OJK Partners With Prospera To Strengthen Banking From Climate Change Impact

Illustration (Photo: Doc. ANTARA)

JAKARTA - The Financial Services Authority (OJK) seeks to strengthen national banking in dealing with climate crises.

One way is by establishing an innovative partnership with the Australian Indonesia Partnership Program for the Economy (Prospera).

Chief Executive of Banking Supervision, OJK, Dian Ediana Rae explained that the cooperation was carried out to provide support for banks in developing climate policy in the country.

"I am delighted to stand before you today to formalize the innovative partnership between OJK and Prospera. This collaboration is centered on providing the support needed for climate policy development," he said at the kick off Cooperation OJK-Prospera on Climate Risk Management Policies for Indonesian Banks online, in Jakarta, Friday, June 28.

"This is an important milestone in our joint efforts to overcome one of the most pressing challenges at this time, namely climate risk management for the banking industry in Indonesia," he continued.

According to Dian, climate change is not only a matter of the environment, but also a potential systemic risk that has an impact on the financial system, economy, and the wider community.

Therefore, Dian said, it is important to assess the vulnerability to climate change in the banking sector, especially given Indonesia's geographical location. Moreover, in terms of carbon emissions, Indonesia is ranked fifth in the world as the highest emittance-producing country with a proportion of 2.3 percent.

"Meanwhile, in terms of banking portfolios, we also realize that credit allocation in sectors with high carbon intensity is quite significant. As of about 40 percent of total credit in the banking industry," said Dian.

Reflecting on these findings, Dian said that proactive steps, governance, and a strong risk management framework in Indonesian banks are needed to mitigate the potential bad effects of financial risks related to climate change.

Dian said to address climate sustainability and risk issues, OJK has also promoted sustainable financial initiatives since 2015 through the implementation of sustainable financial roadmaps, incentives in financing electric vehicles, and issuing environmentally friendly bonds.

To achieve the NZE target, continued Dian, OJK strengthens the development of climate change risk management guidelines in the banking sector, also known as Climate Risk Management Guidelines and Scenario Analysis or CRMS. The guidelines were published in early March 2024.

The CRMS guidelines are designed to assist banks in evaluating the impact of climate change on their operational and business sustainability by implementing a standardized climate risk management framework, adopting consistent scenarios and methodologies and relying on reliable data and referral sources," he explained.