Koalisi ResponsiBank Indonesia
Rating Report Social Environmental and Governance Aspects of Banks’ Social Environmental and Governance Aspects of Banks’ Lending and Investment Policy Investment and Lending Banks’ of Aspects Governance and Environmental Social Report Rating Lending and Investment Policy 2014 Victoria Fanggidae dan Sri Ranti Sri dan Fanggidae Victoria
Koalisi ResponsiBank (d/a Perkumpulan Prakarsa) Jln. Rawa Bambu I Blok A No. 8E RT 010 RW 06 Kel/Kec. Pasar Minggu Researcher: Koalisi ResponsiBank Indonesia Jakarta Selatan 12520 - Indonesia Victoria Fanggidae Ph. +62 (21)7811-798 Fax. +62 (21)7811-897 E-mail to: [email protected] Sri Ranti The ResponsiBank Coalition is a group of Indonesian civil society organizations who are concerned about the role of the country’s finance industry in supporting sustainable development and poverty reduction. The finance industry, particularly banks, play an intermediary role in the development process, that is, to gather public funds through savings and public investment and then channel them back through loans and investment. This role, however, needs to be performed in a more responsible manner that is within the framework of improving the living standards of people as mandated by Indonesia’s Banking Law. The finance industry must go beyond the pursuit of profits as their main consideration in lending and investment policy to incorporate the the human and environmental (people and planet) dimensions into their investment decision making. Credit and investment policy cannot be separated from social and environmental responsibility; it is not enough to contribute philanthropic activities alone. Researchers from the ResponsiBank Indonesia Coalition conducted this bank ranking assessment. The Coalition is made up of the following civil society organizations:
Perkumpulan Prakarsa – www.theprakarsa.org INFID (International NGO Forum on Indonesian Development) – www.infid.org ICW (Indonesian Corruption Watch) – www.antikorupsi.org PWYP (Publish What You Pay) Indonesia – www.pwyp-indonesia.org WALHI (Wahana Lingkungan Hidup) – www.walhi.or.id YLKI (Yayasan Lembaga Konsumen Indonesia) – www.ykli.or.id Transformasi untuk Keadilan – www.tuk.or.id Preface
The Bank Ranking Report presents the assessment results of lending and investment policies in Indonesia’s 11 largest banks. The assessment results take the form of a bank ranking, based on themes and sectors. Bank performance is assessed against social and environment issues such as climate change, biodiversity, human rights, labor rights, transparency and accountability, taxes and corruption. The assessment also looks at industrial sectors such as mining, oil and gas, electricity generation. These themes are considered essential if banks are going to perform as a development agent that contributes to the promotion of justice, sustainable development and poverty reduction. Part one of the report provides a brief explanation about the bank ranking methodology, followed by a result analysis similar to those presented in the website www.responsibank.id. As can be seen, results are unsatisfactory. In a range of 1-10 all national banks scored only 1 or even 0, compared to some of the foreign banks who were moderately better scoring between 2 and 4. This can be attributed to, in part, differences in context such as the lack of incentives for Indonesian banks to improve ethics and financial responsibility particularly in economic sectors with a high risk of human rights violations or environmental destruction. Consumers in Asian countries tend to be more interested in products and services while providing minimum ‘sanctions’ to companies who are not socially responsible (IISD, 2012). Hence, companies in Asia frequently disregard the need to improve their performance vis-à-vis social and environmental indicators. The ResponsiBank Coalition considers this current state of affairs as a challenge that must be addressed. In a world that is increasingly interconnected, no industries or sectors of the economy are free from the responsibility to contribute to sustainable development. With the increasing vagueness of borders between countries, the banking sector can no longer argue that they are only focused on the domestic market and that it is not necessary to take social and environmental standards to a higher level. Therefore, we hope that the bank ranking assessment will both educate and empower consumers and the public in general about the need for banks to address the social and environment impacts of their decision making. We extend our gratitude to the entire team of researchers and members of ResponsiBank Indonesia Coalition for their hard work and support in completing this report. We also extend our gratitude to Oxfam-Novib and SIDA for providing the resources to conduct the bank ranking. We expect the Indonesian banking sector will improve their lending and investment policies to go beyond financial and market risks and incorporate social and environmental risks.
Setyo Budiantoro Executive Director of Perkumpulan Prakarsa Representative of Responsibank Indonesia Table of Contents
Preface ii Table of contents iv List of Tables iv List of Charts v list of Figures v Abbreviations vi Executive Summary vii 01 Introduction 02 Objective 03 Methodology Bank Selection Assessment methods 14 Assessment results Bank rankings in general Explanation of the scoring per theme and sector Bank profiles and explanation of the scoring per bank 37 Conclusions and recommendations Conclusions Recommendations List of Tables Table 1 : Assessment model of financial institutions in the theme “climate change” 10 Table 2 : Summary of the assessment results per theme and sector bank 13 v
List of Charts Chart 1 : Consolidated score and overall bank ranking 12 Chart 2 : Cimate Change bank ranking score 14 Chart 3 : Human rights bank ranking score 15 Chart 4 : Workers’ rights bank ranking score 16 Chart 5 : Biodiversity bank ranking score 17 Chart 6 : Remuneration bank ranking score 17 Chart 7 : Tax and corruption bank ranking score 18 Chart 8 : Transparency and accountability bank ranking score 19 Chart 9 : Food sector bank ranking score 19 Chart 10 : Forestry sector bank ranking score 20 Chart 11 : Mining sector bank ranking score 21 Chart 12 : Oil and gas sector bank ranking score 22 Chart 13 : Electricity generation bank ranking score 23 Chart 14 : Armaments sector bank ranking score 23 Chart 15 : BCA score: all themes and sectors 24 Chart 16 : BNI score: all themes and sectors 25 Chart 17 : BRI score: all themes and sectors 26 Chart 18 : Bank Mandiri score: all themes and sectors 27 Chart 19 : Bank Danamon scores: all themes and sectors 28 Chart 20 : CIMB-Niaga scores: all themes and sectors 29 Chart 21 : OCBC-NISP scores: all themes and sectors 30 Chart 22 : Bank Panin scores: all themes and sectors 31 Chart 23 : HSBC scores: all themes and sectors 32 Chart 24 : Citibank scores: all themes and sectors 33 Chart 25 : Mitsubishi-UFJ: all themes and sectors 34
List of Figures Figure 1 : Bank ranking process flowchart 11 vi
Abbreviations AMDAL : Analisa MengenaiDampakLingkungan BCA : Bank Central Asia BNI : Bank Negara Indonesia BPD : Bank Pembangunan Daerah BPR : Bank Perkreditan Rakyat BRI : Bank Rakyat Indonesia CIMB : Commerce International Merchant Bankers EITI : Extractive Industry Transparency Initiative ESRM : Environmental and Social Risk Management EU : European Union FPIC : Free Prior and Informed Consent GCG : Good Corporate Governance GRI : Global Reporting Initiative HAM : Hak asasi manusia HSBC : Hong Kong Shanghai Banking Corporation ICBC : Industrial and Commercial Bank of China ICMM : International Council for Metal and Mining ICW : Indonesia Corruption Watch IFC : International Finance Corporation ILO : International Labor Organization Infid : International Non-Governmental Organization Forum on Indonesian Development ISPO : Indonesian Sustainable Palm Oil system K3 : Kesehatan dan Keselamatan Kerja OCBC-NISP : Overseas Chinese Banking Corporation - Nederlandsch Indische Spaar En Deposito OECD : Organization for Economic Cooperation and Development PROPER : Program Penilaian Peringkat Kinerja Perusahaan dalam Pengelolaan Lingkungan Hidup PWYP : Publish What You Pay RKL : Rencana Pengelolaan Lingkungan RPL : Rencana Pemantauan Lingkungan RSPO : Roundtable on Sustainable Palm Oil UFJ : United Financial of Japan UKM : Usaha Kecil dan Menengah UN : United Nations Walhi : Wahana Lingkungan Hidup WCD : World Commission on Dams YLKI : Yayasan Lembaga Perlindungan Konsumen Indonesia Executive Summary
The finance industry is a key economic sector and as such it must contribute to the nation’s sustainable development and poverty reduction goals. The principle of the ‘Triple Bottom Line’, or the three pillars of sustainability, namely People, Planet and Profit is now widely adopted by bu- sinesses globally as well as in Indonesia. However, in Indonesia, this principle barely touches the lending function which is the “heart” or the core of the finance sector. The finance industry and banks in particular have a key role to play in reducing poverty as mandated by the country’s Banking Law. To do so they will have to go beyond their current focus on philanthropic/charitable activities. As part of global demands for a responsible finance industry, the Fair Finance Guide International, a civil society network of seven countries, consisting of the Netherlands, Belgium, Brazil, Indonesia, Japan, France and Sweden have developed guidelines for ranking banks. Indonesian civil society organizations consisting of Perkumpulan Prakarsa, Infid, ICW, WALHI, YLKI and PWYP have also established a network for this purpose: Responsibank. The bank ranking is a tool for activists, consumers and the public in general to assess whether the finance industry is respecting human rights and the environment in their lending and investment policies. Consumers are already familiar with a wide range of bank rankings that assess the financial health of banks based on indicators such as CAR (Capital Adequacy Ratio), LDR (Loan to Debt Ratio), NIM(Net Interest Margin), NPL (Non-Performing Loans), good corporate governance, or Corporate Social Responsibility (CSR) activities. The results of this study indicate that national banks lag far behind the foreign banks located in Indonesia in terms of lending policies. The three foreign banks assessed for comparison purposes to the national banks, scored the highest on a scale of 0-10; HSBC, 4.14; Citibank, 3.74; and UFJ-Mitsubishi, 1.85. Among national banks, BNI scored the highest, 0.85, just slightly above Danamon with 0.84. BRI and CIMB-Niaga scored 0.36 and 0.32 respectively, followed by OCBC-NISP, 0.29 and Mandiri, 0.26. At the bottom of the list are BCA and Panin, scoring 0.14 and 0.08 respectively. On the issue of climate change, foreign banks are at the top; although still far from the maximum score of 10. Citibank scored the highest, 3.42, followed by HSBC with 2.37 and UFJ-Mitsubishi UFJ, 2.27. In contrast, almost all of the national banks scores did not even register with the exception of BNI at 1.97 and CIMB-Niaga at 2.6. BNI for example, is lending money for renewable energy. Meanwhile, CIMB-Niaga states that in assessing prospective investments, it assesses whether they are respecting the emission limits or environmental management provisions set by the government. Most foreign banks scored in the rankings because in addition to having included international agreements such as the Equator Principles, they also state in their lending policies support for a shift from fossil fuels to renewable energy; while most national banks are still at the level of operational and CSR policies. Foreign banks have also set specific targets for carbon emissions reduction directly or through companies/projects that they finance in order to be more accountable in promoting climate change adaptation. When ranked by theme, workers’ rights, for example, BRI scored 1.7. Although still low, it is one of the two national banks that are ranked under this theme. In its Sustainability Report, the bank stated that it assessments [are] “in accordance with Bank Indonesia, which determines the feasibility of lending, and ... pays attention to the fulfillment of environmental responsibility (Environmental Planning (RKL and RKL), and environmental impact analysis/EIA (AMDAL)), fulfillment of obligations to the workers, the implementation of K3 (Occupational Security, Safety, and Health) and compliance to governance «. This information, however, is too general and should be further elaborated. It can be inferred from Responsibank’s assessment that national banks’ lending policies need to be viii
transparent on how they engage their clients on issues of social concerns, human rights and the environment. Due to the absence of this information, Indonesia’s banks scored the lowest compared with 6 other countries conducting the ranking this year. Most national banks are not aware of the principles and a growing consensus in the international community about the social and environmental responsibility in the business sector, let alone accommodate it in their investment policy. As a result, there is a significant disparity between foreign banks and national banks in the rankings. National banks only gained scores on themes of taxes and corruption as well as transparency and accountability, but only in 1-2 elements out of 10-20 elements assessed. This is likely due to pressure from the banking sector regulator. However, the Responsibank tool expects the banking sector, to be one step ahead with a more progressive policy than requested by the regulator. The national banks also do not have clear policies for ESRM (Environmental and Social Risk Management) that would assist them in making lending decisions. The ranking also shows that the ‘fat’ banks, both in terms of capital and assets, such as BCA or Mandiri scored poorly in the ratings. They tend to emphasize their profits and not pay attention to social and environmental responsibility in their published investment policies. These results also indicate that social and environmental responsibilities are still likely being viewed as philanthropic activities such as community development. Although many banks fund activities of this kind, investment policies relating to social and environmental matters are lacking. The report recommends that; 1) national banks adopt the principles of People, Planet and Profit. The banks have an important role to play in phasing out the brown economy and transitioning to a green economy. This will underscore the banking sector’s commitment to sustainable development nationally and globally; 2) social and environmental risks need to be included as part of the bank lending risks. A responsible lending/ investment policy that is sensitive to human rights and the environment is a profitable investment for the banks. This will assist in assessing risky investments as well as contribute to the banking sector’s branding as being socially responsible; 3) bank sustainability reports need to be supplemented with information on the lending policy for high-risk sectors from a social and environmental perspective. If it is impossible to publish it in the form of a complete policy documents, the bank may publish a summary or the important principles of their lending and investments policy in sectors where they are actively investing. It is important for the public to know how their banks behave when financing high-risk sectors and to ensure that their funds are not used to violate human rights or damage the environment. Introduction
Preceded by irresponsible investment policy by financial industry in the United States in 2008, the world finally dragged into global financial crisis and have not fully recovered to this day. The crisis provide valuable learning for the whole country that more discreet system of financial industry and attention to the principles of good business ethics is indispensable. Indonesia also has a history of poor governance in the financial industry. During 1997 – 1998 period, the financial industry were hit by most terrible crisis that collapsed the monetary system and gave major impact on national economic order. Bad practices of the financial industry, especially banks, have decreased public confidence, both domestic and foreign investors. Moreover, poor regulation management during the crisis led to the increase of capital outflow that caused liquidity drought. This has an impact on the weakening of the rupiah against foreign currencies especially, the US dollar. Government’s Crisis Protocol to overcome the crisis would be counterproductive to improving the financial system in Indonesia. Bank of Indonesia gave away Liquidity Assistance (BLBI) for Banks who were experiencing liquidity crisis. This action were actually causing new problems for Indonesian economy. Many bank owners carried off BLBI money out of the country, left the state burden to pay off the bill with taxpayers’ money and foreign debt. The Government is aware that the improvement of the financial industry is very important to create economic stability in Indonesia. Revamping financial sector after 1997 crisis became the focus of government’s agenda. The results are beginning to appear on the rapid development of the financial sector today. Increased activity of financial sector in the last ten years also affected banking intermediary function on economic sectors. Large potential of economic resources in Indonesia encouraged banking acceleration. In addition to being good impact on the national economy and giving contribution to high economic growth, banking acceleration also raising the issue of environmental damage, human rights violations and other issues, primarily for vulnerable sectors such as the extractive industry, which in turn will lead to impoverishment and increase the economic gap. Although financial institutions do not directly causing social and environmental damages, projects and companies they financed may lead to deforestation and displacement of local communities; factories that operate irresponsibly without implementing carbon emissions standard and adequate sewage treatment may cause air, soil, and water pollution and other environmental damage; which ultimately destroy community livelihood, hence causing impoverishment. Therefore, civil society organizations around the world, and in Indonesia in particular, consider that the financial industry can’t be separated from its responsibility in the social and environmental aspects. Regardless of indirect intermediary function, financial institutions play a role to finance projects and companies who do such things. Hence, the financial industry can’t be seen separately in the interrelated economic system. The relation between financial industry and community can be viewed within the framework of relations with the consumers. Consumers as crucial stakeholders need to be equipped with tools to help them analyze whether the financial industry has been running business responsibly. 2
Consumers can use these tools to assess whether their preferred bank/ financial industry have considered social, human rights and environmental aspects in their core business, namely lending and investment policy, so that the element of profit is not the sole purpose of the existence of financial institutions, but also considered the elements of people, planet, and profit. Bank ranking system by using ResponsiBank tools was also carried by several other countries namely the Netherlands, Belgium, Brazil, Indonesia, Japan, France and Sweden. Seven civil society organizations in seven countries who have similar concerns to the financial industry in their respective countries become part of international civil society coalition called “Fair Finance International”. This initiative has been running since 2009 in the Netherlands, 2010 in Brazil, and since 2014 began to conduct in other countries. At first, this ranking system applied only to the banking sector. But in some countries where the assessment has been held long enough, the ranking system expanded to other financial sectors such as insurance and pension funds. For Indonesia, this initiative began with the banking sector. Bank Ranking Report is opened by the explanation of the methodology of the assessment, followed by the results of the ranking based on theme / sector and also ranked each bank in all themes / sectors. It was designed to facilitate the readers to know how to rank their banks, and how particular issue has / has not been taken into account in their bank’s lending and investment policy. The report is ended with conclusions and recommendations, especially for the banks to improve their rank.
Objective
The objective of this ranking system is to encourage the Indonesian finance industry to compete to be the best or have a ‘race to the top’ in terms of increasing the sensitivity of their investment policies to include social, human rights and environmental aspects. Methodology
Bank Selection In 2014, 11 banks were assessed in Indonesia. These represent the largest commercial banks in Indonesia, both in terms of size of assets and amount of core capital owned in accordance with the financial data of the banking industry by the end of 2013. Those banks are: 1. BCA 2. BNI 3. BRI 4. Mandiri 5. CIMB-Niaga 6. Danamon 7. OCBC-NISP 8. Panin 9. HSBC 10. Citibank 11. UFJ-Mitsubishi
According to the banks classification system in Indonesia, the first four banks (BCA, BRI, Mandiri and BNI) are the largest national commercial banks in BOOK 4 category (core capital of IDR 30 trillion or more). The four following banks (CIMB-Niaga, Danamon, Panin and OCBC-NISP) are the largest banks in BOOK 3 category (core capital of Rp 5 trillion - Rp 30 trillion). The total 11 banks that are used as ‘samples’ in this ranking system had 61% of all bank assets in Indonesia and 82% entire core capital of banks in Indonesia. Due to capacity constraints, the assessment was conducted only on commercial banks in this group, and was not carried out against the rest of the banks in BOOK 3 category, all banks in BOOK 2 and BOOK 1 category, all Islamic banks, Regional Development Banks(BPD), and microcredit banks (BPR). Initially the assessment only involved national banks; however a trial assessment revealed that they received low scores related to social and environmental sensitivity. Therefore, the assessment was expanded to include 3 of the largest foreign bank in Indonesia (HSBC, Citibank and Mitsubishi- UFJ) as a comparison. Since the results of the assessment found that the gap is quite large, sometimes the report distinguishes national banks1 and foreign banks on the analysis.
1 Although majority ownership of many banks in Book 3 Category are held by foreign companies, they are considered as national banks by the financial regulator because they are listed as Indonesian companies, not the branch of foreign bank. 4
Assessment methods ResponsiBank2 assessed the lending and investment policies of financial institutions, particularly banks, in several themes related to social and environmental issues that are important to be considered by financial institutions. However, in consideration to the responsibility of financial institutions towards economic justice in general, some themes e.g. remuneration, taxation and corruption, as well as transparency and accountability also considered internal/operational policies of the bank. The assessment was conducted based on the information available in published documents. We expected that the financial institution’s policies, or at least summaries, would be accessible to the public through websites, annual reports and sustainability reports. Name or topics of irrelevant policy documents, for example elements of workers’ rights, could have been included to the policies regarding to human rights in general. For the 2014 assessment, we assessed Annual Report and Sustainability Report from 2013. ResponsiBank assessment system does not assess bank/financial institutions practices due to methodological considerations. To respond the difference between bank policies and practices, there will be case study, at least once a year for selected themes or sectors. The chosen themes are issues that become general concerns from the international community. In 2014, there were 7 themes in 6 sectors analyzed, namely:
Issues / Themes:
1. Climate change Discussions on the climate change can’t be separated from the efforts to reduce carbon emissions. Therefore, it is very important to set strict emission
reduction targets so businesses are encouraged to reduce CO2 emissions. As financing is crucial for energy projects, financial institutions can play an important role by starting to redirect their investments towards a low-carbon economy. In this theme, the financial institutions are expected to implement
the reduction of CO2 standards, in line with the United Nations (UN) objectives on climate change. Financial institutions were assessed on several elements related to internal operational policies and investment policies in considering who is able to receive loans.
2. Human rights Although generally financial institutions are not directly involved in human rights abuses, they can be held accountable if the companies or governments in which they invest violate human rights. The responsibility to respect human rights implies that the company shall not cause or contribute to human rights violations as a result of their activities, but they also have to try to prevent or mitigate negative impacts on human rights because of their business relationships; if it is related to their operations, their products or services, although they do not directly contribute to the impacts. In order to avoid financing entities that are involved in human rights violations, financial institutions are required to have specific human rights standards and policies. A general policy on this is not sufficient. In this theme, the financial institutions were assessed on elements related to human rights contained in lending and investment in considering who is able to receive loans.
2 The methodology was developed by Profundo, a research institute based in Amsterdam, the Netherlands w( ww. profundo.nl) with inputs from members of Fair Finance Guide International network. 5
3. Labor rights As with other companies, financial institutions are expected to respect the rules and legal systems at local, national, and international levels and endorse the four fundamental principles of the International Labor Organization (ILO), labor rights, and the Tripartite Declaration within reach of their influences (as employer, investor, and within their production chains). However, ResponsiBank (Fair Finance Guide) only assessed bank’s investment policy and not their internal human resource policies. In this theme, financial institutions were assessed on elements of their investment policies related to labor rights in the entity/ company which receive loans.
4. Biodiversity Financial institutions play a critical role in environmental protection, especially if they invest in industries that might have negative impacts on biodiversity such as forestry, extractive industries, oil and gas industries, fisheries, water supply and infrastructure, as well as industries that use genetic material such as agriculture, biotechnology, pharmaceutical and the cosmetics industry. For companies, there are several reasons for making biodiversity conservation as an important issue since the government is instituting strict rules and supervision to protect the ecosystem, costs are increasing in the production chain, changes in consumption patterns, and pressure from public and social organizations. Financial institutions can take advantage of this trend. New business opportunities are emerging to promote the harmonization between trade and responsible biodiversity management. To avoid the risks to nature and other threats to biodiversity, financial institutions need to develop an investment policy that is in-line with international conventions and national legislation to protect and conserve local biodiversity.
5. Remunerasi Remuneration for employees in a company generally consists of a fixed aspect - basic salary – and a variable aspect. The amount of the variable aspect is determined in different ways, for example by linking it to employee performance or to the financial success of the company. In cases where there is good performance or financial successes, the remuneration variablers for employees can be relatively high compared to the basic salary, however the reverse can also occur. The variable part of remuneration is often called bonuses, commissions, profit sharing, or performance remuneration, etc. In this analysis all types of variable remuneration are called “bonus”. The study looks at the overall policies of financial institutions (including all subsidiaries) regarding the remuneration of at least the Board of Directors, the senior management and the risk takers. More specifically, in the 2014 evaluation, financial institutions were assessed based on bonus policies of all 3 key groups listed above. The background reasons why this theme is included is based on concerns around the sense of justice of the financial industry—in the international context, there are cases where financial institutions have received significant assistance through bailout packages from their respective governments, using taxpayers money, while at the same time, continue to pay very high and irrational bonuses for executives and speculators. 6
6. Tax and corruption For financial institutions, tax and corruption are relevant in three ways. First, the international financial institutions are multinational companies itself and therefore they are obliged to pay taxes and follow procedures in the country in which they operate. Financial institutions are expected to be transparent in their tax payments and free of corruption. Second, almost all financial services provided for companies and private clients have tax components. Due to the large amount involved in business lending, project financing and investments, tax planning can result in significant savings for clients. Third, tax and corruption are issues that financial institutions should assess with parties that they intend to invest in to be assured they are not involved in tax evasion or corruption. In this theme, the report assessed lending and investment policies against the parties which receive loans.
7. Transparency and accountability Every individual has a right to know the consequences of business activities that may occur. People whose lives are affected by an economic activity cannot defend their interests if they do not fully understand the social, economic and environmental advantages, as well as the costs and risks associated with that activity. They also should be informed about possible alternatives of proposed activities. In order to defend their social, cultural and environmental interests, social organizations must also have access to all relevant information. For this reason, the public’s right to information—with the aim to participate in a meaningful way in the decision-making processes —are stated in various international instruments. For financial institutions that consider social responsibility a serious concern, transparency and accountability are very important. In this theme, the financial institution’s internal operations policies were assessed.
Industry sector:
1. Food Food sector consists of agricultural companies, including farm families as a small-scale producers, food processing companies, and retail companies. This diverse group forming the food supply chain. The food processing sector includes all companies involved in food processing, trading of food commodities associated with food processing and beverage producers. This industry includes a diverse group of companies involved in the processing of products such as fish, meat, milk, crops and water. It includes millions of Small & Medium Enterprises (SMEs) and some of the largest companies in the world. Many companies supply products directly to consumers, while others specialize in the Business-to-Business (i.e. raw materials and commodity markets). Some companies are directly participating in all areas of food production, from agricultural activities, through final production and retail. Other are more concentrated at the top end of the production chain or buy through commodity markets. Financial institutions also play an important role in the agricultural sector as they finance all aspects of the supply chain including producers, processors and traders of agricultural products. In addition, financial institutions sometimes take a position in the food commodity market, which may increase the price. On this basis, financial 7
institutions carry a joint responsibility for the sustainability of the sector. In this theme, financial institutions were assessed on lending/investing policies in assessing to whom they provided loans.
2. Forestry Approximately 30% of the earth’s surface—nearly 4 billion hectares—are covered by forest. Of this amount, approximately 271 million hectares are timber plantations. Though it has a completely different function, plantations are often classified as ‘forest’. Plantations and forests play important roles in the earth and provide various benefits. Deforestation and forest degradation deprive local communities of their livelihoods, causing the loss of biodiversity, soil erosion, and a decrease in surface and ground water. Additionally, especially in Indonesia, deforestation can also causes dangerous fires. Air pollution caused by these fires increase respiratory problems –such as asthma, bronchitis and pneumonia—and also cause eye and skin problems. Most of these fires are caused by deforestation for expansion of large-scale plantations for pulp and palm oil industry.Financial institutions can use their influence to prevent deforestation and forest degradation by establishing strict investment policy in the forestry sector. These policies should apply to the entire forestry sector including; forest, timber, pulp, paper and furniture production as well as other timber processing and trading companies. In this theme, financial institutions were assessed on lending / investing policy as to who they approve loans for.
3. Mining The impacts of extractive industries such as mining appear in short term and in the long term following the extractive activities. Generally, rehabilitation efforts alone will not enough to restore nature in the area. Long-term problems—acid leaking from the mining site, for example—are water pollution that will last for decades or even centuries. In addition, iron ore mining and refining—even the one with modern technology—will cause extensive air pollution. A common problem in the extractive industry is that mining companies do not respect the local people’s land rights. Companies often grab lands and forests in which local communities rely for their livelihood. In addition, mine pollution can lead to the accumulation of heavy metals in soil, water and air in surrounding areas. When making an investment in mining companies, financial institutions must know if these companies comply with international guidelines and agreements in social and environmental issues. In doing this financial institutions need to develop their own investment policies assuring certain standards are met before they approve any financing to mining companies.
4. Oil and gas Several processes in oil and gas industry can have harmful effects on the environment. Drilling, oil and gas production, combustion, and refineries can all contaminate soil, air and water. High oil prices and the drive to replenish oil reserves pushed the oil companies to penetrate much deeper into ecologically vulnerable areas. Pipe cracks that may occured during earthquakes, other natural causes, or sabotage can cause groundwater pollution or even fatal explosion. Oil spill that may occured during oil tanker accident can pollute marine and coastal areas. Social consequences of oil and gas industry can also 8
be very detrimental: ranging from pollution, infectious diseases, food security, to indigenous culture. Often, oil and gas companies take local people’s land and divert them from their sources of food and livelihood. Investment policies of financial institutions in the oil and gas sector should emphasized that the main challenge for the oil and gas sector is to reduce its negative impacts while also develop sustainable energy. Hence, financial institutions policy should include social and environmental norms for oil and gas sector
5. Power generation Power plants are essential to meet the energy needs of communities and are important to achieve sustainable development and poverty alleviation. Energy suppliers need to generate electrical power by offering security of supply, affordable rates for consumers, and low environmental impact. Energy, including electricity and heat for companies and households and for transportation are the largest sources of man-made greenhouse gas emissions (64% of all global emissions). Financial institutions which invest in energy sector should carefully consider their investments and could be a key player in supporting a transition to a low-carbon economy, which is in line with the Intergovernmental Panel on Climate Change (IPCC) road map. They can choose to invest in renewable energy generation, or set a roadmapto reduce fossil fuel fincancing and to increase investment in to low-carbon energy production.
Financial institutions which invest in dam construction projects, for example, have to develop sectoral policies for investment in accordance with the recommendations of the World Commission on Dams (WCD). This policy should at least apply to all major dam projects, but ideally includes all important water infrastructure projects.
6. Arms States have the right - and indeed the obligation - to protect their civilians and individually or collectively defend their security interests. States’ responsibilities towards public security include regulating, checking and monitoring the manufacture, transfer, possession, stockpiling and use of arms. Yet, in practice there has been a large lack of expediency for governments and multilateral bodies (such as the United Nations Security Council) to monitor the international arms trade. Civil society research reports show how the arms industry, despite existing regulatory regimes, continues to sell arms to human rights abusing regimes and conflict zones, using loopholes in the law to circumvent arms embargoes and export controls. Even more than other sectors, financial institutions should carefully consider their investments in the armory and arms dealers. Firstly, because the industry working with dangerous and deadly products and because the industry is not transparent and has history of corruption and lawlessness. By giving loans and / or investment to this industry, financial institutions may engage in transactions that underlie very serious human rights violations, armed conflict, corruption, and the production of controversial weapons which is prohibited by existing international weapons convention. In this theme, financial institutions were assessed on lending / investing policies for assessing who receives loans.
Due to our limited capacity in conducting the assessments, we do not assess themes related to Consumer Rights and Financial Inclusion and or Real Economy in this first year. However, both 9
themes have been finalized for use in the assessment of the banks in the second year. Currently the arms sector may be less relevant to the Indonesian context, however it was perceived as relevant sector to the international community, so it was included in this assessment. We reffered to several international agreements as the basis during the preparation of ResponsiBank tool, among others:
1. Equator Principles 2. EU Code of Conduct for Arms Exports 3. Extractive Industries Transparency Initiative / EITI 4. IFC Environmental, Health, and Safety Guidelines 5. IFC Performance Standards 6. International Council of Mining and Metals / ICMM 7. OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict- Affected and High-Risk Areas 8. OECD Guidelines on Multinational Enterprises 9. Rio Declaration 10. UN Global Compact 11. UN Guiding Principles on Business and Human Rights 12. WWF Gold Standard 13. Etc
While there are pros and cons from both business and civil society towards these international standards, but globally, the standards have been pretty much agreed upon by the international community. Therefore, the banks in Indonesia are expected not only to refer to the domestic regulations and policies of the financial industry regulator , but also to take a step further by trying to refer to relatively ‘higher’standards. In addition, ResponsiBank tool also refers to some of the many principles and other international agreements, such as industry and sustainability standards, as well as certifications that have been widely applied in several industries. The types of lending or investments that are considered relevant to the scoring model as reviewed in the policy include:
• Corporate loans (not personal consumer loans and mortgages) • Project finance • Financial institution’s own investment(on balance sheet) • Asset management (eg. investment for the benefits of clients) For each policy document, researchers verified whether the investment policy was applicable in each of the category. For each assessment element found in the financial institutions’policy document, basic scores will be awarded points plus additional points for each category where policy had been applied. Because this methodology is more targeted at lending and investment policies of financial institutions, element of operational policies are less considered. The elements of these operational policies called “low hanging fruits”—elements in which financial institutions are relatively easy to gain scores. 10
Here is an example of how a financial institution/bank is assessed using this methodology on the theme of climate change (there are more elements assessed, but what is shown here are just a few examples of elements).
Tabel 1. Assessment model of financial institutions on “climate change” theme
Link to policy/ Explana- tions / The theme of “Climate Change” relevant infor- Asset Asset Score mation clarifica- Financial Base score
investments tions management Corporate loans Corporate institutions own institutions Project financing
Weights 50% 12.5% 12.5% 12.5% 12.5%
The following elements are crucial for policies related to the internal operations of financial institutions
For its own greenhouse gas emissions, either directly or indirectly, the financial institution 1 creates measurable reduction goals, 1 n.a n.a n.a n.a 0,5 which could contribute to limiting the increase in global temperatures to 2 degrees Celsius.
For greenhouse gas emissions financed, for example emissions by companies and projects where the financial institution investing, the 1 n.a n.a n.a n.a 0,5 2 institution discloses information about its contribution to the emission of the company and the project
The following elements are crucial for the company’s related policies projects funded financial institutions
The company discloses information 5 on directly generated greenhouse 1 0 0 0 0 0,5 gas emissions. The company discloses information on indirectly 0 0 0 0 0 0 6 generated greenhouse gas emissions. The company reduces directly 7 generated greenhouse gas 1 1 1 1 0 0,9 emissions. The company changes from fossil 0 1 1 0 0 0,3 8 fuels to renewable energy. Score 4,4
The score is calculated by dividing the number of elements of the assessment by the total number of elements assessed. The result is multiplied by 10 and then rounded to a number between 1 and 10. 11
However, for the sake of appearance on the website ResponsiBank, the final score is also displayed as a percentage (%), so the score that appears is between 0-100% (with or without a decimal number after the decimal point). Formula to calculating these scores are as follows:
The number of elements in the policy of financial institutions * 10 Score = The total number of the elements mentioned
Valid scores produced in this assessment is a score within each theme or sector, and not the consolidated score of the 13 themes and sectors assessed, because it does not fully describe whether a bank is a responsible bank (for example, banks could gain scores on general themes such as transparency and accountability, but bad on the theme of climate change). However, for the sake of the campaign, the consolidated figures are also shown to ease the public in reading the assessment results. Once the assessment is done, the resulting score is considered as a temporary score, and researchers send the result to the bank/financial institution and give the institutions the opportunities to provide input or rebuttal about the assessment results. If feedback given is well-founded, there may be a change in the final score.
Figure 1. Bank Ranking Process Flowchart
Revision of internasioanal Data gathering (secondary): metodologi Annual Report & Sustainability Report Launching & publikation
Assessment (draft scoring)
Collate bank ranking
Feedback Assessment from banks (final scoring)
International methodology revision > Data gathering (secondary): Annual & Sustainability Reports > draft scoring >Feedback from the assesed banks > Final scoring > Ranks decision > Launching and Publication To get a complete and thorough explanation of the rating methodology, the document can be downloaded on the website www.responsibank.id. Research Result
Bank Rankings in General Although there are no detailed descriptions on the policies of the banks on the 13 themes and sectors assessed this year, to help the public to check the bank’s rankings, researchers drew an average consolidated score which results can be seen in the following chart.
Chart 1 Consolidated score and banks’ rankings in general
Panin 0.08 BCA 0.14 Mandiri 0.26 OCBC‐NISP 0.29 CIMB‐Niaga 0.32 BRI 0.36 Danamon 0.84 BNI 0.85 Mitsubishi‐UFJ 1.85 Ci�bank 3.74 HSBC 4.14
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
It appears that in general, HSBC and Citibank are at the top ranks, respectively in the first rank with a score of 4.14 and the second with a score of 3.74. However, the actual score of HSBC and Citibank have not reach half of the maximum score that can be obtained, which is 10, because many elements are still not fulfilled by these major banks. They just fall into the category of ‘fair’. For national banks, all of them are in the ‘very less’ category, because they only gained average score below 1.5. However, there was potential for BNI, a national bank which had ranked the top among other national banks to beat foreign banks ranks such as Mitsubishi-UFJ. BNI gained a score of 0.85, fourth out of the 11 banks assessed. BNI’s score has only 1 point difference to Mitsubishi- UFJ a foreign bank in the third-ranked, and with a thin difference with its nearest competitor, Bank Danamon at fifth rank with a score of 0.84 and became the runner up of the eight national banks. 13
In the middle board there are BRI, CIMB-Niaga, OCBC-NISP and Bank Mandiri. Bank BRI ranked sixth in overall or third among national banks with an aggregate score of 0.36, followed by CIMB- Niaga with a score of 0.32, OCBC-NISP with a score of 0.29 and Bank Mandiri with a score of 0, 26. The last ranks are wrapped up by two national private banks, namely BCA which only got 0.14 and Panin with the score of 0.08 out of the 10 maximum score. The results of a full assessment of each bank per theme and sector can be seen in the following table. Table 2 Summary of the bank assessment results for each theme and sector
Theme Sector
No. Bank VALUE Food Arms Power Power Mining Forestry Taxes and Taxes corrup�on generation Biodiversity Oil and Gas Labour rights Labour rights Transparency Transparency Human rights Remunera�on Climate change Climate and accountability
1 BNI 2.0 0.9 1.7 0.5 0.0 1.2 2.8 0.0 0.7 0.0 0.4 0.4 0.5 0.85 2 BRI 0.0 0.0 1.7 0.0 0.0 0.8 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.36 3 Mandiri 0.0 0.0 0.0 0.0 0.0 1.5 1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.26 4 BCA 0.0 0.0 0.0 0.0 0.7 0.8 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.14 5 Danamon 0.0 0.0 0.6 2.9 0.0 1.2 2.7 n.a* 0.8 0.0 0.5 0.4 1.2 0.84 6 CIMB‐Niaga 0.3 0.0 0.0 0.2 0.0 1.5 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.32 7 OCBC‐NISP 0.0 0.0 0.0 0.2 0.0 1.5 1.6 0.0 0.0 0.0 0.1 0.3 0.0 0.29 8 Panin 0.0 0.0 0.0 0.0 0.0 0.8 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.08 9 HSBC 2.4 5.8 5.8 3.8 2.1 3.8 6.0 3.3 2.8 4.6 5.8 4.5 3.0 4.14 10 Ci�bank 3.4 7.0 5.5 5.1 1.3 2.9 4.9 0.0 4.0 4.3 2.9 3.7 3.6 3.74 11 Mitsubishi‐UFJ 2.3 2.0 3.0 2.5 0.4 1.2 4.4 1.2 1.6 1.3 1.7 1.5 1.1 1.85
Info.
: Foreign banks : Bank BOOK 3 : Bank BOOK 4 n.a : Bank is considered inactive in this sector after a review from the latest financial report
Explanation of the Scoring per Theme and Sector Climate change When assessed with this tool, foreign banks still leading the top rankings for the theme of climate change, although it is still only in the category ’less than sufficient’, and still far from the maximum score of 10. Citibank gained the highest score with3.42, followed by HSBC with 2.37 and the Mitsubishi-UFJ with 2.27. Although national banks almost did not gain score at all, but there are two national banks which gained scores for this theme, namely BNI with a score of 1.97 and CIMB-Niaga with a score of 0.26. BNI for example, gained a score because it stated that it gave priorities to debtors in the field of renewable energy and debtors with serious effort in mitigation in terms of reducing greenhouse gas emissions. Meanwhile, since CIMB-Niaga had mentioned that in their lending policies, they will seek whether the debtor/prospective debtor pay attention to the emission limits or environmental management provisions set by the government. Most foreign 14
banks gained scores because other than adopting international agreements such as the Equator Principles and the like, they also have explicitly expressed in the policy of lending their support for the shift of the economy fossil fuels to renewable energy, for example, while most national banks are still at the level of operational policy and CSR alone. Foreign banks had also set specific targets reduction in their carbon emissions directly or through companies/projects that they finance, making them more accountable in promoting adaptation to climate change.
Chart 2 Banks’ ranking on the theme of climate change
Climate change
Mitsubishi‐UFJ 2.26 Ci�bank 3.42 HSBC 2.37 OCBC‐NISP 0.00 Panin 0.00 Danamon 0.00 CIMB‐Niaga 0.26 BNI 1.97 Mandiri 0.00 BRI 0.00 BCA 0.00
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Human rights The theme of human rights is still led by foreign banks, which have average scores above 2. Citibank, for example, gained a score of 7.1, while HSBC gained a score of 5.8 and Mitsubishi- UFJ gained 2. These banks gained ‘fair’ scores because in addition that they have signed many international agreements and conventions related to human rights for the world of business, their published policies and official statements also mentioned the important principles that in the investment, the debtor will be supervised to ensure that they do not violate the rights of local and indigenous communities, for example, and require consultation with local communities within the framework of FPIC (Free Informed and Prior Consultation). They also ask the company or project that they fund to seriously facilitate complaints from people whose human rights have been violated because of the investment project, through a 15
clear, straightforward and easily accessible grievance mechanism. Of the eight national banks assessed, only BNI which gained scores on this theme with an average score of 0.91. BNI gained a score because it has signed a collective policy, namely the UN Global Compact. Despite “very less” score, BNI is the only national bank which had more advanced step in this regard compared to other national banks.
Chart 3 Banks’ ranking on the theme of human rights
Human rights
Mitsubishi‐UFJ 2.05 Ci�bank 7.05 HSBC 5.80 OCBC‐NISP 0.00 Panin 0.00 Danamon 0.00 CIMB‐Niaga 0.00 BNI 0.91 Mandiri 0.00 BRI 0.00 BCA 0.00
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Labour Rights Of the national banks category, BNI and BRI gained similar average scores of 1.67 each. BNI gained a score because it has adopted one of the collective policies, namely the UN Global Compact that regulates human rights, including labour rights, while BRI gained a score because it has mentioned that in conducting an assessment prior to investment, BRI considers the implementation of safety and health standard in the workplace and also the fulfillment of obligations for the employees of the entity which will be granted a loan, although the policy only mentioned in general. However, the scoring is still led by foreign banks such as HSBC (5.83), Citibank (5.52) and Mitsubishi-UFJ (3.02), mostly because they have clearly stated many collective policies, and they have asked their debtors or potential debtors to respect workers’ rights to associate, decent working hours and wage, no discrimination, prohibits the children employment and so on, as set out in various international conventions and agreements on the labour rights. 16
Chart 4 Banks’ ranking on the theme of workers’ rights
Labour Rights
Mitsubishi‐UFJ 3.02 Ci�bank 5.52 HSBC 5.83 OCBC‐NISP 0.00 Panin 0.00 Danamon 0.56 CIMB‐Niaga 0.00 BNI 1.67 Mandiri 0.00 BRI 1.67 BCA 0.00
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Biodiversity As in other themes, the two major foreign banks such as Citibank and HSBC possessed the highest scores respectively with 5.09 and 3.75. Citibank, for example, has clearly stated that it will not invest, directly or indirectly, to the animals/wild plants trade under the regulations of CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora). However, for this theme, national bank such as Danamon gained a slightly higher score than Mitsubishi-UFJ with 2.86, compared with 2.5. Mitsubishi UFJ scored more because the bank already endorsed international principle such as the IFC Performance Standards for Business and Human Rights as a guideline for the lending policy; something most national banks are lack of. Meanwhile, Bank Danamon gained a fair score because it explicitly stated that the Bank would not invest in companies/projects that damage conservation areas with protected biodiversity or culturally protected areas, and refused the trading of prohibites animals or plants. Three national banks gained scores (although still very low) BNI (0.54), CIMB-Niaga (0.18) and OCBC-NISP (0.18) mainly because they clearly stated that they required their debtors to conduct an environmental impact assessment (EIA) and address it along with the loan proposal to the bank. Even though this has been mandated in regulation (Peraturan Bank Indonesia) No. 14/15/PBI/2012 on assessment of asset quality of commercial banks, but not all banks have explicitly included and published them.Hence, they gained no score. 17
Chart 5 Banks’ ranking on the theme of biodiversity
Biodiversity
Mitsubishi‐UFJ 2.50 Ci�bank 5.09 HSBC 3.75 OCBC‐NISP 0.18 Panin 0.00 Danamon 2.86 CIMB‐Niaga 0.18 BNI 0.54 Mandiri 0.00 BRI 0.00 BCA 0.00
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Remuneration Almost all of the assessed banks; both foreign and national, gained less satisfactory scores for the theme of remuneration, which is part of Good Corporate Governance policy. HSBC still leads with a score of 2.1, followed by Citibank with a score of 1.8 because they have been included non-financial parameters as one of the parameters to determine bonuses for their bankers. BCA and Mitsubishi-UFJ still obtain a very little score respectively with 0.71 and 0.45. BCA gained a score for its sufficient ratio between the remuneration of employees and directors and Mitsubishi-UFJ included qualitative criteria and group values as a reference for bonuses. Other national banks did not gain any score at all (0) because the information and clear policies in their public documents were not found, or there was a wide gap in the ratio of remuneration between employees in the highest and lowest positions within the companies.
Chart 6 Banks’ ranking on the theme of remuneration
Remunera�on
Mitsubishi‐UFJ 0.45 Ci�bank 1.34 HSBC 2.14 OCBC‐NISP 0.00 Panin 0.00 Danamon 0.00 CIMB‐Niaga 0.00 BNI 0.00 Mandiri 0.00 BRI 0.00 BCA 0.71
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 18
Taxation and Corruption For the theme of taxation and corruption, all the banks gained scores, including national banks, even if none of them gained a high score. Of the 11 banks assessed, HSBC gained the highest score (3.85) on a scale of 1-10 because it has adopted a lot of collective policies, among others, the OECD Guidelines for Multinational Enterprises and the UN Global Compact, and has also included Anti Money Laundering and Know Your Customer programs in all its branches. Besides HSBC and Citibank which gained a score of 2.86, nearly all banks gained thin scores in the range of 0.77 to 1.54. Mandiri, CIMB-Niaga and OCBC-NISP equally gained scores of 1.54 while Danamon and BNI equally gained 1.15 in the middle ranks, while the least score was gained by Panin with only 0.77, similar with BRI and BCA. These three banks earn points from the common policy of anti-corruption, anti-gratification and anti-money laundering which is a general public policy that has also been regulated by national regulators.
Chart 7 Banks’ ranking on the theme of tax and corruption
Taxa�on and Corru��on
Mitsubishi‐UFJ 1.2 Ci�bank 2.9 HSBC 3.8 OCBC‐NISP 1.5 Panin 0.8 Danamon 1.2 CIMB‐Niaga 1.5 BNI 1.2 Mandiri 1.5 BRI 0.8 BCA 0.8
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Transparency and accountability For the theme of transparency and accountability, the highest scores also gain by foreign banks, namely HSBC (6.02), Citibank (4.9) and UFJ-Mitsubishi (4.38). The three multinational banks operate in dozens of countries and have been quite transparent in their investment and sustainability policies, including their publication in investment and lobbying to policy makers. For national bank, BNI still leads with a score of 2.8, followed by Danamon (2.66), while BRI and CIMB-Niaga gain same score (2.2). These banks have been referring to the sustainability reporting of Global Reporting Initiative (GRI) and have started to publish sustainability policies. At the bottom of the group in this theme is BCA with only 0.31 points and Panin with 0.3 points. BCA and Panin do not even have a separated sustainability report, so there are not many information to assess. 19
Chart 8 Banks’ ranking on the theme of transparency and accountability
Transparency and accountability
Mitsubishi‐UFJ 4.4 Ci�bank 4.9 HSBC 6.0 OCBC‐NISP 1.6 Panin 0.3 Danamon 2.7 CIMB‐Niaga 2.2 BNI 2.8 Mandiri 1.9 BRI 2.2 BCA 0.3
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor Food Although the food industry is important for Indonesia, almost all national banks do not have a specific policy for the food sector, so they did not gain any score at all. Only two national banks, namely BNI and Danamon which gained scores, which were very low, respectively 0.83 for Danamon and 0.74 for BNI (out of a maximum score of 10). BNI gained a score because the bank had included requirements for palm oil producers to refer to the ISPO (Indonesian Sustainable Palm Oil System) and RSPO (Roundtable on Sustainable Palm Oil System) certification and listed the requirements for the EIA (Environmental Impact Assessment) in each upcoming project. Danamon stated that it would not provide funding to debtors operating in protected areas both culturally and biodiversity conservation areas. For foreign banks, Citibank leads with a score of 3.98, followed by HSBC with 2.84 and 1.59 for Mitsubishi-UFJ. Most foreign banks obtained scores because of collective policies such as the Equator Principles, IFC Performance Standards and others. Chart 9 Banks’ ranking in the food sector
Food
Mitsubishi‐UFJ 1.6 Ci�bank 4.0 HSBC 2.8 OCBC‐NISP 0.0 Panin 0.0 Danamon 0.8 CIMB‐Niaga 0.0 BNI 0.7 Mandiri 0.0 BRI 0.0 BCA 0.0
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 20
Forestry Indonesia is one of the countries with the largest forest in the world, yet no national banks had specifically published policies for the forestry sector, therefore when being assessed, eight national banks gained no score at all (0). The three foreign banks gained scores for this sector: HSBC (4.61), Citibank (4.29) and Mitsubishi-UFJ (1.25). HSBC, for example, has a specific policy on the forestry, namely HSBC Forestry Policy, and since they also made investment in the palm oil industry, HSBC has issued HSBC Statement on Forestry and Palm Oil. Thus, HSBC gained the highest score. Citibank had published Citi Sustainable Forestry Standard while Mitsubishi-UFJ specifically mentioned the importance of FPIC (Free Prior and Informed Consent) or both consultation and agreement with local and indigenous communities. They preserve the rights of land for indigineous people whose livelihood will be disturbed as an impact of future companies investment which will be funded by the Bank.
Chart 10 Banks’ ranking in the forestry sector
Forestry
Mitsubishi‐UFJ 1.3 Ci�bank 4.3 HSBC 4.6 OCBC‐NISP 0.0 Panin 0.0 Danamon 0.0 CIMB‐Niaga 0.0 BNI 0.0 Mandiri 0.0 BRI 0.0 BCA 0.0
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Mining Although all national banks were actively investing in the mining sector based on their corporate loan portfolios, almost all banks did not publish whether they had specific lending policies for the mining projects which funded. Therefore, almost all national banks gained zero points, except BNI, Danamon and OCBC-NISP which gained very low score. BNI gained a score of 0.36 due to UN Global Compact, while Danamon gained 0.48 for mentioning PROPER from Ministry of Environment and Forestry as a reference, and mentioned the need to have an EIA and waste management for companies which requested loans. Obligations of the EIA were also mentioned by OCBC-NISP. Foreign banks gained high scores, for example, HSBC obtained a score of 5.85 because it had published a special policy for 21
investment in the mining sector, although only in the form of summary, it could demonstrate important principles as the requirement to obtain a loan from HSBC. Citibank gained a score of 2.95 since it had published the framework of its environmental policy, among others, on the importance of consultation and approval by the affected local residents and indigenous people, the importance of mining project to comply with all laws and regulations regarding safety and security standards as well as the disposal of hazardous waste.
Chart 11 Banks’ ranking in the mining sector
Mining
Mitsubishi‐UFJ 1.7 Ci�bank 2.9 HSBC 5.8 OCBC‐NISP 0.1 Panin 0.0 Danamon 0.5 CIMB‐Niaga 0.0 BNI 0.4 Mandiri 0.0 BRI 0.0 BCA 0.0
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Oil and Gas For the oil and gas sector (oil and gas), the highest score achieved by foreign banks, led by HSBC (4.49), followed by Citibank (3.66) and Mitsubishi-UFJ (1.48). Foreign banks have generally published good investment policies specific to energy and oil and gas sector. Such principles require oil and gas companies not to commit illegal acts in obtaining oil and gas contracts, comply with the tax in the country where it operates and respect the rights of the local communities, including provide a complaint mechanism for the affected local communities and indigenous people. Three national banks, BNI, Danamon and OCBC-NISP still gained scores, although very low at 0.37 for Danamon and BNI, and 0.28 for OCBC-NISP. BNI gained a score because the generic policy of UN Global Compact, while Danamon mentioned PROPER from Ministry of Environment and Forestry as a reference, and also mentioned the need to have EIA and waste management for the company. OCBC-NISP gained a score because it lists the requirements of the EIA for the provision of lending in sectors that have high risk to the environment. At the bottom there are five national banks, namely BRI, BCA, Mandiri, CIMB-Niaga and Panin which did not gain any score at all (0) because they did not publish lending policies related investment policy on oil and gas sector. 22
Chart 12 Bank’s ranking in the oil and gas sector Oil and Gas
Mitsubishi‐UFJ 1.5 Ci�bank 3.7 HSBC 4.5 OCBC‐NISP 0.3 Panin 0.0 Danamon 0.4 CIMB‐Niaga 0.0 BNI 0.4 Mandiri 0.0 BRI 0.0 BCA 0.0
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Power generation Although almost all national and foreign banks gained low scores (the highest is only 3.58 out of a maximum score of 10), but the scores of foreign banks are still better on the power generation sector. Citibank, for example, which gained the highest score (3.58 on a scale of 0-10) have included the target for investment in renewable energy sector in their Sustainability Reports. They also agreed on various international conventions and agreements such as the UN Global Compact, Equator Principles, IFC Performance Standards, and FPIC (Free Prior Informed Consent). Citibank also adopted specific reference such as 7 Principles of the World Commission on Dams. The cases were similiar for HSBC (29.8%) and Mitsubishi-UFJ (10.7%) which also had adopted international conventions for investment principles. Among national banks, only BNI and Danamon which obtained any score, which were also very insignificant at only 0.48 (BNI) and 0.13 (Danamon). Both banks got scores due to their commitments to invest in ‘green lending’, namely renewable energy and generic policy to prohibit investment in both ecological and cultural reservation areas. The other six national banks namely BCA, BRI, Mandiri, CIMB-Niaga, Panin and OCBC-NISP gained no score at all (0) because they did not publish policies related to the investment on electricity generation sector. 23
Chart 13 Banks’ ranking in the electricity generation sector
Power generation
Mitsubishi‐UFJ 1.1 Ci�bank 3.6 HSBC 3.0 OCBC‐NISP 0.0 Panin 0.0 Danamon 1.2 CIMB‐Niaga 0.0 BNI 0.5 Mandiri 0.0 BRI 0.0 BCA 0.0
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
Arms All major government-owned national banks were active in this sector, especially if they were designated to finance defense industry and national armaments. However, there are no specific policies for this in their lending policies. For other national banks, based on their published reports and financial reports and credit compositions, there was no clear statement whether they were active in this sector or not, except Danamon in which financial statements showed no indication of financing in related sector. For foreign banks, only two banks obtained scores for this sector, Mitsubishi-UFJ (1.18) and HSBC (3.31), while Citibank has no specific policy for armament and thus gained the score of 0. HSBC was quite explicit in its armament, energy and chemical industry policies by prohibiting investment for some types of landmines and chemical weapons, component of nuclear weapons production, thus gained the highest score.
Chart 14 Banks’ ranking in the armament sector
Arms
Mitsubishi‐UFJ 1.2 Ci�bank 0.0 HSBC 3.3 OCBC‐NISP 0.0 Panin 0.0 Danamon n.a CIMB‐Niaga 0.0 BNI 0.0 Mandiri 0.0 BRI 0.0 BCA 0.0
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 24
Bank profile and explanation of the scoring per bank
1
Established in 1957, BCA is the largest private bank in Indonesia today with a core capital of 54.7 trillion and the value of assets amounting to more than Rp 496.3 trillion. BCA is one of four banks that are in the category BOOK 4 with core capital above Rp 30 trillion. BCA have approximately 12 millions accounts. BCA operates not only in various regions in Indonesia, BCA also has a subsidiary in Hong Kong. From the total loans chanelled by BCA, the ‘others’ sector is at 29%; followed by trade, restaurants and hotels 26%;manufacturing 20%; business services 9%; trade transportation & communication 6%; as well as agriculture and agricultural tools 4%. Corporate lending covers 64% from the BCA entire loan portfolio. In the case of corporate lending, plantation and agriculture sector ranked first with 10.7%; followed by the telecommunications sector 7.8%; chemicals and plastics 7.6%; consumer financing 7.5%; as well as transportation and logistics 6.7%. Power generation sector ranked sixth with a proportion of 5.8%. BCA ranked 10 out of 11 banks that had been assessed, with an average score of just 0.14 (out of a maximum scale of 10). BCA scored zero (0) in almost all the themes and sectors when assessed with the Responsibank tool, except for the theme Remuneration 0.7; Tax and Corruption 0.8; and Transparency and Accountability 0.3 because BCA stated Good Corporate Governance (GCG) policies, for example about the salary structure, anti-corruption and fraud, as well as financial report that indicated the sectors in which it invests. For social and environmental themes such as climate change, human rights, labor rights, biodiversity and industrial sectors such as food, forestry, mining, oil and gas, and power generation, the Bank does not publish any lending policies. Consequently, BCA gained the worst score compared with other national banks in the BOOK 4 class.
Chart 15 Scores for BCA in all themes and sectors
BCA 0.9 0.8 0.7 0.8 0.6 0.7 0.5 0.4 0.3 0.2 0.3 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 BCA
Arms Food Forestry Mining Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Climate change Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 25
2
Established in 1946, BNI is the third-largest government-owned bank in Indonesia at present time with a core capital of Rp 41.5 trillion and assets value amounting to more than Rp 386.7 trillion. BNI is one of four banks that are in the BOOK 4 category with core capital above Rp 30 trillion. The number of accounts at BNI was about 14.5 million. BNI worked in various regions in Indonesia and also had branches in the USA, UK, Hong Kong, Singapore and Japan. In terms of lending, the top was the ‘Others’ by 24%, followed by manufacturing 18%; trade, restaurants and hotels 16%; business services 10%; warehouse transport and communication 8%; and agriculture 7%. In the sixth and seventh were mining 6% and construction 5%. BNI ranked 4th out of 11 banks, and the first among other national banks, with an average score of 0.85. Although BNI was considerably good for the standard of national bank, the score was still far lower compared with the foreign banks. For the theme of climate change for example, BNI gained a score of 2, the highest compared with other national banks which failed to gain any score. The same conditions applied for the themes of human rights 0.9; the rights of workers 1.7; 0.5 biodiversity; taxation and corruption 1.2; Food 0.7; mining 0.4; oil and gas 0.4; and electricity generator 0.5. One of the reasons why BNI gained scores was because it had adopted the UN Global Compact in 2013. BNI had also made references in its report using the Global Reporting Initiative (GRI) G4 (including GRI Financial Services Sector Supplement), and was the first national bank to make a separate Sustainability Report in 2007. BNI also reported the PROPER rating for companies which had been funded in its Sustainability Report, and stated that BNI would never provide loans to companies with bad PROPER ratings. However, the scores for BNI is not yet optimal (grading scale is 0-10, while BNI scores only 0.85) in average since BNI tend to publish more of its own operational policies rather than the lending/investment policies to prospective debtors.
Chart 16 Scores for BNI in all themes and sectors
BNI 3.0 2.5 2.8 2.0 1.5 2.0 1.7 1.0 1.2 0.5 0.9 0.5 0.0 0.0 0.7 0.0 0.4 0.4 0.5 0.0
Arms Food Forestry Mining Labour rightsBiodiversity Oil and Gas Human rights Remunera�on Climate change Power generation Transparency and... Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 26
3
Established in 1960, BRI is currently the second largest government-owned bank in Indonesia with the core capital amounted to Rp 67.3 trillion and asset value of more than Rp 626.2 trillion. BRI is one of four banks in BOOK 4 category with core capital above Rp 30 trillion. The number of accounts in BRI is about 45 million, the largest in Indonesia. BRI worked in various regions in Indonesia, even in sub-district level, BRI also had branches and representatives in the United States, the Cayman Islands and Hong Kong. In terms of lending composition, the top list were trade, hotels and restaurants by 33% followed by ‘others’ 29%; manufacturing 11%; agriculture 9%; business services and construction (5% each); transportation and social services (3% each). BRI’s lending composition was 41% for retail sector, 33% for the micro sector, and 25% for corporations. BRI was ranked 6 out of 11 banks that were assessed, with the aggregate average score of 3.6%. Similiar with theother two national banks in BOOK 4 category, BRI had made references in its reports about the GRI G4 (including GRI Financial Services Sector Supplement). BRI gained a score of 1.7 in the theme of labour rights; 0.8 of theme taxes and corruption, 2.2 of the themes of transparency and accountability. In its Sustainability Report, BRI stated that BRI performed assessment prior to the investment “in accordance with Bank Indonesia, which determine the feasibility of lending, and ... pay attention to the fulfillment of environmental responsibility (RKL & RPL, EIA), fulfillment of obligations to workers, K3 (Occupational Safety and Health) implementation and compliance to governance”. However, this information is still too general and therefor BRI gained no points (0) in the theme of climate change, biodiversity, human rights, remuneration, and arms, food, forestry, mining, oil and gas and electricity generation sectors.
Chart 17 Scores for BRI in all themes and sectors
BRI 2.5
2.0 2.2 1.5 1.7 1.0 0.5 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Arms Food Forestry Mining Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Climate change Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 27
4
Being established 140 years ago, Mandiri state-owned and is the largest bank in Indonesia. Mandiri is a result of four major banks merger in 1999. Bank Mandiri has a core capital of Rp 76 trillion and total assets of Rp 733.1 trillion. Its core capital accounted for 14.5% of the total banks’ core capital in Indonesia and its assets accounted for 14.3% of total banks’ asset. Bank Mandiri was considered as the largest bank in BOOK 4 category. Bank Mandiri had branches in various regions in Indonesia, Bank Mandiri also had several branches abroad, namely in the Cayman Islands, China, Hong Kong, Singapore, Malaysia, UK and Timor Leste. The bank had roughly 12 million customers. In terms of lending based on the economy sectors, Mandiri’s granted 20% of its loans to manufacturing sector; 19% for trade, hotels and restaurants; 17.5% for ‘other’ sectors; 6%; for mining; 6% for transport, storage and communication; and 4% for construction. Despite being the largest bank, Mandiri only ranked 9th out of 11 banks which had been assessed, with the aggregate average score of 0.26. Mandiri only gained scores on two themes, 1.5 from tax and corruption and 1.9 for transparency and accountability. The scores were gained partly because Mandiri mentioned about anti-graftification and fraud policies, data disclosure in Mandiri branch in the Cayman Islands, as well as sustainability report, which had referred to the GRI Generation 4 standard reporting. Mandiri gained no points (0) in 11 other themes/ sectors, namely climate change, human rights, labor rights, remuneration, as well as the armament sector, food, forestry, mining, oil and gas, and electricity generation—because it had not published any lending policies related to elements assessed in these themes and sectors.
Chart 18 Scores for Mandiri in all themes and sectors
Mandiri 2.0 1.8 1.6 1.9 1.4 1.2 1.5 1.0 0.8 0.6 0.4 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Arms Food Forestry Mining Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Climate change Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 28
5
Established in 1956, Danamon is a commercial bank incorporated in Indonesia, with the largest share of ownership held by Singapore-based PT Asia Financial. Danamon’s core capital amounted to Rp 26.8 trillion and asset value amounted to Rp 184.2 trillion. Being in BOOK 3 category with core capital between Rp 5 trillion to Rp 30 trillion, Danamon is the largest bank out of 15 banks in this category. The number of its customers was approximately 4.7 million. In terms of lending based on economic sector, the largest loans were granted by Danamon to the trade and retail sector by 32%; household loans of 23%; manufacturing by 18%; transport, storage and communication 6%; agriculture, hunting and forestry 3%; financial intermediaries 3%; and mining and quarrying 2%. Danamon was ranked 5th of 11 banks which had been assessed, with aggregate average score of 0.84. Danamon gained points on the themes of the labour rights 0.6; biodiversity 2.9; taxes and corruption 1.2; as well as the transparency and taxation 2.7; food 0.8; and mining 0.5. These points were obtained due to its statement that Danamon, for example, required its clients to guarantee that they do not carry out any coercion or labor exploitation and do not employ child labor at all. Danamon also mentioned that they will not finance any projects located in sensitive areas; i.e. with social and ecological stakes, natural and cultural conservation areas, protected animals or wild plants trading. However, Danamon gained no points (0) in themes of climate change, human rights, remuneration, as well as arms, food, forestry, mining, oil and gas, and power generation because it has not published investment policy related to the elements assessed within these themes and sectors.
Chart 19 Scores for Danamon in all themes and sectors
Danamon 3.0 2.5 2.9 2.7 2.0 1.5 1.0 1.2 1.2 0.5 0.8 0.0 0.0 0.6 0.0 n.a 0.0 0.5 0.4 0.0
Arms Food Forestry Mining te change Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Clima Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 29
6
Established in 1955 as Bank Niaga, CIMB-Niaga incorporated in Indonesia as a joint- venture company, which majority shares is held by CIMB Group based in Malaysia. Core capital of CIMB-Niaga Indonesia is Rp 23.4 trillion and the value of assets amounted to Rp 218.9 trillion. CIMB-Niaga was in BOOK 3 category with core capital between Rp 5 trillion to Rp 30 trillion and is the largest bank in terms of total assets among 15 banks in this category. The number of accounts at CIMB-Niaga in Indonesia is approximately 2.8 million. CIMB Group is represented in 9 of the 10 ASEAN countries and other countries such as China, Taiwan, Hong Kong, Sri Lanka, USA, Australia, etc. However, CIMB-Niaga mainly operate in Indonesia. In terms of lending based on economy sectors, the largest loans of 21% were granted to trade, hotels and restaurants sector; followed by 18% to business services; 15% each to housing and manufacturing; 8% agriculture; and 7% social services. CIMB-Niaga was ranked 7th out of 11 banks that had been assessed, with aggregate average score of 0.32. CIMB-Niaga gained points in themes of climate change 0.3; 0.2 biodiversity; taxes and corruption 1.5; and transparency and accountability 2.2. These points are obtained because in its lending risk management, CIMB-Niaga required the availability of EIA documents and PROPER ranking of its prospective debtors as the basis assessment of lending applications, and also mentioned that the companies must comply with emission limits and environmental management standards set by the government. However, CIMB-Niaga gained no points (0) in themes of human rights, remuneration, as well as arms, food, forestry, mining, oil and gas, and electricity generation because it had not published a clear lending policy with elements within these sector and themes.
Chart 20 Scores of CIMB-Niaga in all themes and sectors
CIMB‐Niaga 2.5 2.0 2.2 1.5 1.5 1.0 0.5 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3
Arms Food Forestry Mining Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Climate change Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
30
7
OCBC-NISP is the fourth oldest bank in Indonesia, established in 1941, with its majority share of 85% owned by OCBC Bank Singapore. OCBC-NISP was one of the banks that did not require a transfusion of capital from the government after the monetary crisis in the late 1990s and therefore, in 2002-2010 the bank was once owned by the IFC (International Finance Corporation, part of the World Bank). OCBC-NISP core capital amounted to Rp 12.8 trillion and the value of assets of Rp 97.5 trillion. OCBC-NISP was in category BOOK 3 with a core capital between 5 to 30 trillion and was the fourth largest bank’s core capital of 15 banks in this category. OCBC-NISP number of customers was about 1.5 million people in Indonesia. In terms of lending based on sectors of the economy, ther largest loans granted by OCBC-NISP went to the sector ‘others’ as much as 47%; manufacturing by 25%; business services by 22%; and agriculture amounted to 6%. OCBC-NISP ranked 8 out of 11 banks assessed, with the aggregate average score of 0.29. OCBC-NISP gained a score of 0.2 for the theme of biodiversity; 1.5 for the theme taxes and corruption; 1.6 to transparency and accountability; as well as 0.1 and 0.3 respectively for the mining and oil and gas sectors. These points were obtained partly because OCBC-NISP mentioned that one of the criterias for assessment of business prospects for the debtor was the debtor’s effort to manage the environment, especially for large scale debtor with a significant impact on the environment, and had reffered its sustainability report to the GRI Generation 3. However, OCBC-NISP gained no points (0) on the themes of climate change, human rights, labor rights, remuneration, as well as the sector of armament, food, forestry, mining, and electricity generation, because it had not published a lending policy that relates to elements assessed in these theme and sectors.
Chart 21 Scores for OCBC-NISP in all themes and sectors
OCBC‐NISP 1.8 1.6 1.6 1.4 1.5 1.2 1.0 0.8 0.6 0.4 0.2 0.0 0.0 0.00.2 0.0 0.0 0.0 0.0 0.1 0.3 0.0 0.0
Arms Food Mining te change Forestry Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Clima Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
31
8
Established in 1971, Panin Bank currently had 2 major shareholders, PT Panin Financial Tbk and ANZ Bank. Bank Panin had a core capital of Rp 16.8 trillion and total assets of Rp 164.1 trillion. Panin was in BOOK 3 category with a core capital between Rp 5 trillion to Rp 30 trillion, and was the third-largest bank core capital of 15 national banks in this category. Panin operated in various regions in Indonesia, Panin Bank has branches and representative offices abroad, namely in the Cayman Islands and Singapore, with insignificant amount of operation. In terms of lending based on sectors of the economy, the largest loans were granted to the services sector by 25%; trade and ‘others’ 23% each; manufacturing 17%; as well as the construction 12%. Panin had the lowest rank, or 11th out of 11 banks that had been assessed, with an average score of just 0.08 of a maximum value of 10. Panin only gained scores on the themes of tax and corruption 0.8; and transparency and accountability 0.3 because of the general policies of anti- corruption, anti-gratification and anti-money laundering, which were the company’s general public policies that has also been regulated by national regulator of financial institutions, as well as financial reporting to the provincial level. Panin gained no points (0) in 11 themes/other sectors, namely climate change, human rights, labor rights, remuneration, as well as arms, food, forestry, mining, oil and gas, and electricity generation, because it had not published a lending policy associated with the elements assessed in these theme and sectors.
Chart 22 Scores for Panin in all themes and sectors
Panin 0.9 0.8 0.7 0.8 0.6 0.5 0.4 0.3 0.2 0.3 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Arms Food Mining te change Forestry Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Clima Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 32
9
The British and Hong Kong based HSBC opened its first Indonesian office in Jakarta (Batavia) in 1884 to accommodate the commodity trade at that time. HSBC currently has subsidiaries and branches in about 80 countries in various continents with the second largest assets in the world after China ICBC. HSBC Indonesia itself had a core capital of Rp 14.8 trillion and assets amounting to Rp 84.4 trillion. HSBC was thea foreign bank with the second largest core capital and assets in Indonesia after MUFJ. The niumber of HSBC customers in Indonesia was about 2.5 million. HSBC granted 42% of its loans to manufacturing sector; 13% to trade, hotels and restaurants; 14% to agriculture, forestry and mining; and almost 10% each to individuals and financial services sector. HSBC ranked first out of 11 banks which had been assessed with a score of 4.14 out of a maximum score of 10. This was because HSBC Indonesia refered to the ESRM (Environmental and Social Risk Management) policies of its parent company which was quite comprehensive, and had adopted many international agreements and conventions on the assessed themes/sectors. HSBC, for example, have adopted Equator Principles, UN Global Compact, EITI, IFC Environmental Health and Safety Guideline, IFC Performance Standards, OECD Guidelines for Multinational Enterprises, etc. HSBC gained the highest score of 10 other banks that had been assessed. They gained the highest scores on the themes of transparency and accountability 6.02; labour rights, human rights and mining sectors of about 5.8 each; followed by forestry 4.61; oil and gas 4.49. For other themes and sectors, HSBC still needed to increase its low scores. On the theme of remuneration, for example, it only gained 2.14 and in climate change it only gained 2.37.
Chart 23 Scores of HSBC on all themes and sectors
HSBC 7.0 6.0 5.0 5.8 5.8 6.0 5.8 4.0 4.6 4.5 3.0 3.8 3.8 3.3 2.0 2.8 3.0 2.4 1.0 2.1 0.0
Arms Food Forestry Mining Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Climate change Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor 33
10
Citibank NA is a branch of United States based Citibank, a member of Citigroup, one of the largest financial services group in the world. Citibank had started its operation in Jakarta (Batavia) and Surabaya since 1918. Currently, Citibank had branches in six major cities in Indonesia i.e. Jakarta, Surabaya, Bandung, Medan, Semarang and Denpasar, with approximately 1.5 million customers. With Rp 12.9 trillion core capital and Rp 64.3 trillion assets, Citibank had the third largest assets of all foreign banks in Indonesia. In Indonesia, Citibank Indonesia provided the largest loans for manufacturing sector 28%; followed by finance 27%; mining 7%; trade 5%; 30% for other sectors; and each 1% for agribusiness and transportation. Citibank ranked second of 11 banks in this assessment with a score of 3.74. This was due to its policy of ESRM (Environmental and Social Risk Management) which followed its parent company. Citibank has already adopted fairly comprehensive international agreements for the business world such as Equator Principles, UN Global Compact, IFC Environmental Health and Safety Guideline, IFC Performance Standards, as well as the UN Guiding Principles on Business and Human Rights. Citibank gained the highest value on human rights 7.0, labour rights 5.52; biodiversity 5.09; transparency and accountability 4.92; and 4.29 and 4 respectively for the forestry and food sectors. However, on other themex such as remuneration, Citibank only gained a score of 1.34 and gained none (0) for arms sector.
Chart 24 Scores for Citibank in all themes and sectors
Citibank 8.0 7.0 6.0 7.0 5.0 5.5 4.0 5.1 4.9 4.0 4.3 3.0 3.4 3.7 3.6 2.0 2.9 2.9 1.0 1.3 0.0 0.0
Food Arms Mining te change Forestry Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Clima Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor
34
11
Headquartered in Tokyo, Japan, MUFJ had subsidiaries and branches in about 45 countries on 6 continents, and was the fifth largest financial group in the world and the largest in Japan. In Indonesia, MUFJ is a bank settlement for most Japanese companies, and has branches in three major cities i.e. Jakarta, Surabaya and Bandung, with approximately one thousand customers. A result of a merger of several banks, the representatives of Mitsubishi- UFJ had been present since 1957 in Indonesia (at that time as Bank of Tokyo). With a core capital amounted to Rp 63.7 trillion and assets amounting to Rp 97.2 trillion, Mitsubishi-UFJ was a foreign bank with the largest assets and core capital in Indonesia. Its loans were granted for manufacturing sector by 32%; followed by the financial services sector by 28%; agriculture, forestry and mining by 16%. Other significant sectors are trade, restaurants and hotels by 7%; electricity, gas and water by 4%; as well as housing and construction of 2%. Mitsubishi-UFJ ranked third out of 11 banks that had been assessed with the score of 18.5%. Among foreign banks, Mitsubishi-UFJ had the lowest rank, because it had only adopted three international agreements, namely Equator Principles, UN Global Compact and the IFC Performance Standards. The highest scores were obtained from the theme of transparency and accountability 4.38; labour rights 3.02; biodiversity 2.3; and climate change 2.26. The lowest score for the theme was for remuneration (4.5); while other points obtained evenly between 1 and 2, including tax and corruption 1.15; arms 1.18; forestry 1.25; electricity generation 1.07; mining 1.7; oil and gas 1.48. . For the lending policy of the mining sector for example, Mitsubishi-UFJ scored high enough for stating that the debtors must ensure that the projects to be funded had gone through the process of consultation with stakeholders and affected communities, and should be done in a participatory process and compatible with the local culture.
Chart 25 Scores for UFJ--Mitsubishi on all themes and sectors
UFJ‐Mitsubishi 5.0 4.5 4.0 3.5 4.4 3.0 2.5 3.0 2.0 2.5 1.5 2.3 2.0 1.0 1.6 1.7 1.5 0.5 0.4 1.2 1.2 1.3 1.1 0.0
Arms Food Forestry Mining Biodiversity Oil and Gas Human rightsLabour rights Remunera�on Climate change Transparency and... Power generation Taxes and corrup�on
7,5 ‐ 10 5,5 ‐ 7,5 3,5 ‐ 5,5 1,5 ‐ 3,5 0 ‐ 1,5 Very Good Good Fair Poor Very Poor Conclusions And Recommendations
Conclusion National banks still ranked very low when compared with foreign banks, because of the unavailability of information about the investment policy to public assessment and the lack of adaptation to various international agreements. The score of the consolidation of the bestforeign bank was almost five times the score of the consolidation of the best national bank, and almost 52 times of the national bank on the last rank. Foreign banks have adopted many principles and international agreements regarding social and environmental responsibility in business. National banks had not explored much and even much less in adopting these agreements. Only one national bank was considered the front runner or pioneer since it had adopted one of these principles, namely BNI whixh had adopted the UN Global Compact and included it in its publications. The ‘fat’ banks gained worse scores; the amount of core capital or assets of the banks were not directly proportional to the scores obtained in this ranking system. For example, two largest national banks, BCA as the largest private bank and Mandiri as the largest state-owned bank respectively ranked the second and third from the bottom. This happened due to the lack of public reports and information about their policies related to environmental and social risks. The lack of information could be translated as a lack of concerns for the big banks regarding social and environmental issues. This fact by itself rendered the notion that the lack of resources is the reason why banks did not have policies that are sensitive to social and environmental issues. Banks which published their investment policies in sectors that were at high risk to humans and the environment gained higher scores. Disclosure of information regarding the banks’ policy of lending/ investment—especially for national banks—was still very minimal. Indonesia’s economy is still very much dependent to commodities and extractive sectors and therefore requires guarantees that banks will not invest in projects and companies that violate human rights and damage the environment. Investments in damaging projects and companies will damage the banks’ reputations and increase the risk of non-performing loans. Some frontrunner banks such as BNI and Danamon had started to make requirements for lending in high-risk sectors, but most of the other banks had not. The highest score, although still far from the maximum was achieved on the themes that were generally already stressed by financial industry regulators, among others, tax and corruption as well as transparency and accountability, particularly on elements related to good corporate governance. Regulations in Indonesia which were quite strict about aspects related to these themes urges the banks to try to comply. However, the ResponsiBank tool expects that the financial industry, especially banking cab be one step ahead; by having a more advanced policy than the ones requested by the regulators. There had not been many banks that own and/or publish a clear ESRM (Environmental and Social Risk Management) policy. In fact, this is one of the tools for consumers in particular and public in general to judge whether a bank considered important social and environment aspects in the heart their businesses. Some banks did not even have a separate Sustainability Report. Although it was not required by the financial industry regulator (FSA), this initiative had been started in Indonesia and therefore other banks should continue to improve adaptation. 36
Social and environment responsibilities were still likely be translated in the form of philanthropic activities and community development. In various sustainability reports, banks tend to report their funded social and environmental activities, but not as part of the main business, which is lending policy. This paradigm needs to be changed, so that a responsible business is seen as a business that proactively prevent damage or ‘do no harm’ from the beginning, from the bank’s policy, not just ‘set aside’ their profits for public after doing the banks’ main businesses.
Recommendation Banks need to increase awareness about the international development in responsible business agreements and adopt its principles. This will drive the business in the transition towards green economy and affirm the commitment to contribute as a responsible international community. The time had passed in which businesses financed brown economy. This is the homeworks which needed to be considered especially by the national banks since the future direction of the business world will emphasize this perspective. Social and environmental risks need to be included as one of the bank lending risks, and not just the risks related to market and economic course. Responsible lendings/investments which are sensitive to human rights and environment are profitable for the financial industry, especially in the future. It will help the banks to avoid the possibility of engaging in risky investments and helped to maintain the banks’ branding as responsible banks. FSA as a regulator of the financial industry can encourage the adoptions of these policies by banks and financial industry. The banks’ Sustainability Reports need to be supplemented with information about the lending policy to high risk sectors in terms of social and environmental risks. If it is impossible to publish Sustainability Report in the form of complete policy documents, the banks may publish a summary or the important principles of lending/investment policy in the sectors where they actively invest. It is important for the public to know how their banks behave in financing high risk sectors, and ensure that their funds are not used to violate human rights or damage the environment.