Southeast Asian banks must stop funding coal
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Southeast Asian banks must stop funding coal

Indonesia is by far a major top producer of dangerous climate emissions -- more than any country in the Southeast Asian region, mainly due to its burning of coal. The country is also feeling the full force of worsening climate disasters, from floods and storms to deadly landslides. My hometown, Jakarta, is sinking -- and this is compounded by regular catastrophic flooding and air pollution that disrupts millions of lives. Indonesia faces huge risks as it currently sits as the second most disaster-prone country in the world, according to the World Risk Report 2023.

Yet Asian banks are providing a lifeline for massive new coal plants to power smelters producing aluminium and nickel, many of which are 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 announced by the Indonesian government in November last year. Hence, Indonesian banks have a duty to their shareholders and customers to play a 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, which is an international tracking, campaigning and NGO support organisation focused on private sector commercial banks and the activities they finance.

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. Major Indonesian financial institutions are financing huge coal projects, posing a growing threat to our economy and our climate.

Bank Track early this year released the "Coal Policy Tracker" that analyses the coal policies of 30 major banks with over US$8 trillion (291 trillion baht) in collective assets under management across India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand. Indonesian banks are lagging far behind peers from Singapore and Malaysia in green banking rankings. The four largest Indonesian banks all score zero for their environmental policies, which include enabling the expansion of coal mining and power, according to the Coal Policy Tracker.

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

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.

The 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 1.5C. There is no question that burning coal is a major contributor to rising global temperatures 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.

Green finance means doubling down on 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, urged financial institutions to decarbonise 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 20GW of coal-fired power plants, according to JETP and immense more 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.

Nabilla Gunawan is Asia Energy Campaigner, Market Forces, in Jakarta.

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