Client Engagement Strategies for Banks to Fulfill CRMS by OJK

The Climate Risk Management & Scenario Analysis (CRMS) framework, introduced by Otoritas Jasa Keuangan (OJK), mandates banks in Indonesia to incorporate climate risk considerations into their operations. A crucial element of CRMS compliance is client engagement, which ensures that financial institutions guide their clients toward sustainable business practices while managing climate-related financial risks.

Why Client Engagement is Essential in CRMS Compliance

Client engagement is a core strategy in managing financed emissions and ensuring sustainable lending practices. Under CRMS, banks are required to:

• Assess and manage climate-related risks in their lending portfolios.

• Guide corporate clients in transitioning to low-carbon operations.

• Ensure that climate risks do not compromise financial stability.

• Report on engagement progress and risk mitigation efforts.

A structured client engagement approach helps banks reduce exposure to climate-related risks while unlocking new financing opportunities in the green economy.

Client Engagement Framework for CRMS Implementation

The PRB Guidance on Client Engagement outlines a five-step client engagement cycle that banks can integrate into their CRMS compliance strategies:

1. Scene Setting and Opening Dialogue

• Establish a clear communication strategy about sustainability goals.

• Educate clients on climate risks and regulatory expectations.

• Explain the business case for sustainable finance, including risk mitigation and market competitiveness.

2. Needs Assessment and Awareness Raising

• Conduct sustainability assessments to understand clients’ climate risk exposure.

• Identify gaps in climate risk knowledge and provide guidance on best practices.

• Use portfolio impact analysis to prioritize high-risk sectors and clients.

3. Defining Support Plans

• Develop customized climate transition plans for corporate clients.

• Offer green financing solutions, such as sustainability-linked loans and green bonds.

• Provide technical assistance and advisory services to help businesses adapt to climate regulations.

4. Implementing Support Plans

• Introduce financial incentives for sustainable business models.

• Encourage clients to adopt emissions reduction strategies.

• Support businesses in meeting OJK’s disclosure requirements for financed emissions.

5. Monitoring and Reporting

• Track client progress in implementing climate transition plans.

• Establish key performance indicators (KPIs) for engagement success.

• Integrate climate-related risk data into annual financial and sustainability reports.

Client Categorization for Effective Engagement

Not all clients have the same level of climate risk exposure or transition readiness. Banks should categorize clients into three main groups:

1. High-Risk Clients (e.g., coal, oil & gas, heavy industry)

• Require urgent engagement and structured transition plans.

• Should be encouraged to set net-zero targets and climate risk disclosures.

2. Medium-Risk Clients (e.g., real estate, manufacturing, transport)

• Need guidance on energy efficiency and sustainable supply chain practices.

• May benefit from green financing and incentives for emissions reductions.

3. Low-Risk Clients (e.g., technology, finance, services)

• Can be leveraged as role models for sustainability best practices.

• May be encouraged to implement ESG-driven investment strategies.

How Banks Can Align Client Engagement with OJK’s CRMS

OJK’s CRMS framework requires banks to conduct Climate Risk Stress Testing (CRST) and integrate climate scenarios into risk assessments. To align with these requirements, banks should:

1. Use NGFS Climate Scenarios for Risk Assessments

• Apply Orderly, Disorderly, and Hot House scenarios to evaluate climate risks.

• Ensure clients are aware of financial implications of delayed transition policies.

2. Align Engagement with Indonesia’s Climate Policy Commitments

• Encourage clients to adhere to Nationally Determined Contributions (NDCs).

• Support businesses in complying with carbon pricing and emission reduction policies.

3. Implement Green Financial Products

• Offer sustainability-linked loans (SLLs) tied to emissions reductions.

• Develop green credit facilities for clients investing in renewable energy.

• Integrate carbon risk pricing into loan structures.