ENVIRONMENT, CLIMATE CHANGE AND LOW CARBON DEVELOPMENT

GREEN BANKING IN ASIA + 3

Edi Setijawan

Introduction

1. What is Green Banking?PeoplePlanet

Profit

CSR

LENDING

FUNDING

ALL PRODUCTS

Compliance Voluntary Integrated

invo

lvem

en

t

driver

3

Green Sectors

Risk Management

Inherent risk

Avoid Love

Infant IndustryEconomic of

scale industry

Hi riskManageable

risk

+ premium

Interest rate

Market price

Interest rate

Extra

efforts

Normal

effort

Bank’s risk management

Risk Management: Level of Banks’ involvement in Green Project/investment

Role of Government & Central Bank/Financial Supervision Authority: Intervention Areas

4

Green Sectors

Risk Management

Inherent risk

Avoid Love

Infant IndustryEconomic of

scale industry

Hi riskManageable

risk

+ premium

Interest rate

Market price

Interest rate

Extra

efforts

Normal

effort

Bank’s risk management

Intervention/incentive area

Basic Facts Green Banking in ASEAN + 3

1. The Equatorial Principles (73 banks)a. China (industrial bank)

b. Japan (Mizuho Corp. Bank, Sumitomo Mitsui Bank)

c. Asia (3), Africa (7), middle East (3), Latin America (9).

2. UNEP (203 banks)a. China (4)

b. Japan (19)

c. Indonesia (1)

d. South Korea (8)

e. Philippines ( 3 )

f. Thailand (2)

g. Asia (40), Africa (15), Middle East (1), Latin America ( 18 )

Implementation of Green Banking• China case:

– The China Bank Regulatory Commission:• instruction bank to cease lending to projects that were out of compliance with relevant laws incl. law

environmental protection, 2004• Ask bank to asses environmental risks in loan application and integrating environmental considerations

into bank investment choices, 2007

– Government: • Stimulate by Government “Green Credit Policy” 2007, credit black list, National Climate Change Program cutting emission of major pollution by 10% by 2010.

• Upgrade the State Environment Protection Agency into full cabinet ministry under the name the ministry of environmental protection

• Challenge in implementation stage: local government , & overseas • Green securities, green insurance, 2008 • Policy bank China Development Bank and China Exim Bank

– Voluntary based • China Industrial Bank joined with the Equatorial Principles, 2008• 4 banks joined with UNEP• Civil Society (NGO) presented Green Banking Award to Chinese banks.

– Role of international agency; IFC, UNEP, OECD, WB focus on capacity building & raising awareness

– Issues: Adopting international standards & norm, transparency & accountability, equal treatment.

Source: BankTrack

7

Description

Target: Minimize the environmental impact of projects

Green banking initiatives: Eco-rating and low-interest loans for environmental innovation by Development Bank of Japan (DBJ) An in-house rating project set up in

DBJ in 2004 Eco-rating scores loan applicant on

several aspects, including whether developed a high-level environment management system Eco-rating helps loan applicant get

a low-interest loan and loan expansion

Key results

Key challenges

By March 2010, 200 companies have been qualified for the low-interest loans, including manufacturers, chemical engineering companies and machinery makers

DBJ Eco-rating helps business-to-business companies promote their environment activities

A subjective and comprehensive rating system is needed All the scores and rating process can be verified

SOURCE: Press search, http://www.eurobiz.jp/content/2010/august/features/greenbanking-2

Japan case

Implementation of Green Banking• Indonesia case:

– The Central Bank of Republic of Indonesia (Bank Indonesia)• Bank Act 10/1998 obligation to have environmental impact assessment for large scale loan

or hi risk, BI regulation in asset quality that put environmental as part of consideration for credit application, 2004

• Preparing new BI policy & Regulation on Green Banking• MoU BI – Ministry of Environment 2004, 2010

– Government: • Commitment to reduce GHE 26% from BAU in 2020 or 41% with International Support• Established National Council on Climate Change• National Plan to anticipate climate Change, 2007• Environmental protection and management act No.23/2009• Challenge in implementation stage: local government & inter dept. coordination • Incentives: Tax, soft loan, guarantee scheme,

– Voluntary based • 1 bank joined with UNEP• Civil Society (NGO) as watchdog e.g. Green Peace, Walhi.

– Role of international agency; IFC, UNEP, UNFCCC focus on capacity building & raising awareness.

– Issues: Adopting international standards & norm, incentives, competency, transparency & accountability, equal treatment, infrastructure

Environmental Auditor

customer

Bank IndonesiaGovernment Capital market

International Financial Institution/donor agency

International best practices/standards

Rating agencies

R & D Institution/ Universities

Banks Association

NGOs

National Council on Climate Change (NCCC)

Banks

Stakeholder Green Banking in Indonesia

Relevance of Green Banking for a future Green Economy

1. Green Economy: An economy that improves human well-being and social equity while simultaneously reducing environmental risks and ecological scarcities (UNEP)

2. Re-orientation on investment policies & strategies (1) reduce un environmental friendly investment and (2) increase environmental friendly investment

3. Source of Funds: Government (but limited), Bank/Financial institution, and international agency/corp.

Potential & Limits of Green Banking for Global Green Transformation

1. Potential

a. Increase number of banks that joint with international best practices (TEP, UNEP, UNFCCC)

b. Integration environmental aspect in bank’s risk management

c. Support from government and international

2. Limitation

a. Most of green sectors are infant industries

b. Liquidity issue (short term funds versus long term investment)

c. Regulation (cross border)

d. Limited knowledge & expertise

Q-A