Finance Greenshift: Navigating the Path to Green Finance in Emerging Countries

Abstract

This paper sheds light major strategic actions to advance green finance in national financial system of an emerging country, Indonesia and discusses the opportunities and challenges that could be adopted to scale it up and align the ambitious policies with current business practices. Indonesia through active roles of its two regulators, i.e. the Central Bank of Indonesia (Bank Indonesia or BI) and the Financial Services Authority (Otoritas Jasa Keuangan or OJK) have had a leadership role in the implementation of green finance. It includes the introduction of sustainable finance roadmaps, green credit policies, climate risk stress testing initiative, sustainable taxonomies, green or sustainable bonds as well as sustainability oriented corporate reporting. This series of initiatives ideally will expedite the capital flows into green projects to support the sustainable development goals (SDGs) achievement. However, after looking at in details of the credit channeled to green projects, in fact Indonesian financial services sector has done too little in green finance. Apart from formulating policies and regulations to keep up with fast development of global green finance framework, an impact and effectiveness assessment of current policies and regulations are needed to mainstream green finance practice to Indonesian financial system. It should be followed by formulation of right incentive mechanism, massive awareness program, capacity and capability development program, and developing a favourable green finance ecosystem.