Navigating a New Era of Risk: A Practical Guide to CRMS Development in Indonesia

Climate change has evolved from a mere environmental issue into one of the primary drivers of global financial risk. For business leaders, this marks a fundamental paradigm shift. Managing climate risk is no longer just about corporate social responsibility (CSR); it is a strategic imperative to ensure business continuity and resilience. Failure to manage these risks can have a direct impact on asset valuation, cost of capital, and long-term financial stability.  

Globally, agreements like the Paris Agreement and increasing investor demands for transparency have led to the creation of various reporting frameworks. In Indonesia, a country geographically highly vulnerable to the physical impacts of climate change such as rising sea levels and extreme weather , this urgency is even more palpable. Responding to the dual pressures from nature and international capital markets, the Financial Services Authority (OJK) has taken a decisive step by introducing the Climate Risk Management and Scenario Analysis (CRMS) guidelines. This framework is not designed merely as a compliance burden but as a strategic tool for companies, especially in the banking sector, to build resilience, manage risks, and even identify new business opportunities amid the transition to a low-carbon economy.  

Dissecting the CRMS Framework: The Foundation of Governance and Strategy

CRMS is an integrated framework designed to assess the resilience of a companys business model and strategy against climate change in the short, medium, and long term. It is important to understand that the CRMS framework developed by OJK does not stand alone. This guide consciously adopts and adapts the pillars of the Task Force on Climate-related Financial Disclosures (TCFD), which has become the global gold standard for climate risk reporting. This alignment ensures that compliance with OJK regulations will also enhance a companys relevance in the eyes of international investors who increasingly use TCFD as a benchmark.  

The CRMS framework, in line with TCFD, is built on four main pillars. The first two pillars, Governance and Strategy, are the foundation that determines the effectiveness of the overall implementation.

Pillar 1: Governance

Effective CRMS implementation must start with the "tone at the top." Without strong leadership and oversight from the highest level, climate risk management efforts risk becoming a mere compliance exercise. This pillar emphasizes the importance of a clear structure for overseeing and managing climate risks.  

• Oversight by the Board of Directors and Commissioners: The board has the primary responsibility for overseeing climate-related risks and opportunities. This is not a passive task; the board must actively ensure there is climate competency among its members, integrate climate considerations into major strategy approvals, and ensure management has sufficient resources to manage these risks. Practices at leading companies like PLN and MedcoEnergi show the formation of sustainability or special risk management committees that report directly to the board, ensuring this issue receives due attention.  

• Managements Role: Management is responsible for the operationalization of the climate strategy. This includes identifying, assessing, and mitigating climate risks, as well as reporting their status and progress to the board of directors periodically.  

Pillar 2: Strategy

This pillar requires companies to look beyond quarterly reports and consider how climate change will reshape their business landscape in the long term.

• Identification of Risks and Opportunities: Companies must systematically identify climate-related risks and opportunities relevant to their business across different time horizons: short-term (1-2 years), medium-term (2-5 years), and long-term (5-20 years). The potential impact of these risks and opportunities on the business model, strategy, and financial planning must be analyzed and disclosed transparently.  

• Strategy Resilience and Scenario Analysis: This is the core element of the strategy pillar. Companies can no longer rely on "business-as-usual" assumptions. They are required to test the resilience of their strategies against various possible futures through scenario analysis. This involves assessing business performance under different climate scenarios, including an orderly transition scenario (e.g., temperature rise limited to below 2°C) and a scenario where physical risks become dominant.  

The Two Faces of Climate Risk: Understanding Physical and Transition Threats

To conduct a comprehensive analysis, CRMS and TCFD categorize climate risks into two main, interconnected types: physical risks and transition risks.  

Physical Risks

These risks arise from the direct impacts of climate change on a companys physical assets and operations.

• Acute Risks: Refers to extreme weather events that are increasing in frequency and intensity. For Indonesia, the examples are very real: floods that paralyze distribution and manufacturing centers, storms that damage port infrastructure, and forest fires that destroy plantation areas and disrupt operations.  

• Chronic Risks: These are the result of long-term changes in climate patterns. Examples include rising sea levels that threaten assets in coastal areas, rising average temperatures that can reduce agricultural productivity and increase cooling costs, and changes in rainfall patterns that trigger droughts and water scarcity.  

Transition Risks

These risks emerge from the process of global society adjusting to a low-carbon economy.

• Policy and Legal: This is the most frequently cited risk. Governments worldwide, including Indonesia, are and will be implementing policies to achieve emission targets. Examples include the imposition of carbon taxes, stricter emission standards for industries and vehicles, and ESG reporting obligations that can increase operational costs. The risk of litigation from parties who feel aggrieved by climate impacts or by companies deemed to have failed in their transition is also increasing.  

• Technology: Innovation can render existing technologies obsolete. Coal-fired power plants, for example, face disruption risk from solar and wind energy, whose costs continue to fall. Companies that are slow to adapt to clean and efficient technologies will lose their competitiveness.  

• Market: Investor and consumer preferences are shifting. Investors are increasingly divesting from fossil fuel assets, while consumers are increasingly choosing products and services from companies that demonstrate a commitment to sustainability.  

• Reputation: A companys image as a "polluter" or "laggard" on climate issues can damage relationships with customers, top talent, and regulators, ultimately impacting financial performance.  

In Indonesia, these two types of risk cannot be viewed in isolation. They create a mutually reinforcing cycle. The more frequent and severe the impacts of physical risks—for example, major floods in key cities or prolonged droughts in agricultural centers—the greater the public and political pressure on the government to take decisive action. This action will manifest as stricter climate policies, which directly increase transition risks for the business world. Thus, companies operating in disaster-prone locations not only face a direct threat to their assets but are also on the front line to face more disruptive regulations.

The Power of Scenario Analysis: Mapping an Uncertain Future

Scenario analysis is the heart of the CRMS and TCFD frameworks. It is not about accurately predicting the future, but a strategic tool to explore various plausible future paths. The goal is to challenge the assumptions underlying the current business strategy and test how resilient the companys business model is in the face of conditions that are very different from "business-as-usual." By doing this, companies can identify hidden vulnerabilities and develop stronger strategic options.  

Specifically for the banking sector in Indonesia, OJK has adopted the scenarios developed by the Network for Greening the Financial System (NGFS) as a mandatory reference. The three main scenarios that must be analyzed are:  

1. Net Zero 2050 (Orderly Transition): This scenario assumes ambitious and early global climate policy action to achieve net-zero emissions by 2050. In this scenario, transition risks (such as high carbon prices) emerge early and are significant, but severe physical risks are avoided.

2. Delayed Transition (Disorderly Transition): This scenario depicts a world where climate policy action is delayed until the coming decade. This delay forces the implementation of much harsher and more abrupt policies later on. As a result, both transition risks and physical risks become very high, creating disruptive economic shocks.

3. Current Policies (Hot House World): This scenario assumes that only existing policies are implemented, with no additional ambition. Consequently, transition risk is relatively low, but the world heads towards significant global warming, triggering severe, widespread, and irreversible physical risks.

Analyzing these scenarios is not just a risk management exercise, but also a tool for discovering strategic opportunities. Each scenario, regardless of its risk level, will create new winners and losers. An orderly transition scenario will drive huge demand for clean technologies, renewable energy, and green financial services. Even in a Hot House World scenario, there will be a massive demand for adaptation solutions such as climate-resilient infrastructure, resilient agricultural technology, and disaster insurance products. Companies that proactively use scenario analysis to identify these opportunities will position themselves to become leaders in the future.

The Indonesian Context: Dissecting OJKs CRMS Guidelines

In Indonesia, OJK is the main driving force in the implementation of climate risk management, especially for the financial services sector. In March 2024, OJK launched a comprehensive series of CRMS guidelines, consisting of six complementary books that demonstrate the regulators seriousness on this issue :  

• Book 1: General CRMS Guidelines

• Book 2: Technical CRMS Guidelines (including Climate Risk Stress Testing - CRST)

• Book 3: Carbon Emission Calculation Methods

• Book 4: Macroeconomic Data for Scenarios

• Book 5: Disaster Data for Physical Risk

• Book 6: Reporting Worksheets

Based on OJK Circular Letter No. S-37/D.03/2024, this reporting obligation becomes very concrete and urgent. All commercial banks are required to submit their inaugural CRMS report by July 31, 2025.  

This obligation has a different scope depending on the banks category:

This regulation will create a significant domino effect throughout the economy. To be able to report on the risks in their portfolios, banks will start demanding climate-related data and information from their debtors. Companies in the real sector, especially those in OJKs priority sectors (such as manufacturing, agribusiness, mining, and construction), will face new pressure to measure their greenhouse gas emissions (including Scope 1, 2, and 3) and develop credible climate mitigation strategies as a condition for obtaining or maintaining financing facilities. Thus, this banking regulation effectively becomes a catalyst for the broader adoption of sustainable business practices in the real sector.  

From Theory to Practice: Implementation Case Studies in Indonesia

The implementation of CRMS and TCFD is no longer just a discourse in Indonesia. A number of leading companies have proactively adopted these frameworks, not only to meet regulatory demands but also as part of their core business strategy. They see this as a way to better manage risk, capture new opportunities, and maintain a competitive edge.

• Energy Sector (PT MedcoEnergi & PLN): MedcoEnergi demonstrates best practices in scenario analysis by using internationally recognized models such as the IPCCs RCP scenarios for physical risk and the IEAs scenarios for transition risk. They also clearly define risk time horizons, which form the basis of their strategic planning. Meanwhile, PLN has integrated TCFD into its corporate strategy, evidenced by its Net Zero Emission (NZE) 2060 roadmap and concrete decarbonization initiatives like the biomass co-firing program.  

• Banking Sector (Bank BRI & CIMB Niaga): Bank BRI has implemented specific risk management for sectors with high climate exposure, such as palm oil and pulp and paper. They also use quantitative metrics like portfolio classification based on the Indonesian Green Taxonomy (THI) to measure and manage their exposure. CIMB Niaga has also shown proactivity by participating in the Climate Risk Stress Test (CRST) pilot project initiated by OJK, an important step in building internal technical capacity for climate scenario analysis.  

These case studies prove that sophisticated CRMS implementation is not only possible in Indonesia but is already a reality. They serve as benchmarks and feasibility studies for other companies, creating a sense of urgency while providing tangible examples to follow.

Building Climate Resilience with BATS Consulting

The journey towards effective CRMS implementation is fraught with challenges. Companies must navigate the complexity of OJK regulations, address gaps in reliable emissions data, build technical capacity for scenario modeling, and most importantly, translate analysis results into value-adding strategic decisions.  

This is where BATS Consulting comes in as your strategic partner. We understand the regulatory landscape and the unique challenges faced by companies in Indonesia. With an end-to-end approach, we help you turn the complexity of climate risk into a resilient competitive advantage.

Our services include:

• Gap Analysis & Roadmap Development: We help you map your current state against OJK and TCFD requirements, then design a structured and realistic implementation roadmap.

• Material Risk & Opportunity Identification: Through facilitated workshops, we help you identify the most significant climate risks and opportunities for your business model and value chain.

• Scenario Analysis & Stress Testing: Our expert team provides the technical expertise to build robust scenario models and conduct stress tests according to OJK guidelines, translating climate impacts into financial metrics like Probability of Default (PD) and Expected Credit Loss (ECL).

• Emissions Calculation & Reporting: We provide guidance on calculating your carbon footprint (Scope 1, 2, and 3) and assist in preparing high-quality, transparent, and audit-ready CRMS/TCFD reports.

• Strategic Advisory for Boards & Management: We dont stop at the report. We help you interpret the analysis to inform strategic decisions, from capital allocation to product innovation, ensuring CRMS creates long-term value for your company.

  
  

  _____________ Tentang BATS Consulting BATS Consulting adalah firma konsultan strategis terkemuka di Indonesia yang menawarkan solusi menyeluruh di bidang akuntansi, perpajakan, keuangan, hukum, dan keberlanjutan (ESG). Dengan tim ahli berpengalaman internasional dan pendekatan berbasis data, BATS membantu klien dari berbagai sektor untuk mengoptimalkan kepatuhan, efisiensi bisnis, serta strategi pertumbuhan jangka panjang. Layanan unggulan kami meliputi transfer pricing, audit pajak, merger & akuisisi, hingga pengelolaan emisi karbon dan pasar kredit karbon, menjadikan BATS mitra yang terpercaya untuk kebutuhan bisnis modern. Mengusung prinsip "global insight with local relevance", BATS Consulting tidak hanya memberikan solusi yang tepat sasaran, tetapi juga mampu menjawab tantangan regulasi lokal dengan standar internasional. Berlokasi di Jakarta, kami telah menjadi pilihan utama berbagai perusahaan nasional dan multinasional yang ingin meningkatkan daya saing mereka secara berkelanjutan. Apapun tantangan bisnis Anda, BATS hadir sebagai partner strategis yang tangguh dan adaptif untuk mengantarkan Anda pada kesuksesan. Hubungi BATS Consulting: Alamat: Indonesia Stock Exchange Building, Tower 1 Level3 Suite 304, SCBD Jl. Jend. Sudirman Kav. 52-53. Jakarta Selatan 12190 Email: info@bats-consulting.com Website: www.bats-consulting.com Telepon/WhatsApp: +62 81 6110 5174