The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has committed $150m in a green bond issued by Indonesia PT. Bank OCBC NISP Tbk (Bank OCBC NISP). This is the first ever green bond issued by a commercial bank in Indonesia, delivering a new source of green financing to combat climate change, announced the IFC in a statement last week.
The pioneering green bond, with a five-year tenor, will see Bank OCBC NISP fund climate smart projects, supporting the Government of Indonesia’s priority of achieving a sustainable economic growth, and will also contribute to the government’s target of 29% reduction in greenhouse gas emissions by 2030.
“This is a major milestone for the Indonesian banking sector as it’s expected to catalyze the development of the green bond market in Indonesia,” said IFC CEO Philippe Le Houérou.
“In a country where green financing is relatively low, this first ever green bond by a commercial bank marks the first step in unlocking the potential of the green bond market in Indonesia to spur new financing for climate smart projects. IFC is in discussions with other players and keen to provide investment and advisory support to help develop green financing products in the country.”
IFC estimates the potential opportunities in Indonesia for green financing are around $274bn to 2030.
In addition to its commitment to fund the first ever bank green bond, IFC will support Bank OCBC NISP with advisory work on green financing including identifying and reporting green assets. Proceeds from the green bond will be used to finance climate related projects in accordance with the Green Bond Principles.
“We realise that sustainability is a long journey and the pioneering green bond is an early step for Bank OCBC NISP to help our clients to do business in more sustainable way and to contribute on positive development impacts and governments goals”, said Bank OCBC NISP president director Parwati Surjaudaja. “Together with IFC we are looking forward to further collaborate and find innovative solutions that widen opportunities for economically, socially, and environmentally sustainable private investment.”
In a bid to spur new sources of financing to help Indonesia meet its climate and infrastructure challenges, IFC has supported the government of Indonesia, and its regulatory body, Otoritas Jasa Keuangan OJK, to develop a sustainable financing roadmap for Indonesia, along with green bond guidelines and a policy which obliges Indonesian banks to develop and report on their sustainable financing programs.
In collaboration with the World Bank, IFC has also worked to build up the capacity of the public and private sectors in green financing. The World Bank also supported the government of Indonesia issue the first ever sovereign green Sukuk bond by any government. IFC’s investment in OCBC NISP will also help create a new asset class to channel long term finance to combat climate change.
The World Bank Group estimates that by the end of this century climate change could cost Indonesia between 2.5% and 7% of GDP.