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Abstract
To keep the global temperature increase below 2°C, additional investment in the energy supply sector alone is calculated to be between USD 190 up to USD 900 billion per annum through to 2050 but current investments from both public and private funds are only a fraction of these levels (the UNEP FI, 2014). In 2012 the Kyoto Protocol expired, meanwhile countries globally are negotiating a new intergovernmental treaty. The new global deal will not be agreed until 2015 and will not come into force until 2020. Although governments are seen as the main party responsible for taking action to climate change, Private Finance Institutions (PFIs) are in a unique position to either help or hinder the shift away from investing in the conventional fossil fuel extraction and fossil fuel-based power by directing the capital flow to climate-resilient economy.
Earlier research focused on the greening initiatives of banks (Bowman, 2012) but not necessarily investigating whether these initiatives are integrated into their core business strategies. This research investigates how PFIs in Australia and Indonesia embed Environment Social Governance (ESG) principles into their core business and operations. Particularly, this thesis explores the current practices of banks in mitigating risks, anticipating opportunities and contributing solutions to the transition to a low carbon economy. This thesis also examines both enablers and barriers in integrating sustainability into the business decision making process and corporate culture. A qualitative research methodology is adopted, involving 46 field research semi-structured interviews with top executives and middle management of banks as well as key informants in both countries and global sphere. This was broken down into four steps: a scoping study of three PFIs, an international benchmark study of two PFIs and three international organisations, the expert commentaries, and the final structured interviews with 4 Australian PFIs and 4 Indonesian PFIs.
The findings demonstrate that Indonesian Banks have not been proactive in driving change to support the achievement of national emission reduction commitments due to the ‘institutional silos’ among climate related stakeholders and limited awareness on emerging opportunities for the transition to a low carbon economy. Meanwhile, the Australian Banks were driven mainly by their internal enabling environment particularly engagement of the top management and the middle implementers in establishing corporate responsibility and leading from the future as it emerges (Scharmer & Kaufer 2013), despite uncertainties of external operating environments.