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Southeast asian banks must dump Indonesian coal

23 April 2024

OPINION | Nabilla Gunawan, Asia Energy Campaigner, Market Forces, in Jakarta.

Indonesia is by far the largest producer of dangerous climate emissions of any country in southeast asia, mainly due to burning coal.

Indonesia is also feeling the full force of worsening climate disasters, from floods and storms to deadly landslides. My hometown, Jakarta, is sinking compounded by regular catastrophic flooding and air pollution, disrupting millions of lives.

Yet Asian banks are providing a lifeline for massive new coal plants to power smelters producing aluminium and nickel, much of which is being used to manufacture electric cars. 

Major banks must make significant environmental, social, and governance (ESG) reforms to usher in a new era for Indonesia’s green economy.

Much more capital has to be urgently pumped into renewable energy and green infrastructure. Our big financial institutions need to end support for fossil fuels, which are worsening climate disasters. 

The era of coal is ending in Indonesia. Coal power is fated to sunset completely within the next 25 years, consistent with achieving net zero emissions by 2050, according to the Just Energy Transition (JETP) public investment plan.

Indonesian banks have a duty to their shareholders and customers to play their role in ending financial support for all coal-fired power plants.

Industrial coal-fired so called ‘captive power plants’ used for firing metals such as aluminium and nickel have not yet been included in Indonesia’s energy transition plan.

Captive coal power for industry accounts for a quarter of Indonesia’s current electricity generation, but three quarters of its total planned new coal power capacity, according to Bank Track.

Indonesian banks must align with global climate goals by preventing decades of emissions that would threaten the future of hundreds of millions of Indonesian children for generations to come.

None of Indonesia’s largest four banks’ environment, social and governance policies are aligned with achieving net zero emissions by 2050. Indonesian major financial institutions are financing huge coal projects, posing a growing threat to our economy and our climate. 

Indonesian banks are lagging far behind peers from Singapore and Malaysia on green banking rankings. The four largest Indonesian banks’ all score zero for their environment policies, which includes enabling expansion of coal mining and power, according to Coal Policy Tracker.

There has been progress. More than 200 financial institutions including the major banks from Singapore and Malaysia have all ruled out funding new coal projects, consolidating their commitment by joining the Net Zero Banking Alliance (NZBA) to align with global climate goals. No Indonesian banks have yet joined the NZBA. 

All Asian banks have much work to do on ending their business with dirty coal. A recent report by Bank Track highlights that Asia’s top 28 banks, including Bangkok Bank, Singaporean and Indonesian banks are all failing to rule out finance to companies expanding coal.

Indonesian Presidential Regulation for renewable energy has a loophole that allows new coal power plants to fire smelters for metals such as nickel and aluminium inside industrial parks.

But leading scientists and International Energy Agency experts agree there can be no new coal mines or power plants in order to limit global warming to 1.5 degrees.

There is no question that burning coal is a major contributor to rising global temperature and the worsening climate crisis, according to the United Nations

The United Nations also warns of multiple risk tipping points, which could lead to irreversible damage and climate disasters.

Indonesia faces huge risks as it currently sits as the second more disaster-prone country in the world according to the World Risk Report

Green finance means doubling down investments in all sectors towards renewable energy, transport, and sustainable land use projects while shrinking and ultimately ceasing all financial support to the fossil fuel industry. 

Leading global research institute, the Science Based Target Initiative, urges financial institutions to decarbonize with a clear path to ending investment in companies unwilling to transition in line with achieving net zero emissions by 2050. 

It’s a dangerous contradiction for Indonesian financial institutions to be promoting green financing initiatives while funding the coal sector. Indonesian major banks must catch up with global standards. 

In May last year, Indonesia’s three major state-owned banks along with two others signed a deal to back a risky aluminium smelter project, which includes the construction of a major new coal-fired power plant, developed and owned by Adaro.

The deal flies in the face of public statements by Bank Negara Indonesia (BNI)BRI, and Mandiri to end coal financing. 

Indonesia is at a critical crossroads. We face a whopping 20 GW of coal fired power plants  according to JETP and immense toxic emissions if the industry continues to receive a financial lifeline from Indonesian banks.

Governments and regulators in southeast Asian countries must put their foot down on the side of climate science and a safer future.

Indonesia’s banks have a duty to end financing for captive coal-fired power plants to prevent emissions harming the climate and the safety of us all.

First published in The Bangkok Post 11 April 2024