Indonesia Is Considered Vulnerable To Climate Change, OJK Gives Guidelines For The Banking Sector

The Financial Services Authority (OJK) encourages the banking sector to support the achievement of the Net Zero Emissions (NZE) target in mobilizing low-carbon financing in accordance with government policy direction by launching a climate risk management & scenario analysis (CRMS) guide for the banking sector.

For information, this launch was also marked by the signing of zero support for carbon emissions by seven representative banks, including PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Central Asia Tbk, PT Bank Syariah Indonesia Tbk, PT Bank Pembangunan Daerah Jawa Barat and Banten Tbk, and PT Bank CIMB Niaga Tbk.

The Chief Executive of Banking Supervision of the Financial Services Authority (OJK), Dian Ediana Rae, said that this CRMS is a framework for assessing the resilience of the bank's business model and strategy in dealing with climate change, not only in the short term but also in the medium and long term.

"CRMS includes aspects of governance, business strategies, risk management, measurement and targets as well as disclosure and reporting regarding the impact of the banking industry's climate risks and carbon emissions on OJK," he explained at the Indonesian Banking Road to Net Zero Emissions event, Monday, March 4, 2023.

Dian conveyed that as a form of OJK policy support for the development of risk management for climate change, his party had compiled a CRMS Guide consisting of 6 (six) Books.

Meanwhile, the six books in the CRMS Guideline are one unit that supports each other and of course in its preparation it has also paid attention to common practice and international standards that have been adjusted to the Indonesian context.

Dian conveyed that book 1 (President Guidelines) describes the principles of climate-related risk management, while the other 5 (five) books are guidelines that support the implementation of CRMS including technical guidelines for implementing stress tests due to the risk of climate change to banking performance.

"These CRMS guidelines will be a living document that we will update regularly according to global policies direction, best practices in the financial industry and demands of stakeholders," he said.

Dian hopes that CRMS guidelines can assist banks in developing climate risk management frameworks to measure climate impacts on bank business performance and sustainability.

Dian explained that there are three urgencys behind the launch of CRMS for these banks. First, in terms of risk, Indonesia is a country that is considered quite vulnerable to the issue of climate change.

Furthermore, the second urgency is the global commitment to achieving NZE in 2050 which will be announced at the Paris Agreement and will be lowered to the target of NZE Indonesia in 2060 or sooner.

Dian conveyed that the next urgency regarding the banking sector, The Basel Committee on Banking Supervision (BCBS) has issued a Consultative Document Principles for the Effective Management and Supervision of climate-related financial risk which encourages the banking sector to start integrating climate risks into financial performance, including its disclosure.