INTEGRATING ENVIRONMENTAL, SOCIAL INTEGRATING ENVIRONMENTAL, SOCIAL ANDGOVERNANCE (ESG) THROUGH ANDGOVERNANCE (ESG) THROUGH

ENVIRONMENTAL FINANCING PROGRAM ENVIRONMENTAL FINANCING PROGRAM IN INDONESIAIN INDONESIA

By :By :SudariyonoSudariyono

Deputy Minister for Capacity Bulding & Technical Infrastructure Deputy Minister for Capacity Bulding & Technical Infrastructure DevelopmentDevelopment

Ministry of EnvironmentMinistry of EnvironmentRepublic of IndonesiaRepublic of Indonesia

TBLI CONFERENCE ASIA 2010TBLI CONFERENCE ASIA 2010Tokyo, 27 May 2010Tokyo, 27 May 2010

Scope of Scope of PresentationPresentation

BackgroundBackground Environmental Environmental Financing Financing

Scheme in Indonesia Scheme in Indonesia Strategy to enhance ESGStrategy to enhance ESG Closing remarksClosing remarks

Background Background

Environment PolicyEnvironment Policy

Act 32/2009 Act 32/2009 Government shall develop Government shall develop economic instruments to enhance economic instruments to enhance environment management in Indonesia;environment management in Indonesia;

Among instruments is economic related Among instruments is economic related directly to financial Institution :directly to financial Institution :

Develop Green BankingDevelop Green Banking

Develop Green Indonesian Develop Green Indonesian Stock Market Stock Market ExchangeExchange

Banks in IndonesiaBanks in IndonesiaTotal Bank 130 BanksTotal Bank 130 Banks

4%

52%

15%

9%

20%

National Bank

Private Bank

Mix Bank

Foreign Bank

Regional Bank

Why Bank can not finance Why Bank can not finance Environmental Environmental Investment ?Investment ?

Environmental investments is a cost center investment.

Environmental investments is regarded as innovative product,

Most of Environmental Investment is a new products that are in developing stage

Most of companies is a new entities due to development of new technologies.

PROPORTION OF MICRO, SMALL AND PROPORTION OF MICRO, SMALL AND MEDIUM SCALE ENTERPRISESMEDIUM SCALE ENTERPRISES

0.5 %

1.5 %

98 %

Medium Scale

Small scale

Micro scale

42,398 million Unit

By numbers, MSMEs are potential polluters

APPROACH TO FINANCIAL APPROACH TO FINANCIAL InstitutionsInstitutions

SOFT LOAN PROGRAMS :SOFT LOAN PROGRAMS : Total Fund : IDR 632 Bilion or US $ 70 Total Fund : IDR 632 Bilion or US $ 70

millionmillion Sources of Fund : Soft Loan, Grant and Sources of Fund : Soft Loan, Grant and

Debt Swap for Nature from JBIC and KfWDebt Swap for Nature from JBIC and KfW Revolving Fund for 40 Years Revolving Fund for 40 Years ::end 2022end 2022 End User : 729 EnterprisesEnd User : 729 Enterprises

Japan Bank International Cooperation-Pollution Japan Bank International Cooperation-Pollution Abatement Equipment (JBIC-PAE)Abatement Equipment (JBIC-PAE)

Industrial Efficiency and Pollution Control-Industrial Efficiency and Pollution Control-Kreditanstalt fur Wiederaufbau (IEPC-KfW) Kreditanstalt fur Wiederaufbau (IEPC-KfW) Tahap I Tahap I

Industrial Efficiency and Pollution Control-Industrial Efficiency and Pollution Control-Kreditanstalt fur Wiederaufbau (IEPC-KfW) Kreditanstalt fur Wiederaufbau (IEPC-KfW) Tahap IITahap II

Debt Swap for Nature from KfWDebt Swap for Nature from KfW

JBIC-PAEJBIC-PAE IEPC-KfW IEPC-KfW phase Iphase I

IEPC-KfW IEPC-KfW phase IIphase II

SOURCESOURCE Soft Loan Soft Loan From JBICFrom JBIC

Grant from KfWGrant from KfW Soft Loan from Soft Loan from KfWKfW

TARGETTARGET All size of All size of enterprisesenterprises

SMEs SMEs SMEsSMEs

Handling Handling BanksBanks

5 National 5 National BanksBanks

4 Regional 4 Regional Banks (BPD)Banks (BPD)1 National Bank1 National Bank

4 Regional Banks 4 Regional Banks (BPD)(BPD)2 National Banks2 National Banks

Type of Type of LoanLoan

InvestmentInvestment InvestmentInvestment Investment(60%)Investment(60%), Working , Working Capital (40%)Capital (40%)

Interest Interest rate rate (Efective)(Efective)

SBISBI 10,06%10,06% 11%11%

Technical Technical AssitanceAssitance

-- Regional Regional ConsultantConsultant

Regional Regional ConsultantConsultant

SOFT LOAN PROGRAMSSOFT LOAN PROGRAMS

MECHANISMMECHANISM

MOE

Financial Institution (s)

End Users

1

2

3

4

5

Legend:

1. MSEs submit the proposal to FIs

2. FIs require the Technical Recommendation from MoE

3. MoE process and the technical recommendation (incl. site visit)

4. MoE issues the technical recommendation

5. FIs (after approval of the financial feasibility) channel the fund

PARTICIPATINGPARTICIPATING BANKS BANKS

There are 12 Banks participate in the program: - 7 National Banks : BNI, CIMB Niaga, Export Import Bank,

Mandiri, BII, Danamon, Syariah Mandiri- 5 Regional Bank : Bank Bali, Bank Central Java, Bank

West Java, Bank West Sumatera,

Capacity Building Capacity Building ProgramProgram

Soft Loan provide some fund for CapacitySoft Loan provide some fund for CapacityBuilding Programs by :Building Programs by :

Providing Financing Consultant to assist Providing Financing Consultant to assist banks on environmental investment banks on environmental investment

Develop quidelines for bankers Develop quidelines for bankers Increasing Awareneess by :Increasing Awareneess by :

Having internal workshop for analist officerHaving internal workshop for analist officerHaving/attending seminar/international Having/attending seminar/international for high level of bankersfor high level of bankers

WASTE TO ENERGY WASTE TO ENERGY INVESTMENTINVESTMENT

BALI MICRO BIOGAS BALI MICRO BIOGAS PROJECTPROJECT

Capacity 1 ton/day (2 batch) in Pesantren, Makassar

Closing RemarksClosing Remarks

With bussiness approach, ESG is more accepted by With bussiness approach, ESG is more accepted by Indonesian banks, which are very strictly regulated Indonesian banks, which are very strictly regulated by Banks, by Banks, Financial incentive need o promote env Financial incentive need o promote env investment investment also also provide triple win solutionsprovide triple win solutions

The role of all stakeholders, including banks in The role of all stakeholders, including banks in financing environmental investments greatly financing environmental investments greatly encourages more environmentally friendly encourages more environmentally friendly enterprisesenterprises

several industries finally show that financial several industries finally show that financial benefits could be achieved through environmental benefits could be achieved through environmental Investment, banks gradually started to see that Investment, banks gradually started to see that environmental investments can be interesting and environmental investments can be interesting and financially rewardingfinancially rewarding

Further Information :Further Information :

www.www.menlhmenlh.go.id/.go.id/pinjamanlunakpinjamanlunaktolotolo@@menlhmenlh.go.id.go.id

Ministry of EnvironmentMinistry of Environment(Kementerian Lingkungan Hidup)(Kementerian Lingkungan Hidup)

Jl. DI Panjaitan Kav 24 Jakarta Timur, Jl. DI Panjaitan Kav 24 Jakarta Timur, IndonesiaIndonesia

Telp (62)-(21)-8517161Telp (62)-(21)-8517161