Indonesia’s financial sector is entering a new era of accountability. Beginning in 2027, banks will be required to publicly disclose assessments of climate-related risks, marking the first time such obligations are imposed on the industry. The move reflects growing recognition that climate change is not only an environmental issue but also a financial stability challenge.
Key Facts & Background
Policy Requirement:
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- The Financial Services Authority (OJK) mandates banks to disclose climate risk assessments starting 2027.
- Rule currently being drafted, expected to be issued within 2026.
Global Standards:
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- Disclosure aligned with IFRS S1 (sustainability-related risks and opportunities).
- Guided by IFRS S2 (climate-related risks and opportunities affecting financial performance).
- Forms basis for adoption of PSAK Sustainability Standards in Indonesia.
Supporting Guidelines:
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- OJK to release new Climate Risk Management & Scenario Analysis (CRMS) guides in 2026.
- CRMS Indonesia Policy Scenario: assesses impact of government climate policies on macroeconomic projections.
- CRMS Standardized Methodology: simplified tools for smaller banks to measure climate risk.
- Additional guidelines on sustainable financing and transition financing to support high-emission firms shifting to low-carbon practices.
Economic Implications:
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- Climate risks projected to reduce GDP growth and corporate revenues.
- Companies face rising costs from carbon taxes, capital expenditures, and low-carbon technology investments.
- Potential decline in asset values increases default probability and loss given default.
- For banks, this translates into higher credit, market, and operational risks.
- Expected impact: rising Non-Performing Loans (NPLs), higher Expected Credit Loss (ECL), and lower Capital Adequacy Ratios (CAR).
Strategic Insights
The OJK’s climate disclosure mandate represents a significant step in embedding sustainability into Indonesia’s financial system. By requiring banks to quantify and publish climate-related risks, regulators are pushing the industry to integrate environmental considerations into credit decisions, risk management, and long-term planning. This approach aligns Indonesia with global standards, ensuring that domestic institutions remain competitive and credible in international markets.
Beyond compliance, the policy highlights the growing intersection between environmental sustainability and financial resilience. Climate risks are no longer abstract—they directly affect asset values, borrower viability, and systemic stability. For banks, adapting to this framework means not only safeguarding portfolios but also enabling the transition to a low-carbon economy through sustainable financing. If implemented effectively, the disclosure regime could strengthen transparency, improve investor confidence, and position Indonesia’s financial sector as a proactive player in addressing global climate challenges.