Agriculture& Forestry Risk Management and Opportunities in the Banking Sector

According to the Technical Guidance of the Financial Service Authority Regulation (POJK) No. 51 Year 2017 on Sustainable Finance, banks are required to increase their financing portfolio on the activities included in the Sustainable Business Activities (KKUB), which include to apply sustainable land use management in the agriculture and forestry sector. This also has been emphasized by the recently launched Indonesia Green Taxonomy 1.0 in which has defined what does green sector mean including for agriculture and forestry sector against the environmental and climate outcomes.

Green Taxonomy is an economic activity classification that supports environmental protection and management efforts, as well as mitigation and adaptation to climate change. (THI/ Indonesia Green Taxonomy 1.0)

To gear the financial institutions (FIs) with the necessary understanding to effectively manage risks and opportunities of Agriculture and Forestry sectors and implement the Indonesia Green Taxonomy 1.0 on Agriculture and Forestry, UNEP FI in collaboration with the Indonesia Sustainable Finance Initiative/ Inisiatif Keuangan Berkelanjutan Indonesia (ISFI/ IKBI) is convening a Sustainable Finance Course that will be held between May to July 2022 with the following topic:

“Agriculture and Forestry Risk Management and Opportunities in the Banking Sector.”

This training webinar aimed at providing the banks and non-banks financial institutions the understanding on the rationale and current trends, practical steps in setting up risk management framework as well as introducing several supporting tools to equip financiers to implement the Indonesia Green Taxonomy 1.0. In addition, a number of opportunities in developing green products will also be given.

Rationale

Agriculture and forestry play a crucial role in Indonesia’s food security and economy as well as mitigating the greenhouse gas (GHG) and maintaining the ability of ecosystem to provide its services to the economy to sustainably thrive. According to Indonesia’s Second National Communication of 2010, national GHG emissions were estimated to be 1.8 GtCO2e in 2005. This represents an increase of 0.4 GtCO2e compared to 2000. Most emissions (63%) are the result of land use change and peat and forest fires. As agricultural demand increases, land expansion and conversion are expected to increase, if not responsibly managed, it would enhance GHG emissions, and threaten the ability of ecosystem to provide its services that underpin the productivity and its sustainability of the sector itself.

Companies within Forest Risk Commodities supply chains in Southeast Asia rely primarily on bank lending for financing needs (CDP, 2020). As such, incorporating the impact of the company’s activities on climate change and the environment as well as on the FIs bottom line are two sides of a coin that FIs, in particular banks are critical to manage.

The sectors and sub-sectors selected under the Indonesia Green Taxonomy has been classified in accordance with the target sectors set out in the NDC to achieve the Paris Agreement. Land-use sector (Agriculture and Forestry) are among the key target sectors herein. The green category definition used as a framework to define whether a project considered as green.

Green category: do no significant harm, apply minimum safeguard, provide positive impact to the environment and align with the environmental objective of the taxonomy. (THI/ Indonesia Green Taxonomy, 2022)

To articulate this into implementation, this training program will be supporting the FIs to have a better understanding on the fundamental concepts of land-use risks, land-use risks identification and assessment, as well as the mitigation actions of the land-use risks, and the opportunities lie in this sector.

SAVE THE DATE!

TRAINING COURSE SCHEDULE

Module 1 – Wednesday, 8th June 2022 (Full Day)
Introduction on the Sustainable Land-use, Land Conversion Risks and Business Case

Explanation on the concepts of sustainable land-use and land conversion risks and provides available practices both at International and national level.

Module 2 – Wednesday, 15th June 2022 (Full Day)
Risk identification, Screening and Assessment

Steps in setting up a practical risk management framework on E&S issues, in particular for forestry and agriculture sectors.

Module 3 – Wednesday, 22nd June 2022 (Full Day)
Managing Financial Risks and Exploring Opportunities

Governance system supporting forest risk management and mitigating measures out of risk assessment result

Module 4 – Wednesday, 6th July 2022 (Half Day)
Case Study

Provides a business case to be exercised by the participants, and it is expected that the participants reflect on the concepts presented and, later, apply them in their professional activities.