Bank Muamalat Approach For Sustainable Finance Additional information for website and Sustainability Report Sustainable finance is a continuous commitment from Bank Muamalat to responsibly and ethically act within the framework of environment, social and governance integration for its shareholders while contributes to environment and risk development to Indonesia local communities. Bank Muamalat has started the sustainable finance journey since late 2015, at which the bank, together with 7 local banks that comprising ~46% of national banking assets, voluntarily took the initiative to become the “First Movers on Sustainable Banking”, a pilot project initiated by Otoritas Jasa Keuangan (OJK; Indonesia Financial Service Authority). With the support of WWF-Indonesia, the eight banks have participated in a series of capacity building and technical assistance programs related to ESG integration as well as the refinement of sustainable palm oil financing policies. To further show the commitment and contribution of the eight of Indonesia’s leading banks in sustainable finance, and to implement broader sustainable finance practices, on May 31st, 2018 the Indonesia Sustainable Finance Initiative (IKBI) was launched to highlight the crucial role financial institutions play for achieving the Sustainable Development Goals as well as climate change adaptation & mitigation efforts. In November 2019, IKBI officially welcoming other banks as new member which consequently since then IKBI comprising at least 60% of national banking assets. During the year of 2019, Bank Muamalat keep continuing its active participation as IKBI member to update the knowledge related to Sustainable Finance through several discussion forums with the regulator and other IKBI members.
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Bank Muamalat ApproachFor Sustainable FinanceAdditional information for website and Sustainability Report
Sustainable finance is a continuous commitment from Bank Muamalat to responsibly and ethically act within the framework of environment, social and governance integration for its shareholders while contributes to environment and risk development to Indonesia local communities.
Bank Muamalat has started the sustainable finance journey since late 2015, at which the bank, together with 7 local banks that comprising ~46% of national banking assets, voluntarily took the initiative to become the “First Movers on Sustainable Banking”, a pilot project initiated by Otoritas Jasa Keuangan (OJK; Indonesia Financial Service Authority). With the support of WWF-Indonesia, the eight banks have participated in a series of capacity building and technical assistance programs related to ESG integration as well as the refinement of sustainable palm oil financing policies. To further show the commitment and contribution of the eight of Indonesia’s leading banks in sustainable finance, and to implement broader sustainable finance practices, on May 31st, 2018 the Indonesia Sustainable Finance Initiative (IKBI) was launched to highlight the crucial role financial institutions play for achieving the Sustainable Development Goals as well as climate change adaptation & mitigation efforts. In November 2019, IKBI officially welcoming other banks as new member which consequently since then IKBI comprising at least 60% of national banking assets. During the year of 2019, Bank Muamalat keep continuing its active participation as IKBI member to update the knowledge related to Sustainable Finance through several discussion forums with the regulator and other IKBI members.
There are several milestones in Bank Muamalat’s sustainable finance journey. The Bank has been undertaking to achieve business sustainability through provision of environmentally-friendly financing portfolio as well as its operational activities. The Bank recognizes that the product and services provided to its clients has an indirect impact and risk towards the environment and the socio-economic development, amongst others the risk of biodiversity loss, negative impact on forest (deforestation) and marine environment, pollutions (air and water-related: flood and water scarcity), human risk rights for local communities and indigenous people, as well as the labour rights, etc.
Therefore, Bank Muamalat has set several policies and exclusion list in providing financing to customers with certain ESG criteria and standards. This showcase Bank Muamalat’s commitment of not providing financing for any clients whom potentially endangering the environment or harm the community. For instance, the Palm Oil Financing Policy of the bank aims to support the client’s sustainable business practices of the sector by requiring the credible sustainability standard such as ISPO or RSPO. The bank also develops standardized frameworks for E&S due diligence when reviewing clients or transactions subject to its policies meanwhile assessing its clients’ capacity, commitment, and track record. These assessments’ outcome will influence the transaction and client acceptance decisions as the bank also further monitors its client’s compliance with the agreed time-bound action plan.
To achieve the sustainable operations and ensuring the sustainable finance DNA is flowing within the bank, Bank Muamalat will continue to invest in its people. FYE 2016 – FY Q2 2019, 93 employees from officers to senior manager level were trained about sustainable finance-related issues. Going forward, the bank will also prioritize its financing to environmentally-friendly business as stipulated in the OJK Regulation (POJK) 51/POJK.03/2017 on the Application of Sustainable Finance for Financial Services Institutions (FIs), Issuer Companies and Public Companies. The Board will also actively be involved and responsible in the implementation of the bank sustainability strategy and operation, at which the day-to-day sustainability finance practices will be executed by the Sustainable Finance Task Force, led by Corporate Banking Strategy division and Business Development and Enterprise Risk Management division.
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Bank Muamalat Policy for Sustainable Finance
In 2019, Bank Muamalat has launched the General Financing Policy, which stated to avoid the financing that potentially endangers the environment. In the Financing Guideline for Corporate and Commercial Clients (Wholesale Client) Bank Muamalat also require AMDAL (Analisis Mengenai Dampak Lingkungan) as one of the standard covenant in project financing that have potential issues related to environment. Such standard covenants for project financing also documented in financing agreement between bank and the clients.
Bank Muamalat has also launched Technical Guidelines of Assessment ESG Aspects in Palm Oil Industry Financing in 2018. In 2020, this policy will be reviewed and improved to be Technical Guidelines of Financing in High-ESG Risk Industry that will be applied to Wholesale segment based client. With the improved technical guidelines, Bank Muamalat aims to improve the awareness of ESG risk in other industries amongst the employees who’s in charge in financing process.
Financing Portfolio in High Risk ESG Sectors
Palm Oil Sectors against Total High Risk ESG Sectors
in IDR billion
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Since 2018, coal sectors have been classified as one of the selective sectors for financing in Bank Muamalat. The bank is avoiding accepting new customers as well as approving top up request for the existing clients for this sector.
Palm Oil is one of Bank Muamalat’s key business focus for financing services. This sector has brought many issues and challenges related to the sustainable business practices, for instance the environmental issues of deforestation, GHG emissions, and forest fire, social issues of child and woman labour, conflict with indigenous people and local community, and governance issues of legality. As a first step, Bank Muamalat Indonesia will implement this policy with the following action plan:
Prioritize the financing for corporate customers certified by ISPO (Indonesian Sustainable Palm Oil) or RSPO (Roundtable Sustainable Palm Oil);Monitor and encourage the fulfilment for ISPO or RSPO certifications’ target and commitment; Conduct a mitigation effort for corporate clients with ESG-high risk.Improving competencies in conducting risk analysis for palm oil financing, to maintain the quality of the financing provision.
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Following the successful first step towards sustainable banking initiatives, Bank Muamalat Indonesia will develop several sustainability programs, of which the yearly progress that can be monitored through Sustainability Report. On its long-term planning, Bank Muamalat Indonesia will not only focus on palm oil financing, but also on the other business sectors that have major impact on Environment, Social and Governance business aspects.
Summary of Policies on Sustainable Financing and Palm Oil Industry
Bank Muamalat Indonesia realizes that financing its customers will have direct impact on the environment and socio-economic conditions. Therefore, Bank Muamalat Indonesia has a policy to not to provide financing for any customers whom potentially endangering the environment, harm the community, or have negative impact on social and economy. As palm oil is categorized as high-ESG risk sector, Bank Muamalat Indonesia has develop a financing policy to ensure the clients (and its group) will conduct the sustainable business practices in its the downstream and upstream business. This policy is intended for financing products designed for the wholesale segments, to mitigate the environmental-related risk such as climate change, deforestation, carbon emission, forest burn, and social risk (land conflict and legality).
Policy Implementation and Mechanism for the Palm Oil Industry
Bank Muamalat Indonesia will prioritize its financing services for clients that already obtain ISPO or RSPO certification. As both certifications consist of several process and stages, Bank Muamalat Indonesia will therefore continue to encourage its clients whom have not yet certified with ISPO or RSPO to fulfil the standard requirements of:
Own a sustainability-related vision and mission/work plan/work program/guidance that express high concerns on the environment, especially within its long-term business planning and operations;Have a track record/report on the UKL-UPL/AMDAL implementation as well as the submission of such reports to the relevant institutions;Have a labour union, hired the employees according to age-requirement standards, and has applied a fair treatment to all its employees; Have implemented an employee’s occupational safety and health management system and initiate the welfare improvement of the community; Has a complete legal document on its acquired land as well as related social environmental permit documents, such as Principle Permit, Location Permit, Plantation Business License (IUP), and the Right of Business Operation (HGU).
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Bank Muamalat Commitment & Policy on Sustainable Palm Oil
An agreed time-bound action plan and field visit will be conducted by Bank Muamalat Indonesia for its clients that have not yet fullfill the sustainable palm oil policy requirement. For non-compliance client, Bank Muamalat will apply an agreed corrective time-bound action plan & field visit. The following are sustainability-related requirements to be fulfilled by palm oil clients:
Not located in the protected forest area; if located in the peatland, will be subject to the prevailing land characteristics, conditions, as well as regulations. Proper chemicals/pesticide application.No slash-and-burn land clearning, have a strategy to tackle the climate change and reduce carbon emmission.High Conservation Values Management Plan in place.Standard Operational Procedures for Plantation Management in place.
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Mills located in the peatland shall have suitable building construction/pondation subject to the prevailing land characteristics, conditions, as well as regulations.Transportation access from and to the Mills is not an intersection of any conservation area.Own Waste Water Management and Waste Management System (for Solid, Liquid and Gaseous Wastes and Dangerous & Toxic Wastes) Own waste disposal permit (to be released to the water/ sea/ river)
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Plantations Mills
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Bank Muamalat Identified Stakeholders for Sustainable Finance
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Bank Muamalat Identified Stakeholders for Sustainable Finance
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Bank Muamalat Identified Stakeholders for Sustainable Finance
Stakeholders Approach Topic ResponseFrequency of
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Bank Muamalat Identified Stakeholders for Sustainable Finance
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