Bank Financing for Renewable Energy in Indonesia Remains Limited

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Adi Ahdiat 21/09/2023 13:10 WIB

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According to research by Prakarsa and Responsibank, the portion of bank financing for the fossil fuel sector in Indonesia is significantly larger than that for renewable energy.

Financing by 10 Banks for Fossil Fuels and Renewable Energy in Indonesia (2016-June 2022)

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Financing by 10 Banks for Fossil Fuels and Renewable Energy in Indonesia (2016-June 2022)

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Banks play a strategic role in mitigating climate change, primarily through financing the energy transition and other environmentally friendly projects.

However, in recent years, the portion of bank financing for the new and renewable energy (NRE) sector in Indonesia has remained very minimal compared to fossil fuels.

This is recorded in a research report from a collaboration between Prakarsa and ResponsiBank Indonesia, entitled *Tracing the Progress of the Banking Sector in Financing Indonesia's Energy Transition to Accelerate Net Zero Emission* (2022).

According to the report, during the period 2016-June 2022, the largest national SOE bank in terms of assets, Bank Mandiri, had disbursed approximately US$11.68 million in financing for the energy sector.

However, approximately US$11.1 million (95%) of this was channeled to the fossil fuel sector, while only US$583,900 (5%) went to renewable energy.

A similar trend was also observed in other banks operating in Indonesia, as shown in the graph above.

In terms of percentage, the bank with the highest proportion of fossil fuel financing is OCBC Bank (99%). Meanwhile, HSBC is the bank with the largest proportion of NRE financing (20%).

Here is a breakdown of the percentage of financing from these 10 banks for the energy sector during the period 2016-June 2022:

* Bank Mandiri: 95% financing for fossil fuels, 5% for new and renewable energy (NRE)
* BRI: 92% fossil fuels, 8% NRE
* BNI: 88% fossil fuels, 12% NRE
* BCA: 87% fossil fuels, 13% NRE
* CIMB Group: 92% fossil fuels, 8% NRE
* HSBC: 80% fossil fuels, 20% NRE
* Maybank: 92% fossil fuels, 8% NRE
* OCBC Bank: 99% fossil fuels, 1% NRE
* Islamic Development Bank (IsDB): 92% fossil fuels, 8% NRE
* Bank BJB: 95% fossil fuels, 5% NRE

In response to these findings, Prakarsa and ResponsiBank Indonesia encourage banking institutions to develop specific policies and targets related to renewable energy financing or other environmentally friendly projects.

"The public, as banking customers, can encourage or demand that banks take greater responsibility for their financing," said the Prakarsa team in their report.

"The public can also be more careful in distinguishing between green banking practices and greenwashing," they continued.

Prakarsa and ResponsiBank Indonesia compiled this data from Bloomberg, Refinitiv, IJ Global, Trade Finance Analytics, annual reports and company portfolio submissions, and mass media.

All amounts found were then converted to US dollars using the exchange rate applicable at the time the financing was provided or reported.

The financing tracked focuses on loans, underwriting, shares, and bonds related to the fossil fuel and renewable energy sectors, while other sectors were not included.

"Because all financing related to other energy activities and non-energy sectors is disregarded, the total financing analyzed for each financial institution will usually be lower than the actual financing," said the Prakarsa team in their report.

The banks researched are selected banks that have joined the Indonesian Sustainable Finance Initiative (IKBI) and have committed to integrating Environmental, Social, and Governance (ESG) aspects.

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."

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Bank Financing for Renewable Energy in Indonesia Remains Limited

Bank Financing for Renewable Energy in Indonesia Remains Limited

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