Nuraini Yuanita

Key Policies for Sustainable Finance

July 2015

Indonesia Financial Services Authority (OJK) • The Indonesia Financial Services Authority (IFSA) (Indonesian: Otoritas Jasa Keuangan/OJK) is a state agency and an

independent institution in carrying out its duties and responsibilities established under Act No. 21 of 2011.

• OJK is aiming that the overall activities within the financial services sector are: Implemented in an organized, fair, transparent and accountable manner, Able to realize the financial system that grows in a sustainable and stable manner and Capable of protecting the interests of consumers and the society.

• OJK performs its regulatory and supervisory duties over: (a) financial services activities in the banking sector; (b) financial services activities in the capital market sector; and (c) financial services activities in the sectors of insurance, pension funds, financing institutions, and other financial services institutions.

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BANK INDONESIA

Payment System

Monetary Policy

Banking

GOVERNMENT OF INDONESIA

CAPITAL MARKET

INSURANCE OTHER

FINANCIAL INSTITUTION

BANK INDONESIA

Macro Prudential

Payment System

Monetary Policy

OJK

BANKING CAPITAL MARKET

INSURANCE OTHER

FINANCIAL INSTITUTION

.... - 2011 2012 - ....

IN INDONESIAN BANKING SYSTEM THERE IS NO DEVELOPMENT BANK; FINANCIAL SERVICES IS CONDUCTED BY

COMMERCIAL BANK AND RURAL BANK ( BOTH CONVENTIONAL AND SHARIA/ISLAMIC BANK).

THE ROLE OF BANKING IS STILL DOMINANT REPRESENTING 69% OF NATIONAL FINANCIAL INDUSTRY

Indonesia Financial Market

Banking*InsuranceCapital MarketNon Bank Financial

69%

8%

16%

9%

FINANCIAL AND BANKING SYSTEM IN INDONESIA 3

NOTE: - *Indonesia Banking Statistics, April 2015

- Total assets in IDR: Banking 4581 T, Insurance 556 T, Capital Market 1083 T, Non bank FI 433 million

T (Sources OJK, August 2013).

118 commercial banks 1.642 rural banks

12 Islamic Commercial banks

22 Islamic Windows

162 Islamic Rural banks

Development Sustainable Finance in Indonesia

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1.Bank Indonesia Regulation No. 14/15/2012 (Asset Quality Assessment for Commercial Banks)

1.Business growth potential; 2.Market conditions and debtor position

within competition; 3.Management quality and labor

problems; 4.Supports from group/affiliations; and 5.Business performed by the debtor in

the context of environmental preservation efforts (for debtors who are obliged to conduct environmental management efforts according to the applied laws)

1.Profitability; 2.Capital Structure; 3.Cash Flow; and 4.Sensitivity to The

Market Risks.

1.Prompt payment of debt and its interests;

2.The availability and the accuracy of debtors’ financial information;

3.Completeness of loan documentations;

4.Obedience to the credit agreement;

5.The suitability of the use of funds; and

6.The fairness source of liability payment

Credit Quality Assessment

1. BUSINESS PROSPECTS 2. DEBTOR

PERFORMANCE 3. ABILITY TO PAY

The credit quality assessment considers the significance and the materiality of every assessment factors and components; as well as the relevance of the assessment and components of the debtor

Banking Regulation on Assest Quality

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Definition and Principles of Sustainable Finance in Indonesia

Sustainable finance in Indonesia is defined as comprehensive support from the financial service industry to achieve sustainable development resulted from a harmonious relationship between economic, social and environmental interests. Sustainable finance comprised of the following dimensions: 1. Achieve industry, social and economic superiority in order to address the threats of global

warming and mitigate other environmental and social issues; 2. Aims to encourage the shifting of the target towards a competitive low carbon economy; 3. Strategically promoting environmentally friendly investment in various business/ economic

sectors; and 4. Supporting the principles of development in Indonesia as stated in the RPJM, namely the 4P

(pro-growth, pro-jobs, pro-poor, and pro-environment). Principles: 1. Risk Management Principle 2. Sustainable Priority Economic Sector Development Principle 3. Environmental and Social Governance and Reporting Principle 4. Capacity Enhancement and Collaborative Partnership Principle

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Sustainable Finance Institution

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Sustainable Finance Framework

DEVELOPMENT & CLIMATE CHANGE Law No. 32 of 2009 concerning Conservation and Management

of the Environment

Indonesian commitment for climate change

National Action Plan for the Reduction of Green

House Gas Emission (RAN – GRK)

1. Sectors Contribution towards the Targeted GHG emissions reduction

2. Financing needs for GHG emissions reduction

Long Term Development Plan (RPJPM)

1. Green Economy 2. Priority Economic Sectors 3. Financing needs for economic

development Compliance

environmental economic

instruments

Competitive

Contribution to Climate Change

Road Map

Readiness of Financial

Services Industry

Contribution to Financial System Stability

1. Better risk management

2. Long term vision 1. Product development &

innovation 2. Increase corporate value

Contribution to economic development

Resilience

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Increase supply of sustainable financing to strengthen competitiveness of Indonesian financial service industry

Increase oversight and coordination of sustainable finance implementation

Increase demand Of environmentally friendly financing products

Through the strengthening of risk management, corporate governance in environmental and social aspects, as well as the acceleration of the implementation of the Environmental Law.

Through public awareness raising and education on green investment and green financing

Through provision of incentives to FSI to increase green products portfolio, encourage innovation, increase competency, information sharing and increase access to global public fund

Sustainability Report

Forum on Sustainable Finance at national and regional levels

Research and Development

Information hub

Green lending models for priority sectors

Increase access of FSIs to global public funds

Fiscal and non-fiscal incentives

Prudential incentives

Trainings and national seminars on Sustainable FInance

Regulation on Principles and Definition of Sustainable Finance in Indonesia

Requirement on Portfolio for Sustainable finance

Development of green finance products, green bonds & green index

Campaign program to potential investors on green financial products

Strategic Activities to Implement Sustainable Finance

2015 2016 2017 2018 2019 2020-2024

Sustainable Finance Award

Strategic Goals

Roadmap for Sustainable Finance

Basis for Implementation of SF:

1. Policy on SF Principles

2. Policy on Increase on SF portfolio

3. Policy on SF supervision

Incentives (Under OJK Authority) : 1. Prudential Incentives 2. Information Hub

3. Award

4. SF Report

Incentives and Cooperation with relevant institution

1. Fiscal incentives

2. Non Fiscal incentives

Strengthening Resiliency :

strengthening of

risk management and corporate

governance in environmental and

social aspects

2015 2016 2017-2018 2019-2024

2015-2019 : Campaign, Environmental Analyst Training, Development of Green Product, Green Bond and Green Index, Improve access to Global Public Funds, Coordination with Relevant Institutions

© 2015

The Implementation Plan of 2015 Sustainable Finance Roadmap

1. Sustainable Finance regulation preparation. 2. Formation of Sustainable Financing guidelines for energy conservation. 3. Research preparation on green bonds and green index. 4. Research preparation on green products for insurance and leasing/multi-finance companies. 5. Awareness program for financial services industry practitioners which includes: Seminar,

Workshop & FGD 6. Capacity building : Environmental Analysis Training 7. Joint research on Challenges, Incentives and Disincentives in the Implementation of Sustainable

Finance in Indonesia 8. Preparation for the establishment of an Information hub 9. Establishment of team award for Sustainable Finance

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OJK Survey on Sustainable Financing, 2015

FSIs* Financing/Loan (Billion) Dec 2014

Bank IDR 33,565.02 (1,66% of total Conventional bank loan porfolio and 1,97% of total Shariah bank financing porfolio)

Financing Institution

IDR 954.60

Pension Fund IDR 736.00

Total IDR 35,255.62 *32 FSIs includes: 27 Bank, 2 special purpose Finance institution, 3 Pension Funds.

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Sektor Ekonomi Pengelolaan dan Perlindungan Lingkungan Hidup Financial Institution’s Porfolio on Sustainable Finance

3

5

3

0

1

2

3

4

5

6

LimbahBeracun

KebakaranHutan

ProyekPembangkit

Polusi AsapKebakaran

Lainnya

Portfolio Insurance Companies in Sustainable Finance

Penyaluran Asuransi

16 18

14 17

5 8

5

2 1

1

3

2

0

5

10

15

20

25

Sectors Receive Sustainable Financing from Financial Institutions

Pembiayaan oleh Bank Pembiayaan oleh LP Investasi oleh Dapen

Renewable Energy, Energy Efficiency and Waste management are sectors that receive highest financing from financial institutions . Insurance companies also play a role to those sectors.

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Thank you