AEER Statement on State-Owned Bank Annual General Meetings (March 4-7, 2024)

Indonesia's Clean Energy Ambitions Stall as State Banks Prioritize Coal

Jakarta, March 6 2024 State-owned banks in Indonesia have made limited contributions to the nation’s efforts in reducing carbon emissions. The clean energy sector’s funding portfolio within these banks remains small compared to their extensive investments in the extractive sector, notably in coal. This situation is compounded by the government’s decision to lower the New Renewable Energy (EBT) mix target for 2025 from the initial goal of 23% to a reduced range of 17% – 19%.


Notably, Bank Mandiri and BNI have seen an increase in their coal sector loan portfolios. According to the third quarter-2023 performance analysis, BNI’s coal credit portfolio constituted 3% of the total credit, amounting to IDR 664.1 trillion, a rise from 2.5% of the total IDR 622.6 trillion credit in the same period of 2022. Similarly, Bank Mandiri’s coal loan portfolio was 3.2% of its total loans, reaching Rp 1,016 trillion as of September 2023, an increase from 2.2% of the total loans of Rp 907.8 trillion in the previous year. BRI, however, has not publicly disclosed its coal sector financing details as of 2023.


The disparity is stark when considering renewable energy projects such as the Floating Solar Power Plant (PLTS) in Cirata, West Java, which requires an investment of about US$ 143 million (equivalent to Rp 2.24 trillion). This figure is relatively minor compared to the total coal sector investment by these banks. For instance, if Bank Mandiri redirected its Rp 664 trillion coal sector funds to renewable energy, it could finance approximately 296 PLTS projects. Similarly, BNI’s Rp 1,016 trillion in coal credits could develop around 453 similar projects.


Pius Ginting, the Coordinator of the Association for Ecological Action and Emancipation of the People (AEER), points out that the growing portfolio in the coal sector reflects a lack of serious commitment by state-owned banks towards addressing the climate crisis. While funding flows freely to the extractive sector, renewable energy financing is minimal and challenging. The 2023 Environment, Social, and Corporate Governance (ESG) Report shows that each bank’s renewable energy sector loans are comparatively low. Specifically, Bank Mandiri’s sustainable financing in this sector is only IDR 9.7 trillion, BNI’s is IDR 10.2 trillion (down from IDR 10.9 trillion the previous year), and BRI’s is just Rp6.02 trillion in 2023.


Pius emphasizes that although there’s a yearly increase in renewable energy credit, it’s insignificant compared to the extractive sector, particularly coal. He asserts that the government’s commitment to reducing greenhouse gas emissions should be mirrored in the investment strategies of state-owned banks.


Furthermore, the carbon emissions resulting from the financing by state-owned banks are substantial. Bank Mandiri’s funding in the power generation sector alone results in 2.4 million tons of CO2e emissions, followed by significant emissions in the iron, steel, oil, gas, and livestock sectors. BNI’s financing in the processing industry leads to 12 million tons of CO2e emissions, with the trade and mining sectors also contributing significantly. BRI’s financing in the electricity and gas sector generates 6.2 million tons of CO2e, and the manufacturing and mining sectors are also notable contributors.


However, Pius recognizes that the responsibility for funding renewable energy cannot solely rest on state-owned banks due to the prudential aspects of lending and the inherent risks involved. Currently, financing renewable energy projects faces several challenges. For one, PLN Statistics 2022 indicates that renewable energy’s Average Plant Operating Cost per kWh is higher compared to that of coal power plants. Additionally, investments in renewable energy tend to have longer payback periods than those in coal, and there’s a lack of understanding among development companies about accessing EBT financing and limited knowledge within banks about the EBT sector.


“State-owned banks cannot maximally increase EBT financing without an investment climate and regulations that are conducive to reducing the risk level of EBT projects. Meanwhile, increasing renewable energy financing is one of the strategies to reduce the impact of climate change. The government also has the responsibility to issue policies that will reduce the credit risk of EBT projects so that state-owned banks can take on greater responsibility,” said Pius.

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