What is Green Financing? A Complete Explanation up to Indonesia's Commitment
Environmental experts state that research shows 26 per cent of global warming is caused by the use of fossil fuels for electricity generation, transportation, and industrial machinery. In response to this situation, countries have adopted projects with environmental impacts, known as green financing.
What is green financing?
According to the Ministry of Finance Learning Centre website, the term green financing, as defined by Höhne et al (2012), refers to investments channelled into sustainable development projects and initiatives, as well as environmental products. In other words, this concept involves sustainable development projects that have a positive environmental impact to address environmental issues.
In its application, China has adopted it through the banking sector, defined as financial products and services that consider environmental factors in credit decisions, investment environments, and the creation of environmentally friendly technologies for businesses and industrial projects.
Dimensions of green financing
Green financing consists of the following dimensions: Achieving industrial, social, and economic excellence to reduce the threat of global warming and prevent other environmental and social problems. It aims to shift targets towards a competitive low-carbon economy. It strategically promotes environmentally friendly investments in various business/economic sectors. It supports the principles of Indonesian development as outlined in the National Medium-Term Development Plan (RPJM), namely the 4Ps (pro-growth, pro-jobs, pro-poor, and pro-environment).
The origins of green financing stem from global warming, particularly the greenhouse effect that causes emissions and pollution in the environment. Such environmental conditions have become serious, not only impacting ecological disasters but also economic disasters. Therefore, several countries have adopted policies to reduce gas emissions and pollution, and to develop green financing, including Indonesia.
Implementation in Indonesia
Referring to the National Long-Term Development Plan (RPJPN) and the National Medium-Term Development Plan (RPJMN), these have established it as the vision and mission of the nation. The RPJPN aims to realise a green and sustainable Indonesia by utilising renewable natural resources (SDA) and managing non-renewable SDA. In addition, the RPJMN focuses on environmental development with an emphasis on climate change mitigation, conservation of natural resources, and ecosystem protection.
Not only at the national level, Indonesia is also committed internationally as a member of the Open Working Group (OWG) on Sustainable Development Goals (SDG). This group consists of thirty countries that actively contribute to addressing the impacts of climate change.