Articles

Enhancing Sustainable Banking Practices: Implementing the Besgi Framework to Indonesian Bank

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Climate change, a global issue largely caused by human activities, is now beginning to be addressed by the G20, including financial institutions. Indonesia, as part of the G20, is implementing a sustainable finance program to improve the financing, durability, and competitiveness of financial services institutions. This study evaluates the adoption of sustainable banking practices in Indonesia within the context of global climate change initiatives. Using the Banks’ Environmental, Social, Governance, and Indirect Impact (BESGI) framework, which provides a comprehensive assessment of banks’ ESG performance using the Multidimensional Synthesis of Indicators (MSI) aggregation method. The BESGI performance of 14 Indonesian banks from 2020-2022 was assessed, revealing varying results of fluctuating data with Mandiri scoring the highest in year 2021 and BTN the lowest in year 2020. The findings indicate a growing emphasis on sustainable finance within the Indonesian banking sector in terms of financing and investment. The BESGI Score has insignificant results on banks’ performance and stability. However, further research is essential to comprehend the implications of these practices on the performance and stability of banks.

The Impact of ESG Implementation on the Sovereign Bond Yield Spreads: An Empirical Analysis of ASEAN Countries

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Sovereign bond performance is gaining traction in ASEAN countries, but there are challenges, such as high sovereign risk. This can happen for a number of reasons, such as economic downturns, political instability, or ineffective fiscal management. Investors may be less willing to invest in a country’s bonds if the country is perceived to have a high bond risk. By maintaining sustainable performance such as implementing ESG can be a solution for lowering risk and gaining investor interest in portfolio diversification. The aggregated ESG score and bond spread have a statistically significant relationship, according to the study’s findings, with a negative relationship of -0.112 and the component social indicator being the most powerful. With a significance of 0.033, the relationship between ESG score and bond yield spread becomes stronger over time. The author recommends that countries assess current ESG practices, establish ESG targets and goals, develop an implementation plan, engage stakeholders, monitor progress, and make necessary changes to reduce sovereign risk. This demonstrates a country’s commitment to ESG while also improving its performance, making it more appealing as an investment destination.