Indonesian banks to face green rules

The smoky haze from forest fires in Indonesia this year spread as far as places like Narathiwat (above) in southern Thailand.
The smoky haze from forest fires in Indonesia this year spread as far as places like Narathiwat (above) in southern Thailand.PHOTO: AGENCE FRANCE-PRESSE

JAKARTA • Indonesia's financial regulator will introduce, by 2018, rules to restrict banks' lending to projects that damage the environment, which may eventually help the nation curb the forest fires that choke parts of South-east Asia with thick haze for months each year.

The Financial Services Authority is aiming to draft regulations by next year to target agriculture, energy, fishery and microfinance companies, Mr Edi Setijawan, the deputy director for banking architecture, said yesterday.

The rules would build on guidelines for sustainable financing in the palm oil industry that the nation's eight largest banks will test starting in January, he said.

While not specifically directed at the forest fires, policing the environmental impact of projects and activities of companies that borrow funds from its banks will help Indonesia curb the burning that this year covered an area four times the size of Bali island.

The fires, lit to clear land for plantations, caused a haze that spread as far as southern Thailand, and turned Indonesia into the world's worst greenhouse gas polluter.

"We can't ban banks from lending to any non-sustainable projects as the economy would grind to a halt, but that's something we're moving towards," he said. "Later on, banking can also be used to prevent what happened a few months ago, the terrible haze."

The regulator may, in the next two to three years, ask banks to invest in companies and projects deemed sustainable, to offset any funds given to non-environmentally friendly activities, he said.

The eight largest Indonesian banks, including PT Bank Central Asia, will work with the World Wildlife Fund (WWF) in integrating sustainable financing criteria for the palm oil industry in a pilot project from January, the Swiss-based fund said yesterday.

The 18-month project aims to help Indonesian banks take into account environmental, social and governance issues when they make lending decisions, said the WWF.

Banks will also look to direct more funding to businesses that implement sustainable practices.

Only four major banks in Indonesia, Malaysia and Singapore have embedded environmental factors as part of their credit decision process, the WWF said in a May report.

The Association of Banks in Singapore on Oct 8 launched guidelines on responsible financing aimed at sectors including agriculture, energy and forestry, and said its 158 members will start implementing them in 2017.

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A version of this article appeared in the print edition of The Straits Times on November 24, 2015, with the headline 'Indonesian banks to face green rules'. Print Edition | Subscribe