financialtreat – will explain about sustainability finance: Sustainable Aspects for Banking Welfare which you will get in the following article. let’s look at this article carefully!
The COVID-19 pandemic has drastically changed the way people live. Most of the existing energy sources are focused on tackling the effects of the pandemic. On the other hand, we also must not forget that at this time we still have big work to be able to realize the goals of sustainable development. Therefore, sustainability in banking is very necessary in helping the community in sustainable development.
With the pandemic, steps to achieve sustainable development goals will also meet more and more challenges. Poverty alleviation, climate change, access to quality education, people’s health, and gender equality are the main issues of the goal of sustainability in banking.
Sustainable Aspects for Banking Welfare
We agree that the goal of sustainable development should be pursued as much as possible through various initiatives. However, its implementation requires a lot of money. You could say that at this time we still have a lot of homework, but the rupiah is limited. With all the limitations, we have to think about alternative sources of financing, not only from the government budget. The question is, where can we get it?
Statistics Indonesia Financial Platform states that 77.90 percent of financial assets on Indonesian financial platforms are in the banking industry. The rest, 22.90 percent, are in the non-bank financial industry, such as the capital market, insurance and pension funds.
This means that banks play a very important role in the turnover of financial assets in Indonesia. Banking can be a catalyst to drive a sustainable economy through sustainable finance practices.
Sustainable finance refers to any form of financial service that integrates environmental, social, and governance (Environmental, social, governance/esg) criteria into business or investment provisions for the long-term benefit of clients and the wider community.
In practice, banks and financial forums do not only focus on profit (profits), but also on the planet (Earth) and people (Humans). The concept of sustainable finance encourages financial forums to increase capital flows to green, climate-friendly and inclusive projects and sectors, and also helps financial forums integrate climate objectives and long-term climate-related risks into their portfolio management.
One of the things that need to be emphasized in the concept of sustainable finance is the difference with the concept of social responsibility or corporate social responsibility (Csr). In the CSR application, business entities take on more roles as philanthropists and are voluntary and mostly because they want to return the favor to the environment and community, regardless of the question of whether the type of business is adapted to business ethics or not.
On the other hand, in the practice promoted by sustainable finance, the type of business used in seeking profit must be in line with the principles of sustainability. In this case, the financial forum becomes the driver that ensures business entities align their profit making activities and commitment to maintain the environment and social community at the same time through commitment to disbursing capital.
In the application of sustainable finance practices, it is important to underline the concept of a long-term vision. This means that in the short term the profitability that can be obtained by financial forums is slightly lower, but this profitability can be ensured to be sustainable in the long term.
Social Financing and MSME Empowerment
One of the social missions that is also carried out in the concept of sustainable finance, especially in Indonesia, is the availability of inclusive financial services. Why is inclusive financial services important?
Looking at the map of the distribution of business types in Indonesia based on the scale of their business, more than 90 percent are MSMEs. At that time, the number of financial inclusion in Indonesia “New” reached 76.19% (National Survey of Financial Literacy and Inclusion, Financial Services Authority).
This indicates that not all Indonesians can enjoy access to financial services, and some of them could be MSME actors. In fact, the ability to get access to affordable capital is one of the determinants of the sustainability of a business. Data shows that MSMEs received financing from banks in the amount of Rp. 1,091 trillion, only about 25 percent of all loans disbursed by banks.
This requires the transformation of inter-institutional forums in the financial industry in Indonesia to further increase cooperation in order to strengthen banking networks for the MSME sector. The disbursement of credit/financing to MSMEs is not enough to be carried out only by the banking sector, but also by various relate forums.
Bank Indonesia regulations, which then direct banks to allocate financing to MSMEs at least 20 percent of all loans/financing. If the bank does not meet these provisions, the bank is require to provide additional training to MSMEs.
Expansion of access or availability (availability) of credit and financial forums is a very crucial factor for MSMEs because MSMEs basically have a good ability to pay.
Along with the spirit of sharing economy, cooperation from various financial forums (Banks, cooperatives, BMT, Pnm, Pukk, universities, MFIs, and NGOs) will help achieve the social mission of increasing inclusivity, helping to increase economic empowerment and population productivity as well as increasing income. and welfare of the population, especially the poor or low-income. This is one of the roots of social finance forums.
This also coincides with the notion of social banking or social finance that the financial industry should return the use of money to concrete life or the real economy. This social mission can be expande by channeling funds from banks through microfinance forums.
The question is whether providing financing with a social purpose can provide additional benefits for banking and financial forums? If this MSME gets bigger, then there are several benefits for the financial forum. MSMEs will place their funds in the banking sector/financial forum. MSMEs can also carry out financial transactions through banking/financial forums in order. To increase the busy traffic of these financial forums.
By combining contributions from various stakeholders. It is hope that financial forums can further strengthen the goal. Of balancing social roles and achieving profit. This is one way to strengthen the role of the financial sector in helping people achieve their goals. And become a supporting platform within the population.
Not only that, if the difference between the rate of return on capital. In this case the rate of return impose by the financial forum. And economic development can be reduce, then it can help reduce the gap in the distribution of wealth. Thus, the financial forum can provide additional funding that is easier and more affordable. For various activities that help the population. And the environment to support the sustainability of the financial forum.
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Active Participation of Banking in Sustainability Issues
It is undeniable that many people do not understand. The importance of a sustainable economy and its impact on the environment and life in the future. For this reason, banking can play a role in helping recognition. And also driving industry change to move. From conventional practices to sustainable business management.
One of the real implementations of sustainable funding is by not providing additional capital loans. To businesses that have the potential to damage the environment. Therefore, financial forums are encourage to integrate environmental, social. And business governance principles into the credit and investment policies they provide.
Addressing these issues, the Standard Chartered Group. Also recently announced new goals for achieving net zero carbon emissions from the activities it finances. Including targets for the most carbon-intensive sectors.
Standard Chartered will also discontinue corporate-entity-level financing for thermal coal expansion. With the provision of sustainable financial services to customers/company parents subject to enhanced due diligence.
In addition to the existing embargo against financing new coal-fired power plants and their expansion. Standard Chartered Group will also reduce emissions from financed thermal coal mining in absolute terms by 85 percent.
Not only at the world level. Standard Chartered has also actively expressed its commitment to supporting the Indonesian government’s sustainable development. Program through its sustainable financial solutions. This commitment is in line with helping national social. And economic development through. The business focus carried out by banks in the banking sector.
Well, those are some reviews about sustainability in banking, hopefully it will be useful and thank you for your attention.