IFC’s Green Loan to Ramp Up Sustainable Finance in Indonesia

Through a US$200 million loan to PT Bank Shinhan Indonesia (BSI)—a corporate and retail finance bank in the country, IFC, a member of the World Bank Group, aims to boost sustainable financing while supporting the nation’s climate goals, including a first of its kind blue finance component.

As part of the financing package, at least 40% of proceeds will be directed towards green loans to support renewable energy, energy efficiency and green transport projects.

This is expected to reduce up to 86,703 tons of CO2 emissions annually by 2028. Additionally, 15% proceed will be allocated to the blue component to fund projects in marine or water resources-related industries, while 20% proceeds will be set aside for the social component, providing critical support to thousands of micro, small, and medium enterprises (MSMEs) over the next five years. The remaining 25% will be assigned to any of the three segments.

As one of the world’s largest archipelagos, Indonesia is especially vulnerable to sea-level rise. To manage climate risk, the nation has ambitiously pledged to reduce its greenhouse-gas emissions by 2030 by 32% (with domestic resources) and up to 41% (with international support) compared with the business-as-usual scenario.

Against this backdrop, climate and MSME financing are two key drivers for Indonesia’s sustainable growth path. But both require significant investment. While IFC estimates a US$274 billion climate investment potential for the country between 2016 and 2030, the MSME financing gap is estimated to be US$234 billion.

The investment will follow IFC’s Guidelines for Blue Finance. IFC’s support will also help BSI—a subsidiary of Shinhan Financial Group, the third largest commercial bank in Korea and a leading financial institution in the environment, social, and governance (ESG) space in Asia Pacific—develop its blue finance strategy and green and blue financing framework.

Hyung Hoe Koo, President Director of BSI, said: “We are committed to contributing to Indonesia’s Net Zero goal. This new transaction is significant as it lays the foundation for BSI’s long-term growth despite the challenges of raising dollar-denominated funds in Indonesia. We will continue to expand collaborations with IFC to promote sustainable finance.”

Euan Marshall, IFC’s Country Manager for Indonesia and Timor-Leste added:  “Expanding climate finance is key to achieving Indonesia’s Net Zero goal by 2060. The blue economy drives a quarter of the country’s GDP, while small businesses employ 97% of the workforce. This partnership will help further deepen and develop Indonesia’s sustainable finance market and catalyze new investments in key sectors to promote the country’s long-term growth.”