Home Blog ESG Advisory for Green Financing in Indonesia Business Setup | ESG Advisory | Indonesia ESG Advisory for Green Financing in Indonesia InCorp Editorial Team 19 June 2024 5 minute reading time Table of Contents Understanding The Benefits of Green Financing The Advantages of Green Financing in Indonesia Green Financing Trends in Indonesia 5 Types of Green Financing The Challenges for Green Financing in Indonesia How ESG Advisory Can Support Green Financing in Indonesia Start Implementing ESG with InCorp Indonesia Indonesia is undergoing a transformative financial revolution. One of the initiatives comes in the form of green financing. The plan will help Indonesia to make significant strides towards a more eco-conscious future. Indonesia is embracing the concept and reshaping its financial landscape, focusing on environmental sustainability. This paradigm shift is opening the door to many opportunities for the environment, businesses, and investors alike. Understanding The Benefits of Green Financing Green financing can be defined as getting and using money to protect the environment and provide a fair profit for investors or lenders. It is all about funding projects that are good for the environment, whether the government or private companies run them. Green financing will focus on investments in products and services that help the environment and activities that reduce environmental and climate harm. In public policies, green finance also involves financing policies supporting projects or initiatives for environmental protection and reducing environmental damage. Green finance aims to increase the flow of money from financial institutions to businesses involved in projects and activities that help the environment, all in pursuit of sustainable development goals. READ MORE:ESG Integration in the Extractive Industry5 Ways To Integrate ESG Investing Into Business GrowthRenewable Energy Investment In The Manufacturing Sector The Advantages of Green Financing in Indonesia Indonesia has shown a solid commitment to green finance practices over a decade ago through Bank Indonesia’s (BI) regulation No. 14/15/PBI/2012, which focuses on assessing the environmental management practices of borrowers in credit distribution. In collaboration with the Environment and Forestry Ministry, BI also signed various agreements between 2011 and 2013 to evaluate the suitability of granting credit to borrowers based on Environmental Impact Analysis (AMDAL). The latest regulation, POJK No. 14/2023, pertains to carbon trading via carbon exchanges. This regulation aims to increase support for green financing and make it more accessible to the public. Green financing is vital in dealing with climate change, advancing sustainable development, and helping Indonesia shift toward a low-carbon economy. It also contributes to reducing air pollution, improving public health, and creating opportunities in the green sector. Green Financing Trends in Indonesia Numerous banks in Indonesia have taken the initiative to allocate substantial funds for green financing. Some of these forward-thinking financial institutions include: 1. Bank Rakyat Indonesia (BRI) PT Bank Rakyat Indonesia Tbk (BBRI) is strengthening its commitment to sustainable green finance. In 2022, they reached IDR 694.9 trillion, equivalent to 67.5% of the bank’s total loans. 2. Bank Central Asia (BCA) Meanwhile, the private bank owned by the Djarum Group, PT Bank Central Asia Tbk (BBCA), reported that their sustainable financial portfolio (KKUB) increased by 14.9% to IDR 183.2 trillion in 2022, or 25.4% of the bank’s total portfolio (loans and corporate bonds). Out of this KKUB amount, BCA extended KUBL loans amounting to IDR 80.9 trillion (a 13.5% year-on-year increase), which represents 44.2% of the total KUBL loans. 3. Bank Mandiri In 2022, PT Bank Mandiri Tbk (BMRI) demonstrated a strong commitment to sustainable financing through KKUB, disbursing a noteworthy IDR 228.7 trillion, accounting for 24.5% of Bank Mandiri’s total loans (bank only). This represented an impressive 11.6% year-on-year growth. BMRI’s green financing alone accounted for an impressive IDR 101 trillion. 5 Types of Green Financing Various forms of green financing are available, each with its own characteristics and benefits. 1. Green Mortgages Green mortgages enable lenders to offer more favorable terms to homebuyers who purchase properties with high environmental sustainability ratings or commit to improving a property’s environmental performance. 2. Green Credit Cards Green credit cards allow consumers to direct their spending toward environmental finance, creating a long-term positive ecological impact. 3. Green Banks Green banks function similarly to traditional banks but utilize public funds to stimulate private investments in renewable energy and other eco-friendly projects. 4. Green Loans Green loans are used to back environmentally friendly projects like household solar panels, electric cars, energy-efficient upgrades, and more. 5. Green Bonds Green bonds make up the majority of green funding. These are bond investments, and the proceeds are used to support various green initiatives, including renewable energy, clean transportation, conservation, and more. The Challenges for Green Financing in Indonesia Since the green financing practice in Indonesia is still in its early stage of development, the market mechanisms still need to mature fully. More work must be done on both the regulatory and governance fronts. On the regulatory side, the government should establish a clear regulatory landscape that encourages green financing and sustainable investments. Offering incentives, tax advantages, subsidies, or other financial policies to financial institutions and investors would encourage their involvement in environmentally friendly projects. Moreover, the financial industry should align its green financing standards with international best practices to attract more foreign investment. It is also essential to raise awareness and educate businesses and the public about the benefits of green financing and its positive effects on the environment. How ESG Advisory Can Support Green Financing in Indonesia ESG Advisory services are designed to facilitate clients’ transition towards sustainable business models by offering sustainable financing products and top-notch advisory services. Moreover, guiding ESG practices can assist clients in implementing plans that promote decarbonization and uphold long-term social and economic sustainability. Furthermore, the ESG reporting service support can help clients create a comprehensive report aligned with market standards, effectively showcasing their sustainability efforts. Guide to Doing Business in Jakarta Mailchimp Free eBook Indonesia Business Insight Full NameEmail I have read InCorp's Privacy Policy and agree to InCorp using my information provided to contact me about related content, and services.*Subscribe Start Implementing ESG with InCorp Indonesia InCorp Indonesia offers ESG Advisory services to help your business thrive and stay ahead of the curve amid Indonesia’s growing demand for sustainable practice. Get in touch with our expert to kickstart your ESG investing journey by completing the form below. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.