The Environment Ministry and the central bank on Friday signed a memorandum of understanding making it mandatory for banks to deny loans to companies that violated pollution standards.
Under the agreement, lenders would have to consult the ministry’s list of companies taking part in the Corporate Environmental Performance Ratings, or Proper, to check the applicants’ rating.
If a company is listed as black, or failing to comply with environmental protection standards, it will be denied financing.
“We want to make use of the list not only for the companies but also for banks so that they won’t give any loans [to companies] that have been damaging the environment,” Environment Minister Gusti Muhammad Hatta said on Friday.
“We don’t want banks to take any risks because companies rated black have a high chance of being shut down. If they’ve already borrowed money [from the banks] and then close down, what will happen to the money?”
The color-coded Proper ratings award a gold to companies that show the highest compliance with environmental regulations and demonstrate a proactive sense of responsibility toward their surrounding communities.
This is followed by blue and green marks, while toward the bottom of the list, a red rating indicates a lack of compliance with environmental regulations, and black is reserved for companies that knowingly and deliberately pollute the environment.
Darmin Nasution, governor of Bank Indonesia, said both the central bank and the ministry expected to issue a regulation to enforce the agreement soon.
“We want to have concrete action to follow up on this MoU, maybe even forming a working group [from both institutions] that will try to draft operating methods and eventually formulate it into regulations,” he said.
“In other words, we hope this becomes [standard practice] at banks.”
Darmin also said he planned to increase the part played by the banking sector in environmental preservation.
“What we expect is that banks will play an active role,” he said.
“One way to do this is by downgrading a bank’s rating if a company they’ve given a loan to is found to have violated environmental regulations.
“It doesn’t mean that banks will automatically collapse, but it will affect their rating as banks. This is an appropriate measure to get banks to be more involved in environmental issues.”
Muliaman Hadad, a deputy Bank Indonesia governor, said an existing BI regulation calling on banks to consider a loan applicant’s environmental credentials, would need to be re-evaluated.
“We already have the regulation in place, but with this MoU, we’ll need to evaluate how we enforce banking commitment over environmental issues, especially in terms of educating the bankers,” he said.
