Navigating Regulatory Landscape for Sustainable Business Practices - Sophia Wattimena.pdf

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1. Regulatory Engagement OJK
for Sustainability and Climate
Change
Sophia Wattimena, S.E., Ak, CA, MBA, QIA
Chairman of Audit Board and
Member of the Board of Commissioners OJK
GRC Summit 2024
Jakarta, August 23
??????ℎ

2. CHALLENGES &
ROLE OF
STAKEHOLDERS
AGENDA
0201 03
HIGHLIGHT
SUSTAINABILITY-
RELATED RISK
2024
OJK’S POLICIES
AND INICIATIVES

3. ❑2023wasthewarmestyearonrecord,withtheglobal
averagenear-surfacetemperatureat1.45°Celcius
1
.
❑Climatechangecouldreducethevalueofglobalfinancial
assetsbyasmuchas$24trillion
2
.
❑215biggestglobalcompaniesreportalmostUS$1trillionat
riskfromclimateimpacts
3
.
AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
3
HIGHLIGHT SUSTAINABILITY -RELATED RISK 2024
Sustainability is one of the top global and Indonesian risks, even becoming a persistent global concern
Intensity of Hydrometeorological
Disaster Events in Indonesia (2011-2021)
Global Risk Ranked
Source: World Economic Forum, The
Global Risks Report 2024 19
th
Edition
Current Risk 2 Years
Disaster Events
Climate Risk as a Systemic Risk Driver
Source: United Nations Framework Convention on
Climate Change (UNFCCC). World Risk Report 2023
1 Climate change indicators reached record levels in 2023: WMO
2 ‘Climate value at risk’ of global financial assets | Nature Climate Change
3 World’s biggest companies face $1 trillion in climate change risks -CDP
AccordingtotheWorldRiskIndex,
Indonesiaranksasthe2nd
highest-riskcountryfordisasters
outof193countries.
Rise of Sea Water Level
Kementerian PPN/Bappenas, 2021.
Climate Resilience Development Policy 2020-2045

4. AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
4
Extreme Weather Impact to Indonesia’s Economy
Facing the Economic Storm: Why We Build Resilience Against Extreme Weather...
Agriculture and Marine Sectors
The agriculture, forestry, and fisheries sectors, which contribute
around 13% to Indonesia's GDP, are highly vulnerable to
extreme weather. In 2015, during a strong El Niño, the
agriculture sector experienced a growth decline of up to 4%,
which negatively impacted the national GDP.
Impact of Floods and Landslides
A study by the Asian Development Bank (ADB) estimates that
floods and landslides occurring during the rainy season could
reduce Indonesia's GDP growth by up to 0.1% per year.
Extreme Weather Impact to Indonesia GDP
Bappenaspredicts that Indonesia could potentially lose 0.66%
to 3.45% of its GDP due to climate risks.
Research by Standard and Poor’s on the impact
of climate change on sovereign risk, indicating
that many developing nations are among the
most vulnerable to climate, including
Indonesia

5. AGENDA
0201 03
CHALLENGES &
ROLE OF
STAKEHOLDERS
HIGHLIGHT
SUSTAINABILITY
RISK 2024
OJK’S POLICIES
AND INICIATIVES

6. AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
6
The journey of OJK to support the national mandate on sustainable finance through TKBI and CRMS
OJK’S POLICY SUPPORT FOR SUSTAINABLE FINANCE AND
TRANSITION TO NET ZERO EMISSION (NZE)
Source: DPNP-OJK, 2024

7. https://ojk.go.id/id/berita-dan-kegiatan/info-terkini/Pages/Climate-Risk-Management-and-Scenario-Analysis-CRMS.aspx
AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
7
OJK’S INITIATIVE IN CLIMATE RISK MANAGEMENT (CRMS)
AND SCENARIO ANALYSIS
Book 2
TechnicalGuidance
❑CRMSGuidelinescoversgeneralguidance regarding:
a)Governance
b)BusinessStrategyandRisk ManagementFramework
c)RiskDesignandAnalysis
d)Disclosures
e)ImplementationPlanning
❑Thereare5TechnicalGuidancesthatcomplementthe1
st
Booktoassistbanksinimplementing
CRMS.
❑TheCRMSOJKguideisalivingdocumentandwillcontinuetoberefinedinaccordancewith
regulatorydevelopments,bestpractices,andstakeholderdemands.
Book 1
CRMS Guidelines
Book 3
Emission Calculation
Book 4
Macroeconomic Data
Book 5
Disaster Data
Book 6
Reporting Template
CRMS is a guidelines to assess the resilience of banks' business models and integrated framework strategies in facing climate change
across short, medium, and long terms.
Source: DPNP-OJK, 2024

8. AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
8
ROLE OF GOVERNANCE AND CRMS
IN THE SUSTAINABLE FINANCIAL POLICY ECOSYSTEM
Governance and Risk Management supported by national initiatives and other policies/standards, have an important role in sustainable finance Ecosystem
Sustainable Finance Roadmap Phase II
2020-2025
SustainabilityReporting
POJKNo.51/2017:
Implementation of Sustainable
Finance
(Principlesofmanagingsocial and
environmental risks; Principles of
governance and businessstrategy)
Governance:
POJK No.17/2023: Governance
Implementation for Commercial
Banks,Including Governance and
Climate-related Risk Management
Sustainable Debt
Securities/Islamic
Bonds(EBUS)
POJKNo.18/2023
IndonesiaSustainable
Finance Taxonomy
(TKBI)
Prioritizing ESG principles,
national interest, and
regional interoperability/
best practices
CarbonTrading
POJKNo.14/2023
Development of
policies/regulations related
to integrating ESG risks into
bankingriskmanagement
CRMS
encourages
governance
implementation
and measures
climate risk
impact according
to disclosure
standards
CRMS
measures
financing risks
in high-carbon
sectors to
promote
financing
transitions
aligned with
TBIdirections
CRMS
encourages
banking
involvement in
issuing
Sustainable
Debt
Securities/
IslamicBonds
CRMS
encourages
banking
involvementin
the Carbon
Exchange
Marketasan
optionto
mitigate
carbon
emission
Risk Management:
•CP: Principles for the effective
management and supervision of
climate-relatedfinancialrisks
•Climate Risk Management dan
ScenarioAnalysis(CRMS)
:Sustainable :Climate
National Determined Contribution
andIndonesiaNZE Target2060
LawNo.4of2023onFinancial Sector
Development and Strengthening(P2SK)
GlobalPolicy:
BCBS,IFRS,NGFS,FSAP
Source: DPNP-OJK, 2024

9. AGENDA
0201 03
CHALLENGES &
ROLE OF
STAKEHOLDERS
HIGHLIGHT
SUSTAINABILITY
RISK 2024
OJK’S POLICIES
AND INICIATIVES

10. Source: The State of Play: Sustainability Disclosure & Assurance –IFAC, AICPA& CIMA, 2024
AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
10
CHALLENGES IN IMPLEMENTING SUSTAINABLE FINANCE
AND CLIMATE-RELATED POLICIES
There are some challenges in paving the way for sustainable future and transparency …
1.Limited Availability of Supporting
Data
Obscure information that is useful in
preparing scientific research to help
regulators develop strong and well-
implemented sustainable finance policies,
i.e. emission data from debtors and
disaster projections specific to Indonesia.
2.Data Standardization
For regulators/supervisors to accurately
assess and comparethe ESG practices,
there needs to be a common
understanding/ language.
3.Policy Coherence and Consistency
Regulators and stakeholders such as
pertinent ministries and government
bodies, need to collaborateandcreate
unifiedpolicies.Inconsistencyofpolicies
canbeconfusingandhampers
investment.
Regulator Perspectives
1.Fragmented Standard
There are no generally accepted standard for
sustainability reporting. Current practices using
fragmented standard with variety of users and their
reporting objectives.
2.Lack of Technology, Expert Competence, and
Limited Understanding
The lack of technology, skills, and understanding of
sustainable finance in industries is a hurdle for
companiesinimplementingandmainstreaming
sustainablepracticestothecompanies’business
activities.
3.Cost, Complexity, and Low Profit Margin
Sustainablepracticesareoftenseenasanadditionalcost
thatwillburdenthecompany.Shifting focustowards
sustainablebusinesspracticesmightleadtoalong-term
withlowprofitmargin.
Confusion among users of sustainability information,
perpetuates inefficiency, increased cost, and lack of trust.
Industries & Stakeholders Perspectives Reporting Landscape (Current)
Source: DPNP, DSKT-OJK, 2024
Source: PenguatanPeran GRC dalamESG dan Sustainability-IAI, 2024

11. Source: DPNP-OJK, 2024; PenguatanPeran GRC dalamESG dan Sustainability-IAI, BPKP, 2024
AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
11
ROLE OF STAKEHOLDERS IN
SUSTAINABILITY AND CLIMATE -RELATED POLICIES
•Develop macro prudential
policy relatedtoclimate risk
•Conduct Top-Down Climate
RiskStressTest
BI
Develop and implement fiscal
policies (e.g.carbon pricing, taxes,
subsidies) to promote transition
towardslow-carboneconomy
BKF-Kemenkeu
•Develop technical policies the efforts to achieve
netzerotargetsandsectoraltransitionpathways
•Providecarbonemissiondata
FinancialRegulatoryBodies
•Develop micro prudential policy
related sustainability & climate
riskmanagement
•Conduct bank-wide Bottom-Up
ClimateRisk StressTest
OJK
Technical Ministries
Developregional
climateand
disasterdatabase
Bank/Others
•ImplementClimate RiskManagement
•Implement sustainability disclosure & climate-related policies
and develop its reporting system
•ConductBottom-UpStressTest
•Obtaincapacity buildingrelatedtoCRMSdevelopment
KLHK, KemenESDM,
KemenPPN, KemenBUMN
BNPB, BMKG
Assurance on public
sector sustainability
program/initiative
*Include Consulting
Industries Association
Increase Stakeholder Engagement & Advocacy
(campaign, capacity building, and drive
participation for sustainability beyond
compliance)
”The public
sector requires its
own framework
for
sustainability
reporting”
(ACCA, 2023)
Collaboration among stakeholders is critical step to implement and develop sustainability-related policies
Standard-Setter Body
Developstandards for
sustainability reporting, i.e. IFRS
S1 & S2 adoption and next
sustainability-related IFRS
Public Sector Oversight
BPK, BPKP*

12. AUDIT INTERNAL | MANAJEMEN RISIKO | PENGENDALIAN KUALITAS | PENEGAKAN INTEGRITAS
12
Ongoing Process of Sustainability Report Standards in Indonesia
Sustainability
Report in
2024
Sustainability
Report in
2023
Sustainability
Report in
2022
Integratedwiththe
AnnualReport
SeparateSustainability
Report
Integratedwiththe
AnnualReport
SeparateSustainability
Report
Integratedwiththe
AnnualReport
SeparateSustainability
Report
Submit
Submit
Submit
Not
Reporting
Not
Reporting
Not
Reporting
Additional
Internatio
nal
Standards
OJK will revise POJK
51/2017 to align with IFRS
S1 and S2 in order to
promote transition
financing and the
development of the carbon
market ecosystem.
Indonesia is in the process of adopting IFRS S1 and S2 as the National Reporting Standards for Sustainability Reports…
Source: KesiapanAdopsiIFRS S1 & S2 di Indonesia dan Strategi untukMendorongPenerapannya, (IAI,2024)Source: OJK

13. Thank You
Integrity gives you real freedom because you have
nothing to fear since you have nothing to hide
-Zig Ziglar (American author and motivational speaker) -