Review of sustainable finance-based financing regulations in Indonesia: Analysis of regulatory responses to global environmental financing developments

Muhammad Lazuardi Annas

doi:10.61511/jekop.v3i1.2026.3195

Authors

Muhammad Lazuardi Annas Department of Islamic Law, Postgraduate Studies, Universitas Islam Negeri Sunan Gunung Djati Bandung, Bandung, West Java 40294, Indonesia

DOI:

https://doi.org/10.61511/jekop.v3i1.2026.3195

Keywords:

environmental law, esg regulation, POJK 51/2017, ra’iyah al-bi’ah, sustainable finance

Abstract

Background: Indonesia is committed to lowering carbon emissions and supporting Environmental, Social, and Governance (ESG) principles to achieve sustainable development goals. This commitment is operationalized through regulations in the financial industry, such as requiring banks to fund green portfolios. This study analyzes how Indonesia’s current sustainable finance regulations respond to emerging global developments in environmental financing. Methods: This qualitative research utilizes a normative juridical approach, relying on library study to trace and analyze formal written legal texts. The analysis employs conceptual norm analysis to examine concepts within sustainable financing regulations. Theoretically, the regulations are analyzed using Yusuf al-Qaradhawi’s concept of environmental preservation (ra’iyah al-bi’ah). Findings: The research found that POJK 51/2017 offers a structured and ambitious response, aligning fundamentally with global ESG values through its eight Sustainable Finance Principles. This supports al-Qaradhawi's theory requiring enforceable legislation for environmental protection. However, the regulatory scope is limited compared to international benchmarks, and the administrative sanctions are considered inadequate for effective compliance. Conclusion: While establishing robust process-based mechanisms, such as the RAKB and mandatory Sustainability Reports, the effectiveness of Indonesian regulation is challenged by its weak enforcement and optional independent verification. Structural reforms are crucial to enhance regulatory credibility and meet stringent global environmental expectations. Novelty/Originality of this article: This study offers novelty by analyzing Indonesian sustainable finance regulations in direct response to the trajectory of global sustainable finance standards and taxonomies. Furthermore, it utilizes a unique theoretical framework by assessing the regulations based on Yusuf al-Qaradhawi's concept of environmental preservation (ra’iyah al-bi’ah). This integrated legal-theological assessment provides novel insight into the regulatory response to global demands.

References

Al-Qaradawi, Y. (2001). Ri’ayah al-Bi’ah fî Shari’at al-Islam. Dar Al-Shorouk.

Astari, D., Setiawan, P. A. H., & Ana, H. (2025). Legal Certainty of Sustainable Finance Provisions in Relation to Corporate Social Responsibility (CSR) Programs at Financial Services Institutions. International Journal of Research and Innovation in Social Science, IX(I), 372–376. https://doi.org/10.47772/IJRISS.2025.9010034

Çalıyurt, K. T., & Said, R. (Ed.). (2018). Sustainability and Social Responsibility of Accountability Reporting Systems: A Global Approach. Springer Singapore. https://doi.org/10.1007/978-981-10-3212-7

CFA INstitute. (2022). Global ESG Disclosure Standards For Investment Products. CFA INstitute.

Edelmann, C. (2022). Green Banking and Green Central Banking. Walter de Gruyter GmbH.

Elok Indriastuty, D., & . P. (2023). Constitutional Review of Green Bond Regulation in Indonesia. KnE Social Sciences. https://doi.org/10.18502/kss.v8i4.12942

Fernandez, R., Schoenefeld, J. J., Hoerber, T., & Oberthür, S. (2021). Europe’s Transition to Sustainability: Actors, Approaches and Policies. The International Spectator, 56(3), 1–6. https://doi.org/10.1080/03932729.2021.1966188

Firman Hidranto. (2022). Dukungan Pembiayaan Ekonomi Hijau. Indonesia.go.id. https://indonesia.go.id/kategori/editorial/5608/dukungan-pembiayaan-ekonomi-

Guild, J. (2020). The political and institutional constraints on green finance in Indonesia. Journal of Sustainable Finance & Investment, 10(2), 157–170. https://doi.org/10.1080/20430795.2019.1706312

Harasymiv, T. (2023). Problems of harmonization of national legislation to international legal standards. Visnik Nacional’nogo universitetu «Lvivska politehnika». Seria: Uridicni nauki, 10(40), 12–19. https://doi.org/10.23939/law2023.40.012

Idroes, G. M., Hardi, I., Rahman, Md. H., Afjal, M., Noviandy, T. R., & Idroes, R. (2024). The dynamic impact of non-renewable and renewable energy on carbon dioxide emissions and ecological footprint in Indonesia. Carbon Research, 3(1), 35. https://doi.org/10.1007/s44246-024-00117-0

International Bank for Reconstruction and Development / The World Bank. (2024). 2023 Sustainability Review.

Kartiko, N. D., Indradewi, A. A., & Sugianto, F. (2024). The Urgency of Green Banking Regulations in Indonesia in the Implementation of Sustainable Development. Administrative and Environmental Law Review, 5(2), 135–154. https://doi.org/10.25041/aelr.v5i2.3604

KEMENTERIAN KOORDINATOR BIDANG PEREKONOMIAN & REPUBLIK INDONESIA. (2025). Pemerintah Tegaskan Komitmen ESG untuk Perkuat Ekonomi Berkelanjutan. KEMENTERIAN KOORDINATOR BIDANG PEREKONOMIAN REPUBLIK INDONESIA. https://www.ekon.go.id/publikasi/detail/6556/pemerintah-tegaskan-komitmen-esg-untuk-perkuat-ekonomi-berkelanjutan

Kharb, R., Shri, C., Singh, P., Bhatia, S., & Saini, N. (2024). Modelling the barriers of green financing in achieving environmental sustainability: An analysis using TISM. Environment, Development and Sustainability. https://doi.org/10.1007/s10668-024-05266-1

Lampiran II Peraturan Otoritas Jasa Keuangan Nomor 51/POJK.03/2017 Tentang Penerapan Keuangan Berkelanjutan Bagi Lembaga Jasa Keuangan, Emiten, Dan Perusahaan Publik (2017).

Martitah, M., Hidayat, A., Anitasari, R. F., Rahman, M. A. M., & Aini, T. R. (2023). Transformation of the Legislative System in Indonesia Based on the Principles of Good Legislation. Journal of Indonesian Legal Studies, 8(2). https://doi.org/10.15294/jils.v8i2.69262

Michael, S., & Mason, J. (2007). An Introduction and Guide to the Conduct of Legal Research Writing Law Dissertations. Dorset Press.

Moroșteș, A. F. (2024). Correlation between International Regulations and Domestic Regulations in the Field of Human Rights and Freedoms. Journal of Legal Studies, 33(47), 140–157. https://doi.org/10.2478/jles-2024-0009

Mulia, M., Zulfatmi, Z., Khalil, Z. F., Kurniawan, C. S., & Rizki, D. (2024). Conflict And Consensus in Fiqh Siyasah: The Practice of Islamic Law Across Various Cultures. Jurnal Ilmiah Peuradeun, 12(3), 1263–1288. https://doi.org/10.26811/peuradeun.v12i3.1363

Nedopil, C., Dordi, T., & Weber, O. (2021). The Nature of Global Green Finance Standards—Evolution, Differences, and Three Models. Sustainability, 13(7), 3723. https://doi.org/10.3390/su13073723

Peraturan Otoritas Jasa Keuangan Nomor 51 /POJK.03/2017 tentang Penerapan Keuangan Berkelanjutan Bagi Lembaga Jasa Keuangan, Emiten, dan Perusahaan Publik (2017).

Petunjuk Teknis Bagi Perusahaan Pembiayaan Dan Perusahaan Pembiayaan Syariah Terkait Implementasi Peraturan Otoritas Jasa Keuangan Nomor 51/POJK.03/2017 Tentang Penerapan Keuangan Berkelanjutan Bagi Lembaga Jasa Keuangan, Emiten, Dan Perusahaan Publik (2024).

Prastiyo, S. E., Irham, Hardyastuti, S., & Jamhari. (2020). How agriculture, manufacture, and urbanization induced carbon emission? The case of Indonesia. Environmental Science and Pollution Research, 27(33), 42092–42103. https://doi.org/10.1007/s11356-020-10148-w

Prihandono, I., & S. Yuniarti, D. (2023). Indonesia Sustainability Reporting Standard: What Needs to be Improved? Padjadjaran Journal of International Law, 7(1), 1–23. https://doi.org/10.23920/pjil.v7i1.1159

Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306–320. https://doi.org/10.1016/j.bir.2021.06.001

Saifurrahman, A., & Kassim, S. H. (2024). Regulatory issues inhibiting the financial inclusion: A case study among Islamic banks and MSMEs in Indonesia. Qualitative Research in Financial Markets, 16(4), 589–617. https://doi.org/10.1108/QRFM-05-2022-0086

Sengupta, U., Pramanik, H. S., Datta, S., Dutta, S., Dasgupta, S., & Kirtania, M. (2023). Assessing sustainability focus across global banks. Development Engineering, 8, 100114. https://doi.org/10.1016/j.deveng.2023.100114

Setyowati, A. B. (2023). Governing sustainable finance: Insights from Indonesia. Climate Policy, 23(1), 108–121. https://doi.org/10.1080/14693062.2020.1858741

Winston, C. (2018). Norm structure, diffusion, and evolution: A conceptual approach. European Journal of International Relations, 24(3), 638–661. https://doi.org/10.1177/1354066117720794

Xi Yu. (2022). Extra-territorial litigation remedies A case study of the East African Crude Oil Pipeline in Uganda. Dalam Globalization, Environmental Law, and Sustainable Development in the Global South: Challenges for Implementation. Routledge.