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Indonesian banks take ESG approach with grain of salt
The domestic banking industry is still reluctant to jump on the ESG financing bandwagon, citing challenges across the board in adopting the global principles, despite the OJK publishing a sustainability plan as far back as seven years ago.
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A worker weighs oil palm seeds on May 12, 2022 at a plantation in Kutamakmur, Aceh. (AFP/Azwar Ipank)
I
ndonesia’s banking sector is facing difficulties implementing the full spectrum of environmental, social and governance (ESG) standards, viewed as a bare minimum among investors from many advanced economies.
While banks generally acknowledged that most international investors were concerned about ESG compliance in potential investments, they also realize the standards also catered to the “voices of stakeholders and regulators”, Indonesian Bankers Association (IBI) chairman Haryanto Tiara Budiman said on Wednesday.
The government is pursuing a significant increase in investment this year to spur economic growth and to compensate for a projected slowdown in export earnings and household spending, with multiple financial institutions expecting spillover from a troubled global economy.
A majority of investors from advanced economies require recipients to meet ESG standards as a path to sustainable development.
“Banks should support sustainability efforts, but we should also voice our concerns,” said Haryanto, who is also a director at the country’s largest private lender, Bank Central Asia (BCA).
Read also: ESG investing: Will it prevail in 2023?
Foreign investors generally require that all Indonesian banks and their corporate clients meticulously follow the ESG principles, including reporting their progress on carbon emissions, social issues and anticorruption measures.
