Press Release – TuK Assessing OJK’s Regression in Launching TKBI

Jakarta, February 21, 2024 – Transformasi untuk Keadilan (TuK) Indonesia expresses its disappointment with the Taxonomy for Sustainable Finance Indonesia (TKBI) launched by the Financial Services Authority (OJK) on February 20, 2024. TuK assesses that OJK’s update of the Indonesian Green Taxonomy (THI) as TKBI represents a regression.

“The taxonomy update should have yielded positive progress, instead of creating ambiguity with the ‘Transition’ category. The ‘Red-Yellow-Green’ classification is crucial for providing clear and detailed information, especially considering that TKBI’s specific objectives include minimizing misinterpretations, greenwashing, social washing, and impact washing with a science-based framework,” said Linda Rosalina, Executive Director of TuK INDONESIA.

TuK INDONESIA’s disappointment with TKBI is based on the following reasons.

• OJK’s Inconsistent Stance on Sustainable Finance in IndonesiaThe Pilot Project Report on THI Reporting (OJK, 2022) revealed that the credit/financing portfolio for economic sectors classified as “Red” or “Yellow” has a higher Non-Performing Loan (NPL) ratio than the “Green” classification. The blurring of classification through the “Transition” category in TKBI raises concerns about transparency and risk. The lack of transparency in OJK’s classification system can hinder proper investment/lending decision-making. This ambiguity also potentially leads to “greenwashing” practices that harm various parties, including the state, society, and the financial sector.
• Potential for Increasing DeforestationThe “Green” and “Transition” classifications in TKBI potentially trigger massive deforestation. High-risk economic activities for the environment, such as mining, can be classified into the “Green” and “Transition” categories. A report by Stefan Giljum from the Institute for Ecological Economics, Vienna University of Economics and Business, Austria, shows that Indonesia is the largest contributor (58.2 percent) of tropical forest deforestation caused by the mining industry throughout the world. This demonstrates OJK’s inconsistency in supporting the objectives of the Paris Agreement, which has been ratified by Indonesia itself. The Paris Agreement includes a convention to reduce emissions from activities related to deforestation and forest degradation.
• Ignoring Facts on the Deadly Mining and Quarrying SectorWhen the THI, which classified mining and quarrying as high-risk activities for the environment, was in effect, bank credit to this industry reached Rp256.41 billion in May 2023. This figure shows a significant increase compared to the same period the previous year of Rp187.43 billion (OJK, 2023). Therefore, the lack of clarity in the TKBI classification is feared to encourage a significant increase in financing by Indonesian banks for high-risk mining businesses. This situation also shows a gap between OJK’s policies and Indonesia’s environmental objectives. OJK’s policy ignores the air pollution impact of the mining sector, such as the nickel industry that uses coal, which is predicted to cause 3,800 premature deaths in affected areas by 2025 and will increase to 5,000 cases by 2030 (CREA and CELIOS, 2024).