The Evolution of Sustainable Finance Paradigms in Banking: Transitioning from Green Banking to Climate Risk Governance: A Case Study of Sustainable Finance Practices in Indonesian and Global Banking

Leonard Tiopan Panjaitan

Authors

Leonard Tiopan Panjaitan Trisakti Sustainability Center (TSC), Universitas Trisakti

Keywords:

Green banking, Climate risk governance, Sustainable finance, Indonesia, Financial inclusion

Abstract

Background: The global banking sector is at an inflection point, moving from a voluntary, operationally framed commitment to environmental stewardship toward a mandatory architecture of climate risk governance embedded in prudential supervision, yet the literature has said little about what this shift means for the smallholders and micro-enterprises who depend on bank credit.

Aims: This paper traces that evolution across theoretical, institutional, and empirical dimensions, and asks how the move from green banking to climate risk governance affects not only financial stability but also the resilience of climate-vulnerable communities and micro-enterprises.

Methods: A narrative literature review (Snyder, 2019) synthesised theoretical typologies (Jeucken, 2001; Elkington, 1997), international regulatory frameworks (TCFD, NGFS, PCAF, Equator Principles), and case-study evidence from global banks and Indonesia's three largest state-owned banks, triangulated against the author's earlier monographs on Indonesian sustainable banking (Panjaitan, 2015, 2026).

Results: The shift from green banking to climate risk governance is best read as a qualitative rupture rather than a linear refinement, and Indonesia's regulatory trajectory mirrors that global current; even so, implementation still lags leading international practice, and inclusive outcomes for micro-enterprise borrowers, visible in Bank Rakyat Indonesia's own portfolio, remain a work in progress.

Conclusions: Shifting to climate risk governance matters for financial stability, but it matters just as much for social equity and the resilience of communities that depend on climate-vulnerable sectors such as agriculture and micro-enterprise; the paper closes with five strategic imperatives for Indonesian banks ahead of OJK's Sustainable Finance Roadmap Phase III (2026-2030).

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