The Implementation of Financial
Sustainability at Allo Bank Indonesia - Opportunities and Challenges
Iswibowo1,
Dewa Ayu Ruth Pramyswary2*, A. Dewantoro Marsono3
Perbanas Institute
Jakarta, South Jakarta, DKI Jakarta, Indonesia
Email: [email protected]
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ABSTRACT |
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Sustainable Finance, Banking Industry, Digital Bank. |
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This
research delves into the strategic adoption of Sustainable Finance (POJK No.
51/POJK.03/2017) by PT Allo Bank Indonesia, Tbk, a leading digital
service-based bank in Indonesia. The study focuses on the challenges faced by
the bank and outlines its strategy to overcome them through the
implementation of sustainable finance principles. Specifically, the bank has
transitioned its business model to embrace branchless banking, emphasizing
digital services. Employing a qualitative research methodology, this study
investigates the activities of Allo Bank Indonesia and utilizes the SWOT
analysis approach for a comprehensive analysis. The findings reveal the
successful integration of sustainable finance practices by the bank; however,
there exists potential for further enhancement in their implementation. |
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INTRODUCTION
Sustainability Finance
represents
comprehensive support from the financial services sector in fostering
sustainable economic growth by aligning economic, social, and environmental
interests
In response, PT Allo Bank Indonesia, Tbk. (Allo Bank) also endeavors to
implement several initiatives aimed at
supporting sustainable financial practices. Some of these initiatives include
transitioning from a conventional bank model to a digital bank, adopting the 3R
policy (Reduce, Reuse, & Recycle), implementing energy and water
conservation practices, as well as waste management strategies (Annual Report Allo Bank,
2021-2022). These efforts have been documented in the Bank's Business Plans for the
years 2021 and 2022, which outline the Sustainable Financial Action Plans (Rencana Aksi Keuangan
Berkelanjutan/RAKB), as well as in the Annual Reports for the periods
2021 and 2022, which feature the Sustainability Financial Reports.
However, while executing its sustainable financial strategy, Allo Bank
still encounters certain challenges. These challenges include limited awareness
among human resources regarding social and environmental issues, inadequate
comprehension of regulations concerning sustainable finance, as well as the
incomplete categorization of businesses that are conducive to the
implementation of sustainable development thus posing challenges in channeling
credit to sustainable business sectors. These factors pose obstacles to the
implementation of sustainable finance practices within Allo Bank.
Similar
challenges also reverberate across other financial institutions in other
countries. Research by Kumajas et al.
This research aims to explore the application of sustainable finance within
Allo Bank, encompassing the opportunities and challenges faced by the bank.
Furthermore, the research will formulate strategic steps that Allo Bank can
undertake to enhance the integration of sustainable finance practices.
METHODS
The study employs a qualitative approach in the form of a case study investigating
the implementation of sustainable finance at Allo Bank. Data collection methods
involve direct observations of Allo Bank's operations, interviews with subject
matter experts, and a review of relevant literature pertaining to sustainable finance
implementation at Allo Bank.
The analyzed dataset pertains to the implementation of sustainable finance at
Allo Bank during the period from 2020 to 2022.
Data analysis
utilizes a SWOT analysis framework to assess the sustainable finance
implementation carried out by Allo Bank. To ensure the accuracy and validity of
the analyzed data, data triangulation was conducted through interviews with
subject matter experts, specifically involving Allo Bank's CEO, Indra Utoyo.
This approach aimed to corroborate the findings and enhance the credibility of
the research outcomes. The research framework as shown on Figure 1.
Figure 1. Research Framework
RESULTS
Business Model Transformation to
Digital Bank
Allo Bank started
a business model transformation from conventional banking to digital banking in
2021. This involved transferring several conventional assets to other companies
within the Bank Business Group, resulting in a significant reduction in the
number of branches from 16 to only 2. By minimizing branches and ATM networks and
focusing on developing systems and technology to provide digital banking
services and enhance customer experience through the Allo Bank application, the
company has been able to reduce operational costs from 82% (2021) to 60% (2022)
of operational revenue (PT Allo
Bank Indonesia Tbk., 2022).
Triple R (Reduce, Reuse,
Recycle) Strategy
The
implementation of the 3R strategies includes reducing paper usage and
encouraging employees to use wastepaper. When papers are no longer usable, they
are shredded and recycled. Allo Bank also employs electronic signature
solutions, such as Digi Sign, to minimize the need for paper-based signatures
and reduce printing, shipping, and storage costs. Digital Sharing Folders have
been introduced to promote digital document production, thereby reducing the
use of printed documents. By implementing 3R strategies, Allo Bank successfully
reduced paper consumption from 417 reams (2021) to 395 reams (2022) (PT Allo
Bank Indonesia Tbk., 2022).
Energy Consumption Reduction
To reduce energy
consumption, the company has implemented various measures. These include using
energy-efficient LED lamps, turning off lights and air conditioning after
office hours, and reducing the number of electronic equipment such as printers.
Moreover, the company has implemented strict controls and monitoring of fuel
usage for operational vehicles, leading to reduced fuel expenses from Rp 312.46
million (2021) to Rp 219.78 million (2022) (PT Allo
Bank Indonesia Tbk., 2022).
Water Conservation
By reducing the
number of branches and emphasizing wise water use, Allo Bank can successfully reduce
water expenses from Rp 30.33 million (2021) to Rp 12.07 million (2022) (PT Allo
Bank Indonesia Tbk., 2022).
Waste Management
In terms of waste
management, the company has taken steps to reduce plastic waste by replacing
single-use plastic bottles with glass pitchers for drinking water. For the
disposal of waste to the final disposal site, the Bank collaborates with a
third party, which will manage the waste before removing it to the final
disposal site (PT Allo
Bank Indonesia Tbk., 2022).
Financing to Sustainable Sectors
In addition to these sustainability practices, Allo Bank has focused on financing sectors
included in the Sustainable Business Activity Category (Kredit Kegiatan Usaha Berkelanjutan). Allo Bank began channeling
financing to KKUB sectors in 2021, with a credit portfolio of IDR 745 billion
and has continued to grow, reaching IDR 1.9 trillion by the end of 2022,
constituting 27% of the total credit portfolio. The distribution to the KKUB
sector had an impact on the incentivization of the reserve requirement (GWM) by
BI so the GWM formed by the company was reduced from 9% to only 8.4%. However,
this green portofolio has not been disclosed in the Sustainability Report as
required by OJK.
Environmental
Allocations
In 2022, the company allocated Rp 23.92 million for environmental CSR
initiatives, including bamboo tree planting (PT Allo
Bank Indonesia Tbk., 2022).
Equal
Employment Opportunity
The company provided equal opportunities for men and women, with women
comprising 39% of the total workforce (262 employees), up from 33% (129
employees) in 2021 (PT Allo
Bank Indonesia Tbk., 2022).
Sustainable
Finance Awareness Development
The company conducted training on Sustainable Financial Action Plans for
executive officers in the 2022 (PT Allo
Bank Indonesia Tbk., 2022). In conclusion, Allo Bank has undertaken
a series of comprehensive sustainable finance practices to align its operations
with principles of environmental responsibility, resource efficiency, and
social equity. These practices encompass a shift towards digital banking,
adoption of the 3R strategy, reduction in energy and water consumption, waste
management, increased financing for sustainable sectors, environmental
allocations, promotion of gender equality in employment, and efforts to raise
awareness about sustainable finance among employees. These endeavors reflect
the company's commitment to advancing sustainable finance principles, which not
only contribute to positive environmental and social impacts but also enhance
operational efficiency and customer experience. By implementing these
practices, the company has positioned itself as a proactive player in the realm
of sustainable banking, poised to address present and future challenges related
to sustainability while fostering responsible growth and development
Discussion
SWOT Analysis
Based on the SWOT (Strength, Weakness, Opportunity, and Thread) analysis of the implementation of sustainable finance at
Allo Bank, the following points are known:
Strengths
Allo Bank’s shift
to digital banking plays a significant role in strengthening the implementation
of sustainable finance in Allo Bank. This includes digital transformation,
environmental impact, paperless operations, and efficiency improvement.
Firstly, Allo
Bank's transition to a digital bank with branchless banking reduces customer
mobility and reliance on physical branches. Since the customers no longer need
to go to the bank’s branches, this reduces the fuel emissions from customer
vehicles and results in energy and cost savings. Secondly, digital
transformation leads to a reduction in branch usage. This results in lower
energy consumption, particularly from non-renewable sources like coal-based
power plants, thereby reducing the bank's carbon emissions. Thirdly, digital
transformation also leads banks to paperless operations. The adoption of
digital signatures and digital file storage minimizes paper usage. This aligned
with sustainability goals and promoting environmental conservation.
Besides, the digitalization
process also improved efficiency. The implementation of Robotic Process
Automation (RPA) for transaction monitoring streamlines processes and enhances
efficiency. It reduces the need for time-consuming manual work, which results
in energy savings.
Weakness
However, there
are weaknesses in Allo Bank's implementation of sustainable finance. The main issue
is the company lacks understanding and awareness of social and environmental
issues. This resulted in a lack of practical and tangible sustainable finance
programs in their budget and strategy, unaware to report their lending to
sustainable business sectors in the Sustainability Report, and the operations
still primarily focus on cost reduction rather than sustainable finance
development such as through CSR programs, that may hinder long-term growth and
commitment to environmental and social responsibilities.
Additionally,
there is limited human capital involvement. There is no training or education
provided to all employees regarding sustainable finance programs, mainly limited
to the executive officers. Besides, there is inadequate alignment of employee
incentives with sustainable finance goals, which shows a lack of integration of
sustainability principles. Furthermore, the company's buildings still use
outdated technology without prioritizing the use of renewable energy.
Opportunities
Allo Bank can
enhance its implementation of sustainable finance by considering several
external opportunities, such as consumer demand, sustainable financing demand,
and government supports.
Firstly, there is
an increased consumer demand for environmentally friendly and socially
responsible products and services. Consumers are becoming more aware of
environmental and social issues and are inclined to choose companies that
implement sustainable finance practices
Secondly, there
is an increased access to sustainable finance in Indonesia. The demand for
financing sustainable projects is rising, as evidenced by the issuance of green
bonds, green sukuk, and financing disbursements from financial institutions
that focus on funding sustainable initiatives. This opens avenues for Allo Bank
to expand its offerings to support & financing sustainability projects.
Additionally, the
government of Indonesia has implemented policies and regulations that support
sustainable finance
Threats
Despite the opportunities,
the implementation of sustainable finance is also faced with challenges from
external parties. This includes regulatory uncertainty and incentive imbalance.
One challenge is
the lack of clear regulations and guidelines related to sustainable finance.
For example, the rules for determining ESG Star Listed Company by the Indonesia
Stock Exchange (IDX) and the incentive rules related to Risk-Weighted Assets
(RWA) from the Financial Services Authority (OJK) are still unclear. The
absence of clear definitions and categorizations for sustainable businesses
also poses difficulties for companies to understand and meet the requirements,
hindering the implementation of sustainable finance
Similar
challenges are also encountered in the green sukuk market in Malaysia.
Keshminder, Abdullah & Mardi
Furthermore, the
government's rewards and incentives are not sufficient to incentivize companies
to adopt sustainable finance practices. Although tax incentives have been
introduced for companies investing in sustainable projects, these incentives do
not apply to banks, despite their significant contributions to reducing carbon
emissions. Allo Bank, for example, reduces carbon emissions through
implementing technology that supports digital service-based banking
applications and through lending to the sustainable business sector. It is
recommended that the government extend tax incentives to banks that contribute
to reducing carbon emissions.
Based on research
by Hashim et al.
Strategies to Improve
Implementation of Sustainable Bank
The result of the SWOT
(Strength, Weakness, Opportunity, and Thread) analysis showed that Allo Bank's
transition to a digital banking model has contributed positively to the
implementation of sustainable finance and resulted in energy and cost savings. However, there
are weaknesses in the company's approach, including a lack of understanding and
awareness regarding sustainable finance and employee involvement in a social
environment.
To enhance the
implementation of sustainable finance, Allo Bank can provide comprehensive
education and training to all employees regarding the principles and benefits
of sustainable finance. This can involve incorporating the concept of
sustainable finance into the company's corporate values and making it a part of
employee performance assessment.
To actively
monitor and promote sustainable finance within the organization, Allo Bank can
establish a dedicated work unit. This unit can be responsible for raising
awareness about sustainable finance among employees, organizing training
programs, and creating initiatives that encourage employee participation in
sustainable finance practices. These initiatives could include recognizing and
rewarding divisions that reduce paper usage or giving awards (for example: ESG
Staff Star) to employees who actively engage in corporate social responsibility
programs. This unit is also responsible for designing CSR programs that align
with sustainable finance goals, such as mangrove planting for carbon reduction
and coastal protection.
PT Bank Central
Asia, Tbk, has demonstrated the success of incorporating sustainable finance
into corporate values and KPIs. (BCA), one of the pioneering sustainable banks
in Indonesia. Following the implementation of these measures, BCA has been able
to increase the distribution and development of green products, expand its CSR
programs, and raise employee awareness of social and environmental issues (PT Bank
Central Asia Tbk, 2021-2022). Similar steps taken by Allo
Bank can lead to improved implementation of sustainable finance principles in
its operations.
Furthermore, Allo
Bank can enhance its sustainable finance practices by adopting renewable energy
sources in its operations. This can include using electric vehicles for
transportation, installing LED lights throughout the bank's facilities,
implementing sensor-based automatic water taps to conserve water, and employing
wastewater reuse systems to minimize wastage.
To create a
positive image and demonstrate its commitment to environmental and social
issues, Allo Bank should make its sustainable finance programs more transparent
and accessible. This can be accomplished by providing comprehensive information
on these programs on the company's website and regularly reporting on its Sustainability
Report and Sustainable Finance Action Plan to the relevant regulatory bodies. By
implementing these measures, Allo Bank can strengthen its sustainable finance
initiatives, improve its environmental impact, and showcase its dedication to
societal and ecological concerns.
CONCLUSION
This
research delineates the SWOT analysis of Allo Bank's sustainable finance
implementation, highlighting the bank's strengths in digital transformation,
energy efficiency, and process automation. However, acknowledged weaknesses
encompass areas such as awareness, strategy, reporting, and employee
involvement. Allo Bank's opportunities lie in meeting consumer demand,
leveraging the growing sustainable finance market, and capitalizing on
government support and incentives. Nonetheless, challenges involve regulatory
uncertainty and the need for more appealing incentives to enhance sustainable
finance engagement. To address these issues, Allo Bank can focus on raising
employee awareness through comprehensive education, integrating sustainable
finance principles into company values and performance metrics. Establishing a
specialized unit to monitor and promote sustainable finance practices could
encourage proactive initiatives, fostering a culture of sustainability within
the organization. Additionally, investments in renewable energy practices,
innovative methods to reduce environmental impact, and active reporting of
sustainable finance programs can enhance transparency and reputation. The
government's pivotal role in supporting sustainable finance practices includes
establishing clear regulations and standards, offering financial incentives
such as tax breaks, and instituting awards for institutions showing exceptional
commitment. While this research specifically focuses on sustainable banks
within Allo Bank, there are future research opportunities to analyze
sustainable finance implementation across various sectors and broader regions.
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Copyright holder: Iswibowo, Dewa Ayu
Ruth Pramyswary, A. Dewantoro Marsono (2024) |
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First publication rights: International
Journal of Social Service and Research (IJSSR) |
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