Indonesian Finance Sector Takes Steps to Become Green

May 27, 2014

The Jakarta Globe. Jakarta. All financial service institutions supervised under the Financial Services Authority must from now on adhere to standards of a green economy by way of giving out loans to companies that comply with environmentally friendly practices.

A memorandum of understanding signed by the financing authority, or OJK, and the Environment Ministry on Monday, is an extension of a 2010 program between the ministry and Bank Indonesia, underscoring the government’s efforts to prevent companies from damaging the environment.

“In the previous memorandum between BI and the OJK, it seemed like banks were the only source of loans for the country’s businesses, but companies can also receive funds from the capital market and non-banking sectors.

These sources are now included in this new agreement,” OJK chairman Muliaman Hadad said.

According to Muliaman, total outstanding bank loans used to finance environmentally friendly projects — which includes endeavors on biodiesel, bio-energy, green industry and organic agriculture — reached Rp 15.5 trillion ($1.3 billion) in December last year.

Still, the figure represents a minute fraction of some Rp 4,000 trillion worth of loans currently owed to the country’s banking system, according to data from Bank Indonesia.

“First, we want to focus on raising awareness among companies about environmental issues that may ultimately hurt business if they’re not handled properly,” Muliaman said.

Under the new agreement, all financial companies supervised by OJK will have to consult with the Environment Ministry to check their standing in the Corporate Environmental Performance Ratings, or Proper, said Muliaman.

The list, assessed by the ministry annually, color-codes companies according to their level of cooperation.

According to the system, gold represents the highest level of compliance and responsibility toward the environment, followed by blue and green marks.

A red rating indicates a lack of adherence to regulations and black is reserved for companies that knowingly and deliberately pollute their surroundings.

A total of 1,812 companies faced inspection during the 2012-2013 period, with manufacturing, mining, waste management and oil and gas firms all receiving ratings, according to the ministry’s data.

“This year, we plan to inspect up to 2,000 companies,” Environment Minister Balthasar Kambuaya said.

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