ENVIRONMENT, CLIMATE CHANGE AND LOW CARBON DEVELOPMENT

GREEN BANKING IN ASIA + 3

Edi Setijawan

Introduction
1. What is Green Banking?
ALL PRODUCTS FUNDING LENDING CSR
driver
involvement

Planet

People

Profit

Compliance

Voluntary

Integrated

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

Infant Industry Green Sectors
Economic of scale industry

Banks risk management

Hi risk

Inherent risk

Manageable risk Market price Interest rate

+ premium Interest rate Risk Management Extra efforts Avoid

3

Normal effort Love

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

Infant Industry Green Sectors
Economic of scale industry

Banks risk management

Hi risk

Inherent risk

Manageable risk Market price Interest rate

+ premium Interest rate Risk Management Extra efforts Avoid Intervention/incentive area
4

Normal effort Love

Basic Facts Green Banking in ASEAN + 3

1. The Equatorial Principles (73 banks)
a. b. c. China (industrial bank) Japan (Mizuho Corp. Bank, Sumitomo Mitsui Bank) Asia (3), Africa (7), middle East (3), Latin America (9).

2. UNEP (203 banks)

a. b. c. d. e. f. g. China (4) Japan (19) Indonesia (1) South Korea (8) Philippines ( 3 ) Thailand (2) 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

Japan case
Description Key results

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
7

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
Key challenges

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

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

Stakeholder Green Banking in Indonesia

Government Bank Indonesia Capital market

International best practices/standards

International Financial Institution/donor agency

National Council on Climate Change (NCCC)

Banks

R & D Institution/ Universities

NGOs

Environmental Auditor

Banks Association

customer

Rating agencies

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 banks risk management c. Support from government and international

2. Limitation
a. b. c. d. Most of green sectors are infant industries Liquidity issue (short term funds versus long term investment) Regulation (cross border) Limited knowledge & expertise

Q-A