Implementation of Green Banking as a Sustainability Strategy for the Indonesian Banking Industry: Regulatory Architecture, Institutional Benefits, and Structural Barriers

Abstract

The banking industry is increasingly expected to pursue sustainability alongside profitability, because banks, as financial intermediaries, determine which economic activities receive capital and therefore shape the environmental footprint of the wider economy. Green banking, understood as the integration of environmental considerations into bank policies, operations, products, and financing decisions, has become a central instrument for this purpose. In Indonesia, the concept gained a formal legal basis through Financial Services Authority Regulation No. 51/POJK.03/2017, the Sustainable Finance Roadmaps, and the national green taxonomy, yet its implementation remains uneven across institutions. This study analyzes how green banking is implemented in the Indonesian banking industry, what institutional benefits it generates, and which structural barriers constrain its acceleration. Using a qualitative descriptive design based on library research and document analysis, the study examines regulations, bank sustainability reports, reports of international institutions, and peer-reviewed literature, and analyzes them through stakeholder, legitimacy, and triple bottom line theories. The results show that implementation proceeds along two tracks: operational greening driven largely by digital transformation, and financing greening through environmental risk screening and the redirection of credit toward renewable energy and other sustainable activities. Green banking produces efficiency gains, reputational legitimacy, and closer alignment with national climate commitments, but it is constrained by high initial investment costs, limited environmental risk expertise, low public literacy regarding sustainable financial products, and inconsistent policy harmonization, particularly for smaller banks. The study argues that green banking in Indonesia is in transition from compliance-oriented disclosure toward substantive integration, and that this transition requires coordinated incentives from regulators, capacity building within banks, and market-side literacy. The article contributes an integrative framework linking regulatory design, institutional motivation, and implementation barriers in an emerging-market context.