Can a bank be an environmentalist? We may not think of
bankers as idealistic "greenies", but in fact banks
have the potential to play a significant role in environmental
protection. Banks hold a powerful card in their hands, which
gives them influence and power in the community. That card is
money.
One of the principle functions of banks is that of
intermediary between debtors (people with capital shortages) and
fund owners (people with capital surpluses). Before deciding to
extend credit to debtors, banks will analyze the condition of a
debtor to determine the debtor's ability to repay the loan.
Banks also set credit terms in order to guarantee that the
credit is utilized properly. The ultimate goal of credit is to
produce yields for both the bank and the debtor. They do this by
setting credit terms. Traditionally this has meant financial
covenants, like current ratio, debt equity ratio, return on
equity, return on asset, etc.
But why not expand the terms banks consider when they make
credit policy and decisions, especially in a country like
Indonesia when environmental sustainability is so critical, not
only ecologically but also economically? Banks are in a
strategic position to help the environment, through their
lending policies.
To illustrate, I'd like to refer to one company and its
environmental problems: PT Inti Indorayon Utama of Porsea, North
Sumatra. The operation of the company has been suspended for the
last two years. Subsequently, it must suffer many losses.
Obviously the next impact would be its inability to repay loans
from banks or other financial institutions.
Indonesian banks can learn much from the case. To avoid
making the same mistake, each bank should establish an
independent environmental division. The establishment of such a
division would be in line with the spirit of the Indonesian
banking restructuring program. Even though banks would have
their own environmental divisions, it would not automatically
eliminate the ongoing terms set by banks, such as an
environmental feasibility study, called an Environmental Impact
Analysis, done by independent consultants.
The environmental division would have the authority to
determine whether or not a company meets environmental
sustainability criteria. It would consist of short-term, medium
and long-term analysis that must be able to be measured both
quantitatively and qualitatively.
Finally it could be inferred that banks had vital roles in
keeping our environment sustainable. All this would lead to what
people often call sustainable development, which would benefit
both the current and future generations.
PETRUS F.T.P. TAMPUBOLON
Jakarta
