Climate Change 2022: Mitigation of Climate Change, Cambridge University Press, New York:
2022, p. 5.
2 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

with a pathway towards low greenhouse gas emissions and climate-resilient

development.6 Referring to the third goal in the Paris Agreement above—
creating consistent spatial flows in reducing GHG emissions—it is clear that the
economic sector plays a major role in contributing to tackling climate change.
This is because without adequate funding, projects or actions to deal with or
prevent climate change cannot be carried out effectively.
Banking institutions as one of the key players in the economic sector—
through lending activities—in this case play a major role in tackling climate
change. In supporting these efforts, the concept of sustainable finance has
been permitted in banking institutions. Sustainable finance refers to any form
of financial service that integrates Environmental, Social, & Governance
(“ESG”) parameters into business or investment actions for the sustainable
advantage including clients and society. 7 From the definition of sustainable
finance, it can be concluded that the implementation of sustainable finance is
manifested through the integration of ESG aspects in business activities.
ESG are three criteria consisting of environmental, social, and
governmental aspects to evaluate company performance in implementing the
concept of sustainability.8ESG is seen as a non-financial factor that is
integrated into the company's analysis process to identify the company's risks
and growth potential. This ESG implementation is outlined in the form of a
report containing indicators of ESG fulfillment. The better the ESG
performance of a company, the higher the value of a company. This
significance is because companies with good ESG performance have a lower
level of risk, both from legal and commercial risks, so that many investors and
lenders are interested in providing funding. Therefore, the implementation of
ESG has a significant impact on risk management and inclusiveness in financial
institutions, especially banks, in realizing a sustainable financial system.

6
Article 2 paragraph (1), Paris Agreement.
7
Akash Kumar dan Vandana Chauhan, “Sustainable Finance”, International Journal of Law
Management & Humanities, Vol. 4, No. 2, 2021, p. 1016.
8
John Hill, Environmental, Social, and Governance (ESG) Investing: A Balanced Analysis of the Theory
and Practice of a Sustainable Portfolio, Cambridge: Elsevier Inc., 2020, p. 15-17.
3 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

However, the paradigm of sustainable finance and the conscientious

implementation of ESG principles have been marred by the injudicious actions
undertaken by a number of stakeholders, including banking institutions. ESG is
only used as a mere mask to increase exposure and profits in financing, where
9
this practice is known as greenwashing. According to Fabrice Larceneux,
greenwashing is defined as a tactic that misleads consumers regarding the
environmental practices of a company or the environmental benefits of a
product or service. In short, business actors use the "ESG", "sustainability",
"green" labels as a strategy to market their products/services in order to reap
some profits.10 In fact, in reality, these business actors do not fully or even
carry out sustainable efforts at all.11

This greenwashing practice is currently rife in the banking sector in various

countries. One of the greenwashing cases that has attracted public attention is
the greenwashing practice carried out by Hongkong and Shanghai Banking
Corporation Limited (“HSBC”). This started when HSBC placed two
advertisements about green credentials at London and Bristol bus stops in
October 2021, to coincide with the holding of COP 26.12

9
Magali A. Delmas and Vanessa Currel Burbano, “The Drivers of Greenwashing”, California
Management Review, Vol. 54, no. 1, 2011, p. 64-87; See also: Melinda Majlath, “The Effect of
Greenwashing Information on Ad Evaluation”, European Journal of Sustainable Development, Vol. 6,
No. 3, 2017, p. 93.
10
Christopher Marquis, (et.al.), “Scrutiny, Norms, and Selective Disclosure: A Global Study of
Greenwashing”, Organizational Science, Vol. 27, no. 2, 2016, p. 483-484.
11
Kent Walker and Fang Wan, "The Harm of Symbolic Actions and Green-Washing: Corporate Actions
and Communications on Environmental Performance and Their Financial Implications",Journal of
Business Ethics, Vol. 109, 2012, p. 228.
12
Mischoon de Reya,< https://www.mishcon.com/news/hsbc-ads-ruled-to-be-greenwashing-by-the-
asa-a-warning-to-other-banks#:~:text=The%20Advertising%20Standards%20Authority
%20(ASA,advertiser%20in%20the%20financial%20industry>, accessed on 1 May 2023.
4 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

Figure 1.1. Green Credential Ads by HSBC

The ads highlighted the words “HSBC is aiming to provide up to $1 trillion
in financing and investment globally to help our clients transition to net zero"
and “In the UK, we're helping to plant 2 million trees which will lock in 1.25
million tonnes of carbon over their lifetime".13 With regard to the
advertisement, The Advertising Standards Authority (“ASA”) received a
number of complaints that HSBC had advertised green credentials which were
misleading because they omitted important information about HSBC's
contribution to carbon dioxide and greenhouse gas emissions. Where based on
the results of the investigation, until then, HSBC bank, in fact, was still
channeling funds to companies producing fossil fuels for six years since the
signing of the Paris Agreement. 14 HSBC has been proven to have committed
greenwashing because it violated provisions 3 and 11 of the Code of Non-
broadcast Advertising and Direct & Promotional Marketing (“CAP Code”)
regarding misleading environmental information and claims.
Deviating from the aforementioned case, the present research endeavor
aims to elucidate instances of greenwashing within the legal framework of
Indonesian jurisdictions, with a particular focus on the banking sector. This is
motivated by several reasons and considerations, namely, first, Indonesia is a
participating country in the Paris Agreement and has committed through
Nationally Determined Contribution (“NDC”) to reduce GHG emissions by 29%
voluntarily (conditionally) and 41% through international support
15
(unconditional) in 2030 through a business as usual scenario. Second,

13
ASA, “ASA Ruling on HSBC UK Bank plc”, <https://www.asa.org.uk/rulings/hsbc-uk-bank-plc-g21-
1127656-hsbc-uk-bank-plc.html>, accessed on May 1, 2023.
14
Jon Hay, “HSBC Greenwashing Tires Will Change
Markets”,<https://www.globalcapital.com/article/2as2uzmzayntzwdwv5vy8/comment/leader/hsbc-
greenwashing-ban-will-change-markets>, accessed on December 28, 2022.
15
Ministry of Environment and Forestry, Updated Nationally Determined Contribution 2021, 2021, p.
1.
5 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

banking institutions are the heart and driving force of the economy in
Indonesia. In other words, the banking sector plays a vital role in accelerating
the fulfillment of the NDC target and tackling climate change. Third, the
Indonesian government has aggressively implemented sustainable finance
through the issuance of various green financing policy stimuli that are in line
with the mandate of Article 33 paragraph (4) of the 1945 Constitution (“1945
Constitution”) which reads as follows.
"The national economy is organized based on economic democracy with the
principles of togetherness, fair efficiency, sustainability, environmental awareness,
independence, and by maintaining a balance of progress and national economic
unity"
Lastly, the Financial Services Authority (Otoritas Jasa Keuangan/“OJK”) is
starting to realize the potential for greenwashing in the banking industry in
Indonesia. This is marked by the projected policy direction to be adopted and
implemented to prevent and avoid greenwashing practices. 16 Thus, this study
will examine greenwashing in the banking industry in Indonesia, by answering
the following 2 (two) main problem formulations.
1. What is the scope of greenwashing practices in the banking industry in Indonesia?
2. What is the status quo of greenwashing regulations in the banking industry in
Indonesia?

RESEARCH METHOD
This study applies normative juridical research methods 17 which is oriented towards 3
(three) main approaches, namely (1) the statutory regulation approach, by identifying
greenwashing practices in banking institutions in Indonesia based on relevant and
applicable laws and regulations in Indonesia; (2) case approach, based on
greenwashing cases that occur abroad and the potential for greenwashing in banking
institutions in Indonesia; and (3) a conceptual approach, based on the doctrines and

16
OJK dan Sustainable Finance Indonesia, Taksonomi Hijau Indonesia Edisi 1.0 – 2022, OJK, Jakarta:
2022, p. 11.
17
Soerjono Soekanto and Sri Mamudja, Normative Legal Research (A Brief Overview), Rajawali Press,
Jakarta: 2001, p. 13-14.
6 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

views developed in the science of law. 18 This research is sourced from secondary data
which consists of (1) primary data materials, namely the relevant laws and regulations;
(2) secondary data materials, namely books/articles/journals that are in line with the
subject matter; and (3) tertiary data materials, including dictionaries and
encyclopedias. Furthermore, this study uses data analysis techniques. The stages of
the research started with the collection of data obtained from the literature study,
and then analyzed and reviewed using a qualitative descriptive approach.

DISCUSSION
EXAMINING THE SCOPE OF GREENWASHING LAW IN INDONESIAN BANK INDUSTRY
a. The law dimension of greenwashing in Indonesia: identifying and enforcing
Greenwashing is the act of disseminating disinformation to consumers regarding the
environmental practices of a company or the environmental benefits of a product or
service.19 Essentially, greenwashing contains two contradictory elements, namely poor
environmental performance and good environmental communication. Referring to the
greenwashing action conceptually, greenwashing can be identified in several legal
regulations in Indonesia, namely as follows.
1) Indonesian Criminal Code
The act of greenwashing can qualify as a criminal act of fraud based on the
Indonesian Criminal Code.20The Criminal Code regulates criminal acts of fraud in
Article 378 which reads as follows.
“Anyone who with the intent to unlawfully benefit himself or others, by using a
false name or false dignity, by deception, or a series of lies, incites another
person to hand over something to him, or to give him a debt or write off a debt,
is threatened for fraud with a maximum imprisonment of four years.”

18
Johnny Ibrahim, Normative Law Research Theory & Methodology, Bayu Media Publishing, Malang:
2008, p. 300
19
Lauren M. Baum, “It's Not Easy Being Green … Or Is It? A Content Analysis of Environmental Claims
In Magazine Advertisements From The United States And United Kingdom”, Environmental
Communication A Journal of Nature and Culture, Vol. 6, No. 4, 2012, p. 424.
20
A brief note that the Indonesian Criminal Code has undergone changes with the issuance of Law
Number 1 of 2023 concerning the Criminal Code. However, it should be noted that based on Article
624, this regulation will only take effect after 3 (three) years after its promulgation, namely in 2026.
Therefore, references to the Criminal Code in this study still use the previous one.
7 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

To identify greenwashing as a criminal act of fraud, there are several criminal

elements, mens rea and actus reus, which must be fulfilled, namely (1) the intention
to unlawfully benefit oneself or others (2) by deception or a series of lies; and (3)
mobilizing other people to hand over goods or give debts or write off receivables.
In this case greenwashing in the banking sector refers to acts of fraud
committed by creditors, namely banking institutions, against debtors in carrying out
banking activities. Meanwhile, if these elements have been fulfilled cumulatively,
banking institutions will be prosecuted with a maximum imprisonment of four years.
2) Indonesian Civil Code
Given that the legal relationship arising between customers and banks is
included in the private sphere, greenwashing can be identified according to the
Indonesian Civil Code. In general, there are two basic claims, firstly, default. Default
is regulated in Article 1238 of the Indonesian Civil Code which consists of the
following elements: (1) the existence of a valid agreement; (2) there was an error
(negligence or intentional); and (3) there is a statement of negligence or based on
the strength of the engagement itself. In the event that these elements are fulfilled,
the aggrieved party can submit fees, interest and losses as stipulated in Article 1243
of the Indonesian Civil Code and become a reason to cancel the agreement in
accordance with Article 1328 of the Indonesian Civil Code. In this case,
Second, an act against the law (onrechtmatige daad). Customers who experience
losses due to greenwashing actions carried out by banks can also file a lawsuit on
the basis of an unlawful act. However, it should be noted that the greenwashing
action has fulfilled the elements of an unlawful act as stipulated in Article 1365 of
the Indonesian Civil Code, namely as follows.
a) There is an illegal act. Greenwashing carried out by banks is an act of deception
or fraud regarding green claims for products or investments offered, of course
this violates the provisions of the laws and regulations which will be explained
further;
b) There was an error (intentional or negligent). In this case, it must be proven that
the greenwashing action was caused by an error which could be in the form of
negligence and intention on the part of the bank;
8 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

c) There have been losses. In this case the customer must prove that he has
suffered a loss, both materially and/or immaterially;
d) There is a causal relationship between losses and deeds. The customer must
prove that the loss he experienced was caused or related to the unlawful act
committed by the bank.
If all elements have been fulfilled, then the injured party, in this case the customer is
entitled to material and/or immaterial losses.
3) Law Number 8 of 1999 regarding the Consumer Protection (“Consumer Protection
Law”)
In essence, consumers are entitled to the right to correct, clear and honest
information regarding the conditions and guarantees of goods and/or services. 21 The
act of greenwashing, which provides information about green products/services,
actually violates the consumer rights regulated in Consumer Protection Law. In
addition, the greenwashing action has contradicted the prohibition provisions
regulated in the Consumer Protection Law, namely as follows.
a) Prohibition to produce or trade goods/services that:
i. do not meet or do not comply with the standards required and provisions
of laws and regulations;
ii. not in accordance with the conditions, guarantees, features or efficacy as
stated in the label, etiquette or description of the goods/services;
iii. not in accordance with the quality, grade, composition, processing, style,
mode, or a particular use as stated on the label or description of said
goods/services; And
iv. not in accordance with the promise stated in the label, etiquette,
description, advertisement or sales promotion of said goods and/or
services.
b) Prohibition to offer, promote, advertise goods and/or services incorrectly,
and/or as if:
i. the said goods meet and/or have a discounted price, a special price, a
certain quality standard, a certain style or fashion, certain characteristics,
a certain history or use;
21
Article 4 letter ((c)), Consumer Protection Law.
9 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

ii. the goods and/or services have obtained and/or have sponsors,
approvals, certain equipment, certain benefits, work characteristics or
certain accessories
Business actors who violate the above provisions will be subject to
imprisonment for a maximum of 5 (five) years or a maximum fine of IDR
2,000,000,000.00.22 In addition to criminal sanctions, business actors can be subject
to additional penalties in the form of confiscation of certain goods, announcement
of judge's decisions, payment of compensation, orders to stop certain activities that
cause consumer losses, obligation to withdraw goods from circulation, or revocation
of business licenses.23
For consumers who experience losses due to greenwashing actions that violate
the provisions of the Consumer Protection Law above, they can apply for dispute
resolution either through the court or outside the court through the Consumer
Dispute Settlement Agency (Badan Perlindungan Konsumen/"BPSK").24 After the
dispute is decided through BPSK, the business actor is obliged to implement the
decision no later than 7 (seven) days after receiving the decision. 25 Business actors
can submit objections to the District Court within 14 (fourteen) working days from
receiving the decision.26 If the business actor does not carry out the decision, the
BPSK will submit the decision to the investigator for investigation. 27
4) Law Number 32 of 2009 concerning Environmental Protection and Management as
amended by Government Regulation in Lieu of Law Number 2 of 2022 concerning
Job Creation and ratified by Law Number 6 of 2023 (“Environmental Law”)
The pertinence of greenwashing vis-à-vis the Environmental Law is intricately
tied to the presentation of ecologically conscious assertions put forth by commercial
entities. The Environmental Law delineates a framework of mandates and
proscriptions applicable to all stakeholders, encompassing both individuals and
corporate entities, with regards to disseminating environmentally pertinent

22
Article 62 paragraph (1), Consumer Protection Law.
23
Article 63, Consumer Protection Law.
24
Article 49, Consumer Protection Law.
25
Article 56 paragraph (1), Consumer Protection Law.
26
Article 56 paragraph (2), Consumer Protection Law.
27
Article 56 paragraph (4), Consumer Protection Law.
10 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

information. Related to greenwashing, there are 2 (two) relevant provisions, namely

as follows:
a) Every business actor is required to provide information related to environmental
protection and management in a correct, accurate, open and timely manner. 28
b) Every business actor is prohibited from providing false information, misleading,
omitting information, damaging information, or providing incorrect
information.29
Violation of the provisions above can result in a business actor being punished with
imprisonment for a maximum of 1 (one) year and a fine of up to IDR
1,000,000,000.00.
5) Financial Services Authority Regulation Number 51/POJK.03/2017 of 2017 regarding
Implementation of Sustainable Finance for Financial Services Institutions, Issuers
and Public Companies (“POJK 51/2017”)
POJK 51/2017 requires financial service institutions, issuers and public
companies to implement sustainable finance through the preparation of a
Sustainable Finance Action Plan (Rancangan Anggaran Keuangan
Berkelanjutan/"RAKB"), and a sustainability report. 30 Where the sustainability report
must be submitted to the Financial Services Authority in a timely manner 31 and
publish to the public. If financial service institutions, issuers and public companies
violate these obligations, they will be subject to administrative sanctions in the form
of a warning or written warning.32
b. Greenwashing vs. green-banking?
This section will address the hypothesis regarding whether greenwashing violates
green banking. Before addressing this hypothesis, it is necessary to understand the
concept and implementation of green banking in the legal framework in Indonesia.
Conceptually, green banking is a derivative of the green economy designed to
operationalize environmental and sustainable development goals by recognizing the

28
Article 68 letter (a), Environmental Law.
29
Article 69 letter (j), Environmental Law.
30
Articles 4 and 10, POJK 51/2017.
31
Article 10 paragraph (5), POJK 51/2017.
32
Article 13, POJK 51/2017.
11 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

33
three pillars of sustainability: economic, environmental, and social. The concept of
green banking is to realize these three sustainability pillars, one of which is the health of
banks, not only determined by financial conditions but also how banking institutions
apply sustainable financial principles. 34 If based solely on the concept, it is clear that
greenwashing constitutes a violation of green banking itself because it breaches the
principles of sustainable finance, especially under Article 2 of POJK 51/2017. However,
this cannot be seen in isolation, as it is necessary to simultaneously review the
implementation of green banking through the legal regulations in Indonesia. So far,
experts have argued that the legal system related to the implementation of green
banking has not been effective enough.35
The ineffectiveness of green banking implementation also applies in Indonesia.
Conceptually, the implementation of green banking is based on how banking institutions
adhere to sustainable financial principles. The application of green banking through
sustainable financial principles can be guided by POJK 51/2017. When examined within
the context of POJK 51/2017 and Law Number 4 of 2023 on the Development and
Strengthening of the Financial Sector 36, the meaning of green banking implementation is
limited to the following obligations.
1) Preparation, reporting, and communication of RAKB to OJK, shareholders, and
internal company; 37
2) Allocation of Social and Environmental Responsibility (“SER”) funds for financial
service institution that are required to implement SER; 38
3) Providing incentives for financial service institution that effectively implement
sustainable finance; and
4) Preparation, reporting, and publication of sustainability reports to OJK and the
public.
As for the effective obligations of RAKB and sustainable reporting, it is not
specifically regulated that the preparation, reporting, and publication must be

33
Tarsisius Murwadji dan Imamulhadi, “Green Banking: The Model and Its Implementation”,
Environmental Policy and Law, Vol. 48, No. 3, 2018, p. 221.
34
Ibid.
35
Ibid., p. 223.
36
Article [--] UU P2SK
37
Article 7, POJK 51/2017.
38
Article 8, POJK 51/2017.
12 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

conducted honestly and accountably. In other words, it can be concluded that if

a financial service institution has submitted RAKB and sustainability reports on
time as stipulated in POJK 51/2017, then the LJK has implemented green
banking. When related to the deceptive practice of greenwashing, which
misleads consumers by providing incomplete or inaccurate information about its
actual performance, POJK 51/2017 may not accommodate this. This is due to
the limitations in the scope of the interpretation of green banking based on
POJK 51/2017. Therefore, it can be concluded that when assessed based on
POJK 51/2017, greenwashing does not violate the implementation of green
banking under POJK 51/2017.

THE STATUS QUO OF GREENWASHING LAW IN INDONESIAN BANK INDUSTRY

The regulation of greenwashing, as previously explained, also applies to the banking
industry. Among the available regulations, POJK 51/2017 is a specific regulation on
greenwashing intended for the banking sector as a financial services institution. The
existence of POJK 51/2017 plays a vital role in identifying greenwashing, as the main
benchmark for assessing greenwashing can be based on the information provided in
RAKB or sustainability reports. Therefore, this section will review the current status of
greenwashing regulations based on POJK 51/2017.
a. The loopholes of greenwashing law on POJK 51/2017
The construction of POJK 51/2017 consists of 14 provisions that succinctly
regulate the obligations of RAKB and sustainability reporting, the regulation of
TJSL, and the provision of incentives. However, POJK 51/2017 does not explicitly
regulate actions of greenwashing carried out on the information provided in
RAKB and sustainability reports. However, upon closer examination, there is one
provision in POJK 51/2017 that can identify such greenwashing, specifically
Article 2 of POJK 51/2017. Article 2 of POJK essentially requires every banking
institution to implement sustainable finance in its business activities based on
the principle that consist of: (i) following principles.
Principle of responsible investment; (ii)
Principle of sustainable business strategy and practices; (iii) ;
Principle of social and environmental risk management; (iv)
13 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

Principle of governance; (v)

Principle of informative communication; (vi)
Principle of inclusivity; (vii)
Principle of priority sector development; and (viii)
Principle of coordination and collaboration.
Considering that theoretically, “principles” are abstract and general, the
government has provided further explanations for these principles in the explanation
section of POJK 51/2017 and the Technical Guidelines for Financial Institutions, Issuers,
and Public Companies on the Implementation of POJK Number 51/POJK.03/2017
regarding the Implementation of Sustainable Finance for Financial Institutions, Issuers,
and Public Companies (“Technical Guidelines for POJK 51/2017’). The technical
guidelines emphasize that one of the purposes of this guideline is to provide technical
explanations regarding the practical meaning of sustainable financial principles. Based
on the practical meanings explained in the Technical Guidelines for POJK 51/2017,
greenwashing violates five sustainable financial principles as follows.
1) Responsible Investment Principle
The Technical Guidelines for POJK 51/2017 explain that this principle uses ESG
factors as an investment approach. This means that banks must consider these ESG
factors before making investment decisions. Furthermore, it is explained that the
ultimate goal of this principle is to increase economic profits, environmental quality,
community well-being, and governance enforcement. One practical measure of this
responsible investment principle is the allocation of assets and liabilities of financial
institutions that take into account the ESG impact. Greenwashing by banks in this case
can be identified as a violation of this responsible investment principle. This violation is
based on the fact that banks engaged in greenwashing have provided misleading
information about their products or services and ESG performance, which contradicts
responsible investment principles.
The Technical Guidelines for POJK 51/2017 explain that the Responsible Investment
Principle uses ESG factors as an investment approach, and banks must consider these
ESG factors before making investment decisions. Furthermore, it is stated that the
ultimate goal of this principle is to increase economic profits, environmental quality,
community well-being, and governance enforcement. One practical measure to assess
14 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

this responsible investment principle is the allocation of assets and liabilities by financial
institutions, taking into account the impact of ESG factors.
In the context of greenwashing, it can be identified that financial institutions
engaging in greenwashing violate this Responsible Investment Principle. This violation is
based on the fact that these banks provide misleading information about their products,
services, and ESG performance, which contradicts the responsible investment principle.
For instance, in the case of HSBC Bank, their advertisement claimed that they would
invest in tree planting to achieve carbon neutrality. However, in reality, HSBC Bank
continued to provide credit to industries with high carbon emissions. 39 The provision of
credit to such industries serves as evidence that HSBC Bank did not apply responsible
investment principles. The practice of greenwashing misleads consumers and
stakeholders into believing that a financial institution is making responsible and
sustainable investments, when in fact, they may not be aligning their investments with
ESG factors. This misrepresentation is a clear violation of the Responsible Investment
Principle as outlined in the Technical Guidelines for POJK 51/2017.
2) Sustainable Business Strategy and Practices Principle
The principles of sustainable business strategy and practice are further explained in
Technical Guideline 51/2017, referring to banking policies and activities aimed at
minimizing negative impacts and integrating economic, social, environmental, and
governance aspects. The fact that the implementation of greenwashing conflicts with
and has negative impacts on society, the environment, and governance, clearly
demonstrates that greenwashing is contrary to these principles.
3) Management of Social and Environmental Risk Principle
The scope of the principles of social and environmental risk management as outlined
in Technical Guideline 51/2017 is that banking institutions must exercise prudence in
assessing the social and environmental risks associated with their business activities.
These activities encompass identification, measurement, mitigation, monitoring, and
surveillance. The term “social risk” refers to the negative impacts on society and the
environment resulting from funded activities. Based on the explanations within the ESG
scope above, it is clear that the practice of greenwashing violates the principles of

39
ASA, “ASA Ruling on HSBC UK Bank plc”, < https://www.asa.org.uk/rulings/hsbc-uk-bank-plc-g21-
1127656-hsbc-uk-bank-plc.html>, accessed on 4 May 2023.
15 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

society and environmental protection. This is because greenwashing practices have

negative impacts on society and the environment.
The negative impacts of greenwashing on society include eroding trust in banking
40
institutions, as the public feels manipulated. On a broader scale, this can lead to
increased cynicism and apathy towards sustainable efforts 41, which can hinder the
achievement of sustainable financial goals. On the other hand, the negative
environmental impact of greenwashing is an exacerbation of climate change and
42
environmental damage. It because banking institutions engaged in greenwashing
43
continue to provide credit to environmentally unfriendly sectors. These banking
institutions directly contribute to the sustainability and continuity of such sectors, which
can have long-term implications for climate change.
4) Governance Principle
The implementation of governance principles within banking institutions is realized
through management and business operations that rely on accountability, transparency,
responsibility, professionalism, independence, fairness, and equality. Greenwashing
actions have violated aspects of management and business operations because they are
not accountable, transparent, and responsible in providing information about ESG
performance. Furthermore, greenwashing actions carried out by banking institutions
reflect that the internal systems and structures of these banks are not applied
professionally. This has implications for the trust of stakeholders who may avoid
collaborating or investing in such banking institutions44 because it is perceived that the
corporate governance also supports greenwashing efforts.
5) Informative Communication Principle

40
Thomas P. Lyon dan John W. Maxwell, “Greenwash: Corporate Environmental Disclosure Under
Threat of Audit”, Journal of Economics & Management Strategy, Vol. 21, No. 1, 2011, p. 16-17.
41
Yu Shan Chen dan Ching Hsun Chang, “Greenwash And Green Trust: The Mediation Effects Of Green
Consumer Confusion And Green Perceived Risk”, Journal of Business Ethics, Vol. 114, 2013, p. 490.;
See also: Khosro S. Jahdi dan Gaye Acikdilli, “Marketing Communications And Corporate Social
Responsibility (CSR): Marriage Of Convenience Or Shotgun Wedding?”, Journal of Business
Ethics, Vol. 88, 2009. p. 107.
42
Lucia Gatti, (et.al), “Grey Zone In – Greenwash Out. A Review Of Greenwashing Research And
Implications For The Voluntary-Mandatory Transition Of CSR”, International Journal of Corporate
Social Responsibility, Vol. 4, No. 6, 2019, p. 9.
43
Nancy E. Furlow, “Greenwashing In The New Millennium”, Journal of Applied Business and
Economics, Vol. 10, No. 6, 2010, p. 22-25.
44
Zhi Yang (et.al), “Greenwashing Behaviours: Causes, Taxonomy, and Consequences Based on a
Systematic Literatur Review”, Journal of Business Economics and Management, Vol. 21, No. 5, 2020,
p. 1499.
 16 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

In adhering to this principle, banks are required to provide and compile informative,
easily understandable, and accountable reports, conveyed through effective
communication media to make them accessible to all relevant parties. Greenwashing
practices conducted by banking institutions do not meet the element of "accountability"
because the information provided is misleading to all stakeholders, including consumers
and others.
Violations of greenwashing based on the principles of sustainable finance above
indicate weaknesses in the regulation of greenwashing within POJK 51/2017. This is
because, first, principles differ from concrete norms. Principles cannot establish
sanctions because they are not concrete laws, whereas norms have sanctions because
norms are concrete laws themselves. In other words, although greenwashing
fundamentally violates Article 2 paragraph (2) of POJK 51/2017, there is no legal
enforcement effort against it. Second, referring to the hypothesis response on
greenwashing vs. green banking above, it can be concluded that the regulation of
sustainable finance principles in POJK 51/2017, which is the cornerstone of green
banking, does not violate green banking in terms of regulation and implementation.
These two factors demonstrate the loopholes in the regulation of greenwashing within
POJK 51/2017.
b. Enhancing the greenwashing law on POJK 51/2017
In principle, greenwashing is fundamentally contrary to the principles of sustainable
finance in POJK 51/2017. According to GW. Paton, principles are the fundamental ideas
underlying a rule45, so greenwashing that violates the principles of sustainable finance
should serve as the basis for further regulation within POJK 51/2017. Referring to the
loopholes in greenwashing within POJK 51/2017, these can be addressed by expanding
the regulation of greenwashing, both in terms of its content and its enforcement.
1) Transparent and Accountable Sustainability Reporting Obligation System
POJK 51/2017 only regulates the preparation of sustainability reports to
be submitted to the OJK timely manner. However, it does not explicitly address
the situation where financial institutions, including banks, provide inaccurate,
false, or misleading information in these reports (greenwashing). This may lead
to negative impact on the identification of greenwashing practices. Therefore, it
45
G.W. Paton, A Textbook of Jurisprudence, Oxford University Press, UK: 1969, p. 204.
17 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

is necessary to further regulate the preparation, reporting, and publication of

sustainability reports to ensure they are transparent and accountable. This is in
line with the technical explanations in the Technical Guidelines of POJK 51/2017,
especially in the section on the principle of informative communication. The
implementation of informative communication in banking is accompanied by
46
the obligation to prepare accountable sustainability reports. With such
regulations in place, instances of greenwashing in sustainability reports can be
clearly and effectively identified.
2) Preventive and Repressive Law Enforcement on Greenwashing
According to Philip M. Hadjon, there are two mechanisms of law enforcement:
(1) preventive, which involves legal efforts made before a legal violation occurs with the
aim of preventing or mitigating legal violations, and (2) repressive, which involves legal
efforts made after a legal violation has occurred, focusing on handling and remedying
the violation. 47 Referring to this theory of law enforcement, POJK 51/2017 can establish
mechanisms for enforcing the law against greenwashing by banks in the following ways.
a) Oversight and Monitoring by the Government, Independent Companies, and the
Public
The implementation of oversight and monitoring efforts represents a
manifestation of preventive legal measures to prevent greenwashing in the banking
industry. Legally, POJK 51/2017 has mandated banking institutions to submit
sustainability reports to the OJK (Financial Services Authority). In this context, the
OJK can conduct stricter oversight and monitoring by involving independent
companies to verify the sustainability reports prepared by banking institutions. The
verification by independent companies is carried out through the process of social-
environmental due diligence, involving an assessment of the environment and
society. The involvement of independent companies can facilitate government
oversight and monitoring of greenwashing in sustainability reports. Additionally, the
government can also involve the public through a complaint mechanism. Individuals
who have suffered losses or have suspicions regarding a banking institution's
greenwashing practices can file complaints provided by the government.

46
Elucidation of Article 2 paragraph (2) letter ((e)), POJK 51/2017.
47
Satjipto Rahardjo, Ilmu Hukum, PT Citra Aditya Bakti, Bandung: 2000, p. 53.
18 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

b) Administration Sanction on Greenwashing

POJK 51/2017 has accommodated repressive law enforcement through the
imposition of administrative sanctions, such as warnings or written reprimands. 48
Based on the identification of greenwashing through the implementation of the
obligation to prepare honest and accountable sustainability reports mentioned
above, Article 13 of POJK 51/2017 can also provide sanctions for banking institutions
that engage in greenwashing by not providing accurate information in their
sustainability reports.
While greenwashing by banking institutions has not been proven to occur in
Indonesia, it cannot be denied that it has the potential to happen in the country,
given the significant role of banking in the Indonesian economy. Furthermore,
one possible reason why greenwashing has not been identified in Indonesia is
the lack of adequate legal regulations, making it difficult to detect such practices
by banking institutions. Referring to the theory of law by Mochtar
Kusumaatmadja, which emphasizes that legal regulations should be proactive
49
and accommodate emerging issues. Therefore, specific regulations against
greenwashing should be enforced to anticipate and prevent greenwashing
issues by banking institutions.
CLOSING
The scope of regulating greenwashing in the banking industry in Indonesia can be
qualified within several legal frameworks: (1) Indonesian Criminal Code, which considers
greenwashing as a criminal act of fraud; (2) Indonesian Civil Code, which accommodates
claims related to greenwashing through the basis of breach of contract and unlawful
acts; (3) Consumer Protection Law, where greenwashing violates consumers' rights to
accurate, clear, and honest information about the condition and guarantees of goods
and/or services; (4) Environmental Protection Law, where greenwashing breaches
provisions related to the obligations and prohibitions for individuals or businesses in
providing environmental information; and (5) POJK 51/2017, which regulates the
obligation of sustainability reporting for financial institutions, issuers, and public
companies. Conceptually, greenwashing violates green banking because it conflicts with
48
Article 13, POJK 51/2017.
49
Mochtar Kusumaatmadja, Fungsi dan Perkembangan Hukum dalam Pembangunan Nasional, Bina
Cipta, Bandung: 2002, p. 25.
19 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

the three pillars of sustainable finance: environmental, social, and governance (ESG).
However, upon further examination of the legal regulations and implementation of
green banking within POJK 51/2017, greenwashing does not actually violate green
banking due to the limitations in the regulation of greenwashing within POJK 51/2017.
The status quo of greenwashing regulation in POJK 51/2017 is remain partial and
unclear. It because there are loopholes in POJK 51/2017 due to weaknesses in its
principles in addressing greenwashing actions and the absence of effective law
enforcement mechanisms against greenwashing. To improve POJK 51/2017, it can be
expanded to include provisions regarding the obligation to prepare transparent and
accountable sustainability reports and law enforcement mechanisms. First, preventive
efforts can involve third-party verification through an assessment of the environment
and society (social-environmental due diligence) and public involvement through a
complaint mechanism to facilitate government oversight and monitoring of
greenwashing in Indonesia. Second, repressive legal efforts can include imposing
sanctions on banking institutions that have engaged in greenwashing.
1 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

REFERENCES

Book
G.W. Paton, A Textbook of Jurisprudence, United Kingdom: Oxford University Press,
1969.
John Hill, Environmental, Social, and Governance (ESG) Investing: A Balanced Analysis of
the Theory and Practice of a Sustainable Portfolio, Cambridge: Elsevier Inc.,
2020.
Johnny Ibrahim, Teori & Metodologi Penelitian Hukum Normatif, Malang: Bayu Media
Publishing, 2008.
IPCC, Climate Change 2022: Mitigation of Climate Change, New York: Cambridge
University Press, 2022.
Mochtar Kusumaatmadja, Fungsi dan Perkembangan Hukum dalam Pembangunan
Nasional, Bandung: Bina Cipta, 2002.
Otoritas Jasa Keuangan, Pedoman Teknis Bagi Bank Terkait Implementasi POJK Nomor
51/POJK.03/2017 Tentang Penerapan Keuangan Berkelanjutan Bagi Lembaga
Jasa Keuangan (LJK), Emiten, dan Perusahaan Publik, Jakarta: OJK, 2018.
Otoritas Jasa Keuangan, Roadmap Keuangan Berkelanjutan di Indonesia, Jakarta: OJK,
2014.
Otoritas Jasa Keuangan dan Sustainable Finance Indonesia, Taksonomi Hijau Indonesia
Edisi 1.0 – 2022, Jakarta: OJK, 2022.
Satjipto Rahardjo, Ilmu Hukum, Bandung: PT Citra Aditya Bakti, 2000.
Soerjono Soekanto dan Sri Mamudja, Penelitian Hukum Normatif (Suatu Tinjauan
Singkat), Jakarta: Rajawali Press, 2001.

Journal
Akash Kumar dan Vandana Chauhan, “Sustainable Finance”, International Journal of Law
Management & Humanities, Vol. 4, No. 2, 2021.
Christopher Marquis, (et.al), “Scrutiny, Norms, and Selective Disclosure: A Global Study
of Greenwashing”, Organizational Science, Vol. 27, No. 2, 2016.
Kent Walker dan Fang Wan, “The Harm of Symbolic Actions and Green-Washing:
Corporate Actions and Communications on Environmental Performance and
Their Financial Implications”, Journal of Business Ethics, Vol. 109, 2012.
Khosro S. Jahdi dan Gaye Acikdilli, “Marketing Communications And Corporate Social
Responsibility (CSR): Marriage of Convenience Or Shotgun Wedding?”,
Journal of Business Ethics, Vol. 88, 2009.
Lauren M. Baum, “It’s Not Easy Being Green … Or Is It? A Content Analysis of
Environmental Claims In Magazine Advertisements From The United States And
United Kingdom”, Environmental Communication A Journal of Nature and
Culture, Vol. 6, No. 4, 2012.
Lucia Gatti, (et.al), “Grey Zone In – Greenwash Out. A Review of Greenwashing Research
and Implications For The Voluntary-Mandatory Transition Of CSR”, International
Journal of Corporate Social Responsibility, Vol. 4, No. 6, 2019.
Magali A. Delmas dan Vanessa Currel Burbano, “The Drivers of Greenwashing”,
California Management Review, Vol. 54, No. 1, 2011.
2 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

Melinda Majlath, “The Effect of Greenwashing Information on Ad Evaluation”, European

Journal of Sustainable Development, Vol. 6, No. 3, 2017.
Nancy E. Furlow, “Greenwashing In The New Millennium”, Journal of Applied Business
and Economics, Vol. 10, No. 6, 2010.
Tarsisius Murwadji dan Imamulhadi, “Green Banking: The Model and Its
Implementation”, Environmental Policy and Law, Vol. 48, No. 3, 2018.
Thomas P. Lyon dan John W. Maxwell, “Greenwash: Corporate Environmental Disclosure
Under Threat of Audit”, Journal of Economics & Management Strategy, Vol. 21,
No. 1, 2011.
Yu Shan Chen dan Ching Hsun Chang, “Greenwash And Green Trust: The Mediation
Effects Of Green Consumer Confusion And Green Perceived Risk”, Journal of
Business Ethics, Vol. 114, 2013.
Zhi Yang (et.al), “Greenwashing Behaviours: Causes, Taxonomy, and Consequences
Based on a Systematic Literatur Review”, Journal of Business Economics and
Management, Vol. 21, No. 5, 2020.

Legislationsal Documents
Financial Services Authority Regulation Number 51/POJK.03/2017 of 2017 regarding the
Implementation of Sustainable Finance for Financial Institutions, Issuers, and
Public Companies.
Government Regulation in Lieu of Law Number 2 of 2022 regarding the Job Creation.
Indonesian Civil Code.
Indonesian Criminal Code.
Indonesia Nationally Determined Contribution.
Paris Agreement.
Law Number 32 of 2009 regarding the Environmental Protection and Management
Law Number 4 of 2023 regarding the Development and Strengthening of the Financial
Sector.
Law Number 8 of 1999 regarding the Consumer Protection Law.
Law Number 6 of 2023 regarding the Ratification of Government Regulation in Lieu of
Law Number 2 of 2022 regarding the Job Creation into Law.

Other ResourcesDocuments
ASA, “ASA Ruling on HSBC UK Bank plc”, < https://www.asa.org.uk/rulings/hsbc-uk-
bank-plc-g21-1127656-hsbc-uk-bank-plc.html>, accessed on 4 May 2023.
Jon Hay, “HSBC Greenwashing Ban Will Change Markets”,<
https://www.globalcapital.com/article/2as2uzmzayntzwdwv5vy8/comment/
leader/hsbc-greenwashing-ban-will-change-markets>, accessed on 28 December
2022.
Kementerian Koordinator Bidang Perekenomian Republik Indonesia, “Siaran Pers
HM.4.6/289/SET.M.EKON.3/6/2022: Menko Airlangga Indonesia Punya Modal
Kuat untuk Menghadapi The Perfect Storm”,
<https://www.ekon.go.id/publikasi/detail/4215/menko-airlangga-indonesia-
punya-modal-kuat-untuk-menghadapi-the-perfect-storm>, accessed on 13
December 2022.
Mischoon de Reya,<https://www.mishcon.com/news/hsbc-ads-ruled-to-be-
greenwashing-by-the-asa-a-warning-to-other-banks#:~:text=The%20Advertising
3 Jurnal Bina Mulia Hukum
Volume ..., Nomor ..., September...

%20Standards%20Authority%20(ASA,advertiser%20in%20the%20financial
%20industry>, accessed on 1 May 2023.