Sustainable Development on Indonesian Environmental Risk Assessment

Abstract

Environmental risks in Bank financing activities arguably draw considerable attention in current era, efforts to mitigate these risks are one way for the Bank to achieve sustainable development. Nevertheless, there are no universal consensus of what environmental risks. This paper will summarize and define environmental risk from several previous studies using literature reviews, in order to obtain a comprehensive summary of the definition of environmental risk for bank financing especially in Indonesia. Furthermore, this study will also describe the mitigation that has been carried out by Banks in Indonesia in dealing with these risks, as well as other efforts that can be taken to better mitigate these risks. The study results found that environmental risk consists of: Transition Risk, Physical Risk, Liability Risk, Legality Risk and Reputation Risk. This study also finds that banks in Indonesia still do not have adequate mitigation against these risks. Transition, legality, and reputation risks can be optimally mitigated by enhancing the Bank’s management capabilities, especially in improving the company’s human resources in environmental protection efforts. Physical and liability risks on the other hand can be further mitigated by increasing the minimum required insurance coverage for the Bank’s debtors including environmental liability insurance and weather insurance.

Accelerating Indonesia Sustainable Infrastructure Development through ESG Initiatives in PPP Ecosystem

“…However, according to Basoeki et.al. (2021), Indonesian banks have not adequately mitigated environmental risk, which consists of transition risk, physical risk, liability risk, legality risk and reputational risk [11].…”

Environmental monitoring as a method of counteracting environmental risks in the context of sustainable development

“…Mechanisms counteracting them are being developed by scientists at various levels. For example, the impact of environmental risks on banking or financial activities is studied separately [1]. In a given context, risks are differentiated into transition risk, physical risk, liability risk, legal risk and reputational risk [2].…”