 Hi, I'm here today with Felia Selim, the Vice-President Director of Bank Negara Indonesia and a leading voice in the effort to strengthen sustainability within the Indonesian banking sector. Ibu Felia, thank you for joining us. Thank you for having me. An exception in the Indonesian marketplace, BNI has been vocal about its commitment towards more transparent and sustainable practices, addressing environmental compliance and green investment as well as social and employment issues. With a broad portfolio of loans and financial services stretching across a range of sectors and clients, what strategies and methods are available to banks in order to vet and monitor the clients and projects they are servicing to ensure sustainability standards are being upheld? Well, first of all, you know, the government's commitment for pro-growth, pro-environment and pro-poor, and that obviously translates into having a commitment to sustainable development. How do we translate that into the bank? We don't see any, we're not at opposite end with those very principles or those objectives because sustainable measures only means a sustainable business, which means it makes sense, it makes economic sense, it makes business sense to pay attention to sustainability measures. Well, the next step is we look at the different sectors we finance, and the various sectors be that in energy, forestry, agribusiness, each sector to date have different measures addressing sustainability. We quickly adopt those measures and mainstream that into our system. As an umbrella of those measures, it falls under the environmental social risk assessment criteria, which we have mainstreamed into how we evaluate our client base. So basically, we have translated all the sustainability agenda into how we do our business. This sustainability agenda is potentially not mirrored by other banks in Indonesia and adhering to sustainable and responsible practices might require the exclusion of some quite profitable investments and activities, or it might mean, for example, longer time horizons on returns. How do your commitments to sustainability impact your bottom line when, for example, your competitors may not be adhering to such rigorous standards and the playing field is not level? I think more and more the market is being aware, is more and more aware of the need to look at sustainability measures, particularly for the large corporations that is reaching out into global markets that necessarily have to abide by market standards to date. We're not so worried about the large corporations because when they are integrated into the global market where sustainability measures are required, they can take care of themselves. But where there is a challenge and for other banks, big and small, are the medium and small-sized businesses. We like to be in the forefront because it has been proven that sustainability measures does make economic sense and when we enter into agreement with our customer base, it's for the long run. Part of that as well is I'm wondering what are you doing internally to ensure that the pressures on your staff to perform financially and meet their performance indicators do not conflict with their mandates towards sustainability as well? Yes. First of all, the environmental social risk assessment criteria is a requirement. So a lot of training goes into that, into preparing our workforce to adopt these measures. So far, I must say, when we talk about the larger, even medium-sized businesses, I think more and more it's inevitable that these sustainability measures are abide by. Of course, there are challenges. We are a decentralized nation with decentralized institutions and local governments and local regulations. These are the challenges, but these need to be addressed and we are convinced that if the legal environment were to improve, I think these challenges can be reduced when it comes to legality, land issues, that they are legally certified. I think that reduces the risks. So we don't want to cut short on these very important certification legal issues. We don't cut short and we'd rather not be in those areas where it's just for the short run. It's a lifetime banking partnership with our customer base and this is a fairly old bank and we have proven that a long-term partnership requires growing together and understanding that sustainability measures is important. Okay. When you say that it's an old bank, it's their long-term relationships, many of the corporations now, the multinational corporations, are made up of a number of subsidiaries and actors that are operating across a number of sectors and companies may show a sustainable front in one project but not in others. How do customer due diligence processes help with mediating these issues? Where does due diligence stop? Is it at the project level? Is it at the customer level? Is it at the corporation level? Yes. Where do these due diligence procedures stop? Yes. It's probably easier with the larger companies because they would have in their system to do an independent audit, which we also encourage them to do so. So that is less of a problem but the large corporations where they have a lot of subsidiaries would most likely be guided by the same measures. But in terms of our banks or our bank officers to be able to do the audit into their subsidiaries, there are limitations of course. So we really need to look at a consolidated picture of the business group itself because that's very much part of the credit process. You don't just look at the company that you lend to but you need to be able to assess the mitigation and the interdependency with the other subsidiaries. So that actually is part of the credit process. So when you are providing a financial service or issuing credit to a company or customer, at what level do you carry out your assessment? To project, subsidiary or group level? So basically when we assess a large business group that has a lot of subsidiaries, most likely if it's an established large corporate group, they would have an umbrella that applies across the board to all their subsidiaries. But then how do we as bankers ensure that? Because of course we have to trust the owners, the managers. That's part of the credit assessment process, the commitment of the owners and the management. And secondly, while we don't have legal rights, so to speak, to audit, to double check the second level or third level subsidiaries, but you have to rely on the relationship or the business group as a whole because you do assess the group, the consolidated picture of the group and very often one can detect that as a business group. If there's a consolidated, that is also we have certain measurements that we're not only looking at one aspect, it's the one obligor concept which is also very much a requirement by the central bank to look at it in its totality. It's interesting though with sustainability standards increasingly being focused on particular sectors or commodities though. It would imply potentially or that actually companies might focus their efforts on a particular sector or a particular commodity and maybe there would not necessarily be the incentives in place to have that umbrella of good governance and good management over all aspects of their business. Well, it takes a lot of effort to understand a large business group that is involved in different sectors and usually you can understand that you understand the owners, the commitment of the owners and the people they employ whether they're committed or not. So a lot of management assessment takes place. One simple indicator is how well do they treat their employees, how well do they run the factory and whether or not they pay attention to the labour. That's just some of those indications and some insight into how we figure out whether or not this is credit, whether or not. I think it's cast in stone but then it's through a lot of insight, something that you cannot always obtain from a very statistical model but a qualitative assessment or a checklist. Not just a checklist. You need to understand and gain insight into management assessments, their vision of the company, those areas. Can I ask one more question? In your presentation earlier you spoke about the role of regulation and the importance of regulation in having a broader impact. What ways do you think that the Indonesian banking regulation or even sectoral regulation ministry of agriculture etc. can play a part in simplifying things for the banking industry when making more sustainable investments? Well you see I've been observing this for the last more than 10 years now. Perhaps a decade ago people are talking more and more about more as a voluntary in nature sustainability, they are called different things environmental now with sustainability and what not. But I think at this point, because the market is ripe, that's why I believe there is that pull and push between the market and the consumers, insisting on green products for example. So it's followed by the producers who just want to meet the customer needs and wants. So that's why it's progressing a lot faster than what I observed 10-15 years ago. Because the market had demanded it and I think the market or the industries are realizing that it makes good business sense. So this is where the opportunity lies and of course as bankers you always would like to see independent assessment to service all the various sectors because there can be quite rigorous, very technical, but this is something we just have to go through. And I do see opportunities and I'm more encouraged today than I was some 10 years ago.