The Financial Services Authority of Indonesia (OJK) announced the formation of the National Working Group on Benchmark Reform (NWGBR), in collaboration with the Bank Indonesia (BI), the Ministry of Finance (Kemenkeu), the Deposit Insurance Corporation (LPS), and the Indonesia Foreign Exchange Market Committee (IFEMC). The working group has been formed to address the plan to discontinue the use of the London Interbank Offered Rate (LIBOR) and make efforts to strengthen the credibility of the benchmark rate on the domestic financial market. Additionally, OJK and various other domestic agencies are expecting to publish, in the near future, a green taxonomy to accelerate financing programs with sustainable principles in the financial services sector.
According to OJK, Green Taxonomy can be defined as a sector classification based on business activities that support environmental protection efforts and climate change mitigation and adaptation, which is in line with definitions in several other countries such as the European Union Green Taxonomy and the China Green Catalog. The green taxonomy is a living document and is open to adjustment in the context of the development of classifications and new forms of business activities and is in line with the President's affirmation of Indonesia's commitment to climate change at the 26th UN Climate Change Conference (COP26). This Green Taxonomy is expected to be one of the key achievements or national policies, along with several initiatives in other sectors. With the development of the Green Taxonomy, Indonesia is one of the few countries in the world that already has a green standard as a national reference. The latest OJK announcement explains that the threshold for about 2,700 sectors and sub-sectors is to be categorized into green (do no significant harm ), yellow (slight harm ), and red (do significant harm). Of these, 885 sub-sectors have been mapped in detail and the thresholds clarified by the technical ministry. Furthermore, 872 sub-sectors already have a threshold that has been and will be regulated by the relevant ministry, while 13 sub-sectors are proposed to be directly included in the green category.
In the Green Taxonomy which will be released in the near future, OJK maps priority sectors in the Nationally Determined Contribution (NDC) document and 11 Categories of Environmentally Friendly Business Activities (KKUBL) in its circular (POJK No.60/POJK.04/2017) concerning Issuance and Securities Requirements. Environmentally friendly debt (Green Bond ) will be classified into sectors and sub-sectors according to the Indonesian Standard Classification of Business Fields (KBLI). In addition to this Green Taxonomy, OJK is taking a number of strategic steps for the implementation of sustainable finance, which include:
- Readiness to operate the carbon exchange in accordance with government policies
- Development of a reporting system for financial service institutions that includes green financing/instruments in line with the issuance of a green taxonomy
- Development of a risk management framework for industry and risk-based supervision guidelines for supervisors in the context of implementing climate-related financial risks
- Development of innovative and feasible financing or project financing schemes for sustainable finance
- Increased awareness and capacity building for all stakeholders
In another announcement, the government, OJK, and BI affirmed their commitment to continue to support the development and contribution of the fintech industry to strengthening the national digital economy through regulations that are able to spur the birth of digital financial service innovations while offering optimal protection to the public using fintech services and the ecosystem. The notification also sets out the steps taken by the authorities to date.
Related Links (in Indonesian)
- Press Release on Benchmark Reform
- Press Release on Green Taxonomy
- Press Release on Digital Transformation
Keywords: Asia Pacific, Indonesia, Banking, Islamic Finance, Sustainable Finance, Fintech, Regtech, Sustainable Taxonomy, ESG, Climate Change Risk, Green Bonds, Low-Carbon Economy, Benchmark Reforms, LIBOR, OJK
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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