Mongabay-Indonesia’s four largest banks handed out loans totaling $3.5 billion of direct loans to the coal industry from 2015-2021, despite their stated commitments to sustainable financial practices, a new report shows.
The report by a coalition of civil society groups looked at loans made by BNI, BRI and Bank Mandiri, all state-owned lenders, and BCA, the biggest private sector bank in the country.
The four banks were pioneers of sustainable financing initiative in Indonesia back in 2018 together with WWF. Under the Indonesia Sustainable Finance Initiative (IKBI), these banks aim to implement sustainable finance practices and integrate environmental, social and governance (ESG) issues into their operations. The initiative also acknowledges the crucial role that financial institutions play in climate change adaptation and mitigation efforts.
To look at whether the four banks are walking the talk, the coalition studied the annual reports of the 24 coal companies that are listed on the stock exchange in Indonesia. It found that they received $3.5 billion in direct loans from the four banks since 2015.
The biggest lender to the companies studied is Bank Mandiri, which is also the largest bank in Indonesia. It issued $3.19 billion in loans to 10 coal companies between 2015 and 2021.
Yet Bank Mandiri stated in its 2020 annual report that it no longer funds businesses or projects that harm the environment. And in its 2021 sustainability report, it said it’s moving towards carbon neutrality through strengthening ecosystems and green taxonomy.
But the same sustainability report also notes a major loophole, saying Bank Mandiri can still finance the construction of new coal-fired power plants as long as it “consider[s] the compatibility of the financing period with applicable government plans and regulations, and pay[s] attention to policies related to the environment [carbon emissions, coal ash, water and waste management] and employment.”
In the 2015-2021 period, Bank Mandiri provided loans to 10 coal companies: Indika Energy, Trada Alam Minera, Bayan Resources, Petrosea, Delta Dunia Makmur, Dian Swastatika Sentosa, Golden Energy Mines, Bukit Asam, Adaro Energy and Toba Bara Sejahtra.
The second biggest lender to the coal sector was BCA, which is also the most valuable listed company in Indonesia by market capitalization. In its 2020 annual report and sustainability report, BCA touted its support for the development of renewable energy, citing this as its contribution toward climate change mitigation. According to its sustainability report, BCA financed a total of 15.97 trillion rupiah ($1.07 billion) in renewable energy projects from 2016 to 2021.
However, BCA still provided $170.5 million in loans to two coal companies — Alfa Energi Investama and Dian Swastatika Sentosa — in the 2015-2021 period.
The third biggest lender was BRI, whose 2020 annual report and sustainability report recognized climate change’s impact on future lives, and which has implemented ESG in its operations.
However, BRI has no actual policy preventing it from funding coal projects. From 2015-2021, it provided $122.5 million in loans to three companies: Darma Henwa, Bukit Asam and Toba Bara Sejahtra.
The fourth biggest lender was BNI, which in 2018 rebranded itself as a “green” bank, saying it prioritizes environmental sustainability in its business practices. Yet it lent $53.4 million to three coal companies: Dian Swastatika Sentosa, Indika Energy and Delta Dunia Makmur.
By continuing to fund coal-fired power plants and coal mines, these banks have contributed to global warming, said Suriadi Darmoko, Indonesia finance campaign manager at 350.org, a global movement advocating for a clean energy transition.
“After the Paris Agreement [on climate change], national banks still give financial support to coal companies, so we’re still far from being committed to stop coal financing,” he said during the recent launch of the report, which 350.org contributed to. “With financial support from banking institutions and government policies, coal companies in Indonesia will keep expanding and emitting greenhouse gases that exacerbate the climate crisis.”
If these banks are truly committed to environmental sustainability as they say, then they should stop funding coal companies, Suriadi said.
“The financial sector is important because we know that without funding, even if [companies] obtained permits from the government, they will be confused because there’s no money,” he said.
Bucking the global trend
Binbin Mariana, Southeast Asia energy campaigner for campaign group Market Forces, said banks in Indonesia, the world’s fifth-largest coal producer and top exporter, lag behind lenders elsewhere when it comes to ending financing for destructive activities.
She identified 115 banks in 41 countries that say they’re committed to tackling climate change by joining the U.N.’s Net-Zero Banking Alliance. These banks, which account for about 40% of global banking assets, have pledged to transition all of their investments that contribute to greenhouse gas emissions in order to reach net zero by 2050.
“There’s not a single bank from Indonesia that join this alliance,” Binbin said during the launch of the report, adding that banks from other countries in the region, including Malaysia and Bangladesh, have joined the initiative.
Some banks have also stated that they would divest their investment from specific coal companies in Indonesia. Binbin cited the example of U.K. bank Standard Chartered and Singapore’s DBS, which both announced they would stop funding Adaro Energy, Indonesia’s largest coal miner.
Since 2006, Standard Chartered has provided at least $300 million in funding to Adaro Energy and its subsidiaries. Following pressure from activist and campaign groups, including Market Forces, the bank announced in April this year that it had ended its relationship with Adaro Energy.
DBS also recently said it would stop its funding to Adaro Energy as a part of its commitment to tackling climate change by stopping all loans to coal by 2039.
“Our exposure to Adaro Energy’s subsidiaries in the coal sector will decrease significantly by the end of 2022,” a DBS spokesperson said. “We have no intention of renewing funding if the business is still dominated by thermal coal.”
Other banks that aren’t in the U.N. alliance have also touted plans to phase out coal from their portfolios, such as Bank of China, the fourth-largest lender in the world.
“It didn’t join the alliance, but BoC is one of the biggest banks in the world that fund coal,” Binbin said. “Even the king of coal financing said in September 2021 that it would stop financing new coal mining and power projects overseas from the fourth quarter [of 2021].”
BoC’s commitment, however, allows it to continue funding coal projects in China, where more new coal-fired power plants are being built than in the rest of the world combined.
While there’s an increasing number of banks announcing plans to divest from coal, the recent surge in coal prices has driven a wave of bank loans to coal miners in Indonesia.
Data from Indonesia’s financial regulator, the OJK, show that lenders channeled 26.83% more money to the country’s mining industry in January 2022 compared to the same period in 2021. The increase is much higher than the year-on-year growth in overall loans of 5.79%.
But the current high coal prices will not be enough to provide a lifeline to the coal industry, as shown by Standard Chartered and DBS’s decision to stop funding Adaro Energy, said Andri Prasetiyo, a researcher at Indonesian nonprofit Trend Asia.
“Even if Adaro becomes the largest coal mining company that received great profit from this coal windfall period, it’s still not enough to [prevent] financial institutions from withdrawing and exiting,” he said.
This is because boom cycles in coal prices doesn’t usually last long, Andri said.
“The decision by DBS and other big banks to leave Adaro sends a strong signal to other coal miners to transition out of coal now,” he said.
But with Indonesia’s biggest banks continuing to fund the industry, it seems like they’re ignoring the signs, Binbin said.
“Unfortunately, Indonesian banks don’t open their eyes. There’s no divestment from coal at all,” she said.
Photo: The atmosphere of a fishing pier located between the PLTU complex in Suralaya, Banten Province, Indonesia, on Monday (13/6/2022). The government continues to build new PLTUs in the area with the Java 9 and 10 PLTU projects which have now entered the construction stage. The economic life of the community, especially fishermen, is increasingly threatened due to the loss of fish catch ecosystems in coastal areas and forcing fishermen to move farther from the shore to catch fish. Melvinas Priananda/Trend Asia