Tuesday, July 25, 2017
OJK Issues Regulation on Sustainable Finance: Corporations Required to Report Business Action Plans
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Prayogo Serevin Wisnumurti, Nanda Narenda Putra


ojk

Muliaman D. Hadad, Chairman of the OJK’s Board of Commissioners for the 2012-2017 period. Photo by: RES

 

 
All corporations are now required to report their action plans to the Financial Services Authority (Otoritas Jasa Keuangan – OJK) under new OJK Regulation No.51/POJK.03/2017 on the Application of Sustainable Finance for Financial Services Institutions (Lembaga Jasa Keuangan – LJK), Issuers and Public Companies (POJK 51/2017).
 
According to Mr. Muliaman D. Hadad, Chairman of the OJK’s Board of Commissioners for the 2012-2017 period, this regulation has been issued in order to create a legal framework which specifically binds all actors operating within the financial services sector to the principle of sustainability. One of the provisions set out under POJK 51/2017 concerns Sustainable Financial Action Plans, which are now required to be submitted annually to the OJK.
 
"POJK 51/2017 was finally set out on 19 July 2017 and is currently being prepared for dissemination by the Ministry of Law and Human Rights. This new regulation will finally come into force on the date of its promulgation," Mr. Hadad explained on Thursday 20 July.
 
Based on the mandate set out under Law No. 32 of 2009, the OJK is obliged to develop and apply so-called environmental economic instruments through policies which address the social and environmental aspects of banking, the capital markets and the non-banking financial industry. According to Article 1, number 3 of Law No. 32 of 2009, Sustainable Development refers to a conscious and planned effort to integrate environmental, social and economic aspects into a coherent development strategy which will ensure the integrity of the environment, as well as the safety, abilities, welfare and quality of life of both the present generation and future generations.
 
According to Mr. Hadad, the background behind the drafting of this new regulation is to provide the funding needed to achieve the objectives of sustainable development, as well as funding for climate change. Hopefully this will in turn increase the resilience and competitiveness of LJK, issuers and public companies as regards the management of social risks and the maintenance of a high-quality environment.
 
POJK 51/2017 will be applied gradually to each corporation, including LJK, issuers and public companies, which will slowly be adjusted to comply with new characteristics and business complexities. In addition, the OJK will also consider the readiness of each LJK, issuer and public company to meet the various requirements which are set out under the new regulation. Moreover, the OJK will also be encouraging business persons working in the industry to develop financial products and/or services which apply sustainable financial principles, so as to make a positive contribution to the stability of the financial system.
 
"The goal is to reduce social inequality, prevent environmental degradation, maintain biodiversity and encourage the efficient use of energy and natural resources," Mr. Hadad explained.
 
Edi Setijawan, Director of Sustainable Finance at the OJK, has also stated that regulators are continuing to encourage LJK to undertake additional due diligence before disbursing loans to non-green project companies. Mr. Setijawan went on to explain that that during 2015 and 2016, the OJK was mainly focused upon capacity building among various stakeholders, so that the issue of sustainable finance could be understood more deeply.
 
"If a corporation is given a ‘red proper’ designation, then a bank should not give its approval for any loans. Indeed, banks have started to sit up and take note of this policy since we announced that their sustainable-finance policies will become subject to OJK monitoring. A ‘red proper’ designation means that corporations will not be granted any approval, while a ‘black proper’ designation is even stronger,” Mr. Setijawanto told Hukumonline in early March.
 
The proper criteria, as assessed by the Ministry of Environment and Forestry, consist of two categories, namely compliance assessment and beyond compliance assessment. The criterion of compliance assessment is used to answer the simple question of whether a company has been observant of the relevant environmental-management regulations. The rules used as the basis for the current assessment are regulations which relate to mandatory environmental documents and their reporting in the form of Environmental Impact Assessment (Analisis Mengenai Dampak Lingkungan - AMDAL) documents, Environmental Monitoring Effort Reports and Environmental (Upaya Pemantauan Lingkungan – UPL) Management Effort Reports (Upaya Pengelolaan Lingkungan – UPL).
 
Regulations on the control of water pollution, for example, must now be adhered to and discharges of wastewater into the environment must pass the relevant compliance assessment and must meet certain quality standards. Air pollution and the management of Hazardous and Toxic Substances (Bahan Berbahayadan Beracun - B3) are also to be regulated in this way. Technically, the proper test begins with the selection of a participating company. This participating company should make a significant important environmental impact, be listed on the stock exchange, produce export-oriented products or be widely used by the public.
 
“Most people think that an AMDAL is like an ID card, and that if they have already been given an AMDAL, then this means that their company is environmentally friendly.  This is not the case however, as possession of an AMDAL means that any company that receives a project promises that they will undertake activities A, B, C, D and E before reporting them to the LHK. Thus, we are encouraging LJK to not only consider whether a given AMDAL is valid or not, but also whether it is up to date and being complied with,” Mr. Setijawan concluded.
 

(ap/sp)