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A quick look on OJK’s New Regulation on Sustainable Finance

13 July 2017

As part of 2017 target in Indonesia’s Financial Service Authority (OJK)’s work program, in collaboration with IFC, USAID Indonesia, and other donor institutions, OJK is launching a new regulation (Peraturan OJK or POJK) on Sustainable Finance on July 14, 2017. The regulation has passed consultative sessions with the public and seven new OJK commissioners.

The release of new POJK this year is part of OJK’s Sustainable Finance Roadmap 2015-2019 work program that was developed to show Government of Indonesia’s commitment to the international world, especially among the G-20 member countries.

The new regulation will encourage institutions such as financial services, emitent and public companies to apply sustainable finance principles in their business activities. Through this regulation, it becomes mandatory for these institutions to develop a sustainable finance program, which will be reported formally through an annual business plan. In addition, the regulation will also mandate sustainable finance reporting, in which will include performance of economy, social, and environmental program implementation.

Sustainable finance itself is defined as a comprehensive support from the financial service sector in creating a sustainable economic growth obtained by achieving a balance between economy, social, and environmental aspects.

The launch of OJK’s Regulation on Sustainable Finance is aimed to motivate business owners to not only perform business that is driven by profit, but also pay attention to effect towards environment and social aspects. The principles are responsible investment, strategic sustainable business, including good management of environmental, social, and governance risks.

If financial services, emitent, and public companies implement the sustainable finance, OJK pledges to incentivize capacity building for green financial and non-financial services and products. However, any violation to the provision will result in an administrative sanction in the form of a warning letter.

Muliaman D. Hadad, Chairman of OJK Board of Comissioners explained that there are two direct actions that can strengthen sustainable finance in an emerging market such as renewable energy. “First, the availability of an efficient financial instrument to attract private funding to the sustainable development. These instruments should include the availability of information regarding the basic fianancial performance of sustainable finance investment in developing countries. Secondly, there is a need of regulation that drives long term investment.”

OJK hopes that the impacted institutions to start implementing the new OJK’s Regulation on Sustainable Finance in stages effective from January 1st, 2019.