TBLI Conference Tokyo, May 27-28 2010 Progress & Challenges to be Sustainable Corporate:  BNI Experiences Ahdi J. Luddin M...
Jun 1, 2010 Page  Agenda Strategy & Approach Progress Challenges
Climate Change   (impact to balancing of human life over the world) Business Challenges  (tight and tend to hyper competit...
<ul><li>Sustainability is one of the key words in modern and future business. As a big and prominent bank, BNI have a stro...
Create Value with Values …. Business Paradigm Business Policy, Decision & Action Boosting Competitiveness Business Competi...
Implementation Plan Initiatives H2 - 2009  H1 - 2010 H2 - 2010 H1 - 2011 New Value Creation BNI Green  Engagement Green Ec...
Jun 1, 2010 Page  Agenda Strategy & Approach Progress Challenges
Progress Frame Work Today External Internal Tomorrow Sustainable Value <ul><li>To see our progress, we put our achievement...
Today Internal Sustainable Value <ul><li>Starting internally from Green Attitude of employees to provide green banking to ...
Today External Sustainable Value <ul><li>Participated at UNEP-FI  </li></ul><ul><li>Participated at several WWF Program </...
Internal Sustainable Value <ul><li>Create unit in charge : “Corporate Sustainability Team” </li></ul><ul><li>To ensure the...
External Tomorrow Sustainable Value <ul><li>Restatement one of Mission BNI : “Improving responsibility & fostering environ...
Concentration Policy Pricing, Risk Assessment Capital Allocation Commitment decision <ul><li>Loan reviews </li></ul><ul><l...
Organization Human Resources Credit Culture Information Technology Infra-structure Marketing Analysis Approval Crd.Adm. Mo...
Corporate Sustainable Team Educate and improving awareness about the importance of sustainability Well Being (West) Econom...
Jun 1, 2010 Page  Agenda Strategy & Approach Progress Challenges
Challenges <ul><li>EXTERNAL </li></ul><ul><li>Limited partner :  </li></ul><ul><li>Green spirit’s not common yet for domes...
Accolades <ul><li>Best Corporate Governance ,  from Euromoney Magazine </li></ul><ul><li>‘ Best Managed and Governed Compa...
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Progress & Challenges to be Sustainable Corporate: BNI Experiences

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Ahdi Jumhari Luddin, Managing Director of Compliance and Risk Management - PT Bank Negara Indonesia (Persero), Tbk. - Indonesia

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  • [ Short summary or abstract ] In order to accomplish the sustainable investment strategies, banking industries are demanded to improve its governance and risk management capabilities. In relation with the sustainability, one of the improvement key points is to incorporate the environmental aspect into bank’s portfolios and lending process. Along with challenges in implementing the sustainable investment strategies, we have achieved some improvements: restated our mission, set up ‘Corporate Sustainability Team’, built related internal capabilities (e.g. lending policy, efficiency and role modeling), expand on green lending portfolio and funding, extent partnership and CSR Program.
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  • We start by questioning why we should be a sustainable corporate?. As mater of facts there are a lot of forces impact on our existence. As seen on this slide, these factor are (but not only), climate change, business challenges, stainable growth, competitive advantages and become competitive companies
  • In order to become sustainable corporate. We have develop basic approach and strategy. As we know sustainability is …
  • As part from the approach this slide describe process of creating value with value. Start with changing the mind-set of all BNI employees and management regarding sustainability, and then we continue with putting environmental factor into business policy decision and action. By doing so, we will boost our competitiveness which also will imply our business competitiveness.
  • Next, regarding to the basic strategy and approach we have develop a continuous implementation plan as described on the slide. Competency building is starting point of the implementation plan and move upward into new value creation of BNI. Each step contains several activities that can be categorized into 4 stream, i.e. economy, well being, nature, and society. For example in competency building, the economy stream activities are adding sustainability issue and green economy into our current vision and mission. Followed by well being stream activities such us providing Guide Book on environmental issue. On Nature stream we have provided capacity building in reduce, reuse and recycle. Lastly, on Society stream we provide pilot training to SME and community group on eco retailer. In the end, we aim to engage green economic value to related stakeholders. The next slide will explain our progress of these strategies and implementation plan
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  • To describe the progress, we use sustainable value frameworks that adopted from S Hart &amp; M Milstein. This framework consist of two dimensions: space (internal and external) and time (Today and Tomorrow). As seen on the slide, these dimensions form 4 quadrants where each has different set of drivers. Moreover to deal with different type of drivers, each quadrant also have different set of strategies and actions as well.
  • By using the framework: Firstly, I am going to describe our achievements that can be categorized into the first quadrant (today-internal) We started with changing of paradigm internally by enforcing green attitude to our employee through several activities: Composing a “Green Attitude Hand Book ”. Our employees are educated to improve awareness regarding sustainability. Employee Awareness Workshop . This workshop covered green attitudes and building capacity to our employee. Several relevant topics were also discussed such as : climate change impacts to the Indonesian people, green life style at the office and so on. Bike to Work, Car Pooling. Bike to work is community whose members choose to ride bicycles to work. We support the community by providing bicycle parking area. Also in order to reduce air pollution, our employee prefer use busses to work rather than use their own car. Furthermore, we also introduced the green office concept. Starting with the simplest activities of reduce, reuse and recycle of paper use, followed by several other campaigns such as: Saving from lamp Rainwater harvesting Installing STP (Sewage Treatment Plant) Developing a paperless office using intranet based, called EMPlus. Redesigning forms layout. Beside that, we also believe that the improvement of good corporate governance and risk management including strong risk culture will be a great contribution as well. The implementation of Good Corporate Governance (GCG) is an effort to change corporate culture into one that applies Transparency, Accountability, Responsibility, Independency and Fairness principles. To achieve it, GCG has to be continuously renewed and improved. This process cannot be implemented without a cultural shift from related actors. Therefore, BNI always tries to engage all its employees and business partners in the transformation process toward GCG. BNI has in place and has been implementing GCG principles in company operations since 2001. Since then, reviews and adjustments have been continuously undertaken to keep them in line with the development of policy, regulations and both internal and external conditions. Apart from Bank Indonesia Regulation number 8/4/PBI/2006 regarding Good Corporate Governance for Public Banks, the main reference for the implementation of GCG in BNI is the Capital Market Act, Limited Liability Company Act and State- owned Enterprise Act. In risk management , BNI has set up a comprehensive blue print of Enterprise Risk Management (ERM) and general policies of risk management. Both document will guide all entire organization in implementing risk management and also Basel II implementation. All of those actions we were implemented are in order to reduce our cost and risk .
  • Next, we move into lower right quadrant where we put our achievement on today- external dimensions. In order to connect and engage with external parties in developing sustainable value, we have several activities, some of them are: Participated at UNEP-FI . In line with the global financial institutions community mainstream that embraces sustainable development, BNI has become a signatory of UNEP-FI (The United Nations Environment Program Financial Initiative (UNEP FI) since 2005 (until now BNI is the only financial institution from Indonesia and Southeast Asia). BNI also active in annual general meeting of UNEP-FI, which covers all topics such as follows: responsible investment; sustainable banking. low-carbon economy, financing renewable energy, financing for sustainable development. Participated at several WWF Program. BNI was dialog partners at WWF Roundtable Sustainable Palm Oil (RSPO) discussion. RSPO is WWF Initiatives to promote a sustainable production, exploring and the use of sustainable palm oil by setting up a credible and global standard for implementation and verification and getting support from stakeholder in the entire supply-chain process. BNI also participated at Sustainable Fisheries Dialog and has signed agreement in regard to the preservation of turtles and other mutual cooperation. One of the aims of the meeting is to facilitate initiatives between producers and buyers of sustainable seafood products. This includes a banking role to prevent such a destructive fisheries. Earth hour program on March, 27th 2010. Participated at LEAD International Workshop. BNI participated in Leadership Environment And Development (LEAD) International Workshop, in order to get a higher understanding of sustainability compass, share in the area of business and climate change, adaptation, green technology and urban living. Developed “Kampoeng BNI” in order to empowering society, improving welfare. This Kampoeng BNI means “One village one product scheme”, to support entrepreneurs in certain regions to develop their businesses, and be more ‘bankable’. There are 4 cluster already developed through this scheme, such as in Subang (2007), Tasikmalaya (2007), Malang (2009); Imogiri (2009), and soon to be opened in Palembang and Lumajang. Developed “Rumah Bankik Basamo”. Collaborated with BNI Labor Union and Bamuis (LAZ) BNI to help community of earthquake victims in Padang. Boekit Hijau BNI in Imogiri. BNI was also involved in the conservation of Bukit Imogiri to inspire the creation of life in harmony with the ecosystem. BNI engage any communities development, green community and social activities BNI has been selected as one of the banks that are listed in SRI - Kehati . BNI has been selected as one of the banks that are listed in SRI – Kehati (Yayasan Keanekaragaman Hayati (Biodiversity Foundation). Every year, Kehati selects companies to be included in the list of companies that have applied SRI (Sustainable and Responsible Investment).SRI is essentially a quantitative measurement of sustainable investment practices. These activities are based on the strategies to integrate stakeholders views into business process. In return we expect the reputation and legitimacy of our stakeholders.
  • On third quadrant: (Tomorrow-Internal), our achievement will focus on how to develop the sustainable competencies internally of the future. This consist of several activities such as: Create unit in charge : “Corporate Sustainability Team (CST) ”. The establishment of the CST was a milestone in guarding all BNI’s sustainability activities. Detail of the CST will be described later on page 18. To ensure the integrity and security of its information technology, BNI implements ISO 9001:2000 and ISO 27001. BNI has developed an information system to provide reliable, timely, accurate and complete data and information. Enhance continuously ‘clean’ business process, eLO (electronic Loan Origination), an IT-based for Credit Application service Smart remittance, an internet-based money transfer service SMS banking Internet banking Electronic statement and credit card statement Customer total solution approach . BNI had been developing key capabilities in order to give total solution to customer. This is one of a new approach we have dealing with high competition in banking industries. These activities are based on our consideration of innovation and repositioning our image to the stakeholders
  • The last upper right quadrant deals with future externals drivers where we have developed strategies, i.e. sustainability vision. These consist of several achievement such as: Restatement one of Mission BNI : “Improving responsibility &amp; fostering environment and community. Aggressive growth, market share and profitability by implementing Customer Centric Operating Model . A new business operating model has been develop to support growth and profitability. All initiatives has been integrated into bank wide program, called BNI Reformation 1.0 Program. Develop environmentally friendly financing ; MOU with Green Works Asia and Climate Change Capital Limited (London, UK) to support Clean Development Mechanism (CDM) Programs. In this MOU the Green Works Asia and Climate Change Capital Limited (London, UK) would be a potential buyer of CDM program. BNI Griya: a pioneer in green mortgage Improving green lending portfolio (geothermal, mini hydro, forestry, agribusiness, etc) Extending partnership with greener developers and merchants; BNI has been assigned by the Indonesian Ministry of Environment (KLH) to become a bank to channel soft loans for environmental projects . For Minister of Environment (MoE), BNI is a long-term strategic partner in providing loans to industry for environmental improvement, especially MSBs. In 1992, BNI played role as a bank that administered the Debt for Pollution Abatement Equipment scheme, with funding from the Japan Bank for International Cooperation, to be disbursed to Indonesian MSBs. This scheme was then followed with the Industrial Efficiency and Pollution Control (IEPC) – Kreditanstalt für Wiederaufbau (KfW) program phase 1 in 2002 and phase 2 in 2006, with the funds coming from the Government of Germany. So far, the program has been quite successful. We are projecting sustainable growth through this activities.
  • This slide try to describe how we put environmental factor into business policy and decision action, especially on environmental credit risk assessment (ECRA). We understand that this step a journey process along with our risk maturity in organization. So we think big and start small. We start simply, by putting the environmental risk factor into our internal rating system (IRS). This IRS would be applied on credit risk analysis, capital allocation, pricing model, concentration policy, commitment decision, loan review, portfolio reporting and risk adjusted performance measurement as well. In other word IRS is a main part of credit risk management. So we believe when IRS implementation contains embedded environmental risk factor, it will also affect all of our credit risk capabilities.
  • Take a look to this particular slide, in the future, we will consider environmental risk factor into all of the business process, as described on the slide. Start from strategic planning, loan origination process, monitoring &amp; controlling and portfolio optimization as well. As it seen here, there will be a lot of capabilities which indirectly impacted by environmental risk factors.
  • As we mention before, in managing sustainability we have set up a corporate sustainability team, which const of stream as compass paradigm, i.e. Economy (East), Well being (West), Nature (North) and Society (South). The main functions foe each stream are: Economy: to increase portfolio green lending, green institution fund and Efficiency (R3) Well being: to educate and improving awareness about the importance of sustainability Nature: Participating active in environmental management Society: Community development and engagement green community
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  • Benefits always come with challenges, and we are identifying several possible threats from both external and internal factors. From the external, we realize the idea of green spirits is not favorable and common for some domestic companies, we should assure them about mutual benefit to be obtained for both parties. Another external challenge is regarding the regulation which is still not equal for a company which involved in green policy implementation. From the internal side we face two major issues which firstly are the wide covering area means large number of channel distribution. We have around 1000 local outlets and 5 abroad outlets. Secondly, having about 23,000 employees mean the challenges of common values and perceptions. we have also lack of knowledge in put the environmental risk factor into overall comprehensive business strategy and policy, that would be presented into roadmap as well as frame work.
  • Along the way, our policies and strategies of achieving sustainability has been recognized in the form of accolades by some institutions. Some of them are: Best Corporate governance from Euro money magazine: best managed and governed companies – Asia poll 2010. Green leadership award and community engagement award, from Asia responsible award 2009 Green property award 2009.
  • Progress & Challenges to be Sustainable Corporate: BNI Experiences

    1. 1. TBLI Conference Tokyo, May 27-28 2010 Progress & Challenges to be Sustainable Corporate: BNI Experiences Ahdi J. Luddin Managing Director PT.Bank Negara Indonesia (Persero), Tbk
    2. 2. Jun 1, 2010 Page Agenda Strategy & Approach Progress Challenges
    3. 3. Climate Change (impact to balancing of human life over the world) Business Challenges (tight and tend to hyper competition) Sustainable Growth (performance by optimizing corporate resources) Competitive Advantages (giving values to all stake holders) Competitive Company (domestic and global player) Why Sustainable Corporate?
    4. 4. <ul><li>Sustainability is one of the key words in modern and future business. As a big and prominent bank, BNI have a strong commitment to become a leader in implementing sustainability in Indonesia. </li></ul><ul><li>In achieving sustainability, BNI takes a structural approach. It should be inherent instead of sporadic. Sustainability should be embedded in every BNI’s business decision and operations. </li></ul><ul><li>The basic strategy is to start from within, working our way to the outside. The strategy takes four initial steps. </li></ul><ul><ul><ul><li>Changing the mind-set of all BNI employees and management regarding sustainability. </li></ul></ul></ul><ul><ul><ul><li>Formulating a realistic and not-too ambitious key performance indicators. </li></ul></ul></ul><ul><ul><ul><li>Starting from the low-hanging fruit, by implementing simple sustainability programs that produce immediate results. </li></ul></ul></ul><ul><ul><ul><li>Implementing the medium-term Sustainability Roadmap </li></ul></ul></ul>Basic Approach & Strategy (1/2)
    5. 5. Create Value with Values …. Business Paradigm Business Policy, Decision & Action Boosting Competitiveness Business Competitiveness Basic Approach & Strategy (2/2) Create Value with Values
    6. 6. Implementation Plan Initiatives H2 - 2009 H1 - 2010 H2 - 2010 H1 - 2011 New Value Creation BNI Green Engagement Green Economic Value BNI to all related Stakeholders Business Process Mainstreaming Green paradigm into product features Policy development Internalization & deployment Green Policy Competency building Capacity Building creating green economy awareness
    7. 7. Jun 1, 2010 Page Agenda Strategy & Approach Progress Challenges
    8. 8. Progress Frame Work Today External Internal Tomorrow Sustainable Value <ul><li>To see our progress, we put our achievements into sustainable value framework *) … </li></ul>Drivers: <ul><li>Disruption </li></ul><ul><li>Clean tech </li></ul><ul><li>Footprint </li></ul>Drivers: <ul><li>Pollution </li></ul><ul><li>Material Consumption </li></ul><ul><li>Waste </li></ul>Drivers: <ul><li>Climate change </li></ul><ul><li>Resources depletion </li></ul><ul><li>Poverty </li></ul>Drivers: <ul><li>Civil Society </li></ul><ul><li>Transparency </li></ul><ul><li>Connectivity </li></ul>*) Adopted from S Hart & M Milstein
    9. 9. Today Internal Sustainable Value <ul><li>Starting internally from Green Attitude of employees to provide green banking to customers: </li></ul><ul><ul><li>Composing a “Green Attitude Hand Book” </li></ul></ul><ul><ul><li>Employee Awareness Workshop </li></ul></ul><ul><ul><li>Bike to Work, Car Pooling </li></ul></ul><ul><li>Green Office: </li></ul><ul><ul><li>Reduce, Reuse, Recycle </li></ul></ul><ul><ul><li>Saving from lamp </li></ul></ul><ul><ul><li>Rainwater harvesting </li></ul></ul><ul><ul><li>Installing STP (Sewage Treatment Plant) </li></ul></ul><ul><ul><li>Developing a paperless office using the intranet based EMPlus </li></ul></ul><ul><ul><li>Redesigning forms layout </li></ul></ul><ul><li>Good corporate governance and risk management (incl. risk culture) </li></ul>Cost & Risk Reduction Progress
    10. 10. Today External Sustainable Value <ul><li>Participated at UNEP-FI </li></ul><ul><li>Participated at several WWF Program </li></ul><ul><li>Participated at LEAD International Workshop </li></ul><ul><li>Developed “Kampoeng BNI” in order to empowering society, improving welfare. </li></ul><ul><li>Developed “Rumah Bankik Basamo”. Collaborated with BNI Labor Union and Bamuis (LAZ) BNI to help community of earthquake victims in Padang. </li></ul><ul><li>Boekit Hijau BNI in Imogiri </li></ul><ul><li>BNI engage any communities development, green community and social activities </li></ul><ul><li>BNI has been selected as one of the banks that are listed in SRI - Kehati. </li></ul>Reputation and Legitimacy Progress
    11. 11. Internal Sustainable Value <ul><li>Create unit in charge : “Corporate Sustainability Team” </li></ul><ul><li>To ensure the integrity and security of its information technology, BNI implements ISO 9001:2000 and ISO 27001 </li></ul><ul><li>Enhance continuously ‘clean’ business process </li></ul><ul><ul><li>eLO (electronic Loan Origination), an IT-based for Credit Application service </li></ul></ul><ul><ul><li>Smart remittance, an internet-based money transfer service </li></ul></ul><ul><ul><li>SMS banking </li></ul></ul><ul><ul><li>Internet banking </li></ul></ul><ul><ul><li>Electronic statement and credit card statement </li></ul></ul><ul><li>Customer total solution approach </li></ul>Innovation & Repositioning Progress Tomorrow
    12. 12. External Tomorrow Sustainable Value <ul><li>Restatement one of Mission BNI : “Improving responsibility & fostering environment and community </li></ul><ul><li>Aggressive growth, market share and profitability by implementing Customer Centric Operating Model </li></ul><ul><li>Develop environmentally friendly financing; </li></ul><ul><ul><li>MOU with Green Works Asia and Climate Change Capital Limited (London, UK) to support Clean Development Mechanism (CDM) Programs. </li></ul></ul><ul><ul><li>BNI Griya : A Pioneer in Green Mortgage </li></ul></ul><ul><ul><li>Improving green lending portfolio (geothermal, mini hydro, forestry, agribusiness, etc) </li></ul></ul><ul><li>Extending partnership with greener developers and merchants; </li></ul><ul><li>BNI has been assigned by the Indonesian Ministry of Environment (KLH) to become a bank to channel soft loans for environmental projects. </li></ul>Sustainable Growth Trajectory Progress
    13. 13. Concentration Policy Pricing, Risk Assessment Capital Allocation Commitment decision <ul><li>Loan reviews </li></ul><ul><li>Monitoring </li></ul><ul><li>Portfolio reporting </li></ul>Active portfolio management Risk adjusted performance measurement Rating System Provision for Losses Rating Migration Environmental Assessment in IRS Specific on Credit Risk Assessment ….
    14. 14. Organization Human Resources Credit Culture Information Technology Infra-structure Marketing Analysis Approval Crd.Adm. Monitoring Strategic Planning Loan Portfolio Planning Target market identification Prospecting Market Campaign Pre-screening Appetite, risk-reward target Data & Verification Scoring or IRS Credit Analysis PD,LGD,EAD Calculation Credit Package Credit Approval Limit Management Pricing Model Compliance Early Warning System Facility Structure Credit Documentation Booking transaction Collateral Valuation Remedial Commit-ment Letter Loan Review Early Warning System Utilization and Repayment Legal, & Administration Collateral / coverage Restruc-turing Asset management Collection & recovery Loan Origination / Acquisition Litigation Monitoring & Control Portfolio Optimization Portfolio Analysis Provision/ Coverage Strategic, Planning & Budgeting Portfolio risk overview Performance Measurement (RAROC) Customer Profitability Exception Monitoring Optimization Active Portfolio Management Loan sales / risk transfer Capital Allocation Stress Testing Regulatory/ economic capital In the future … Credit Process & Environmental Assessment
    15. 15. Corporate Sustainable Team Educate and improving awareness about the importance of sustainability Well Being (West) Economy (East) Society (South) Nature (North) <ul><li>Increase portfolio green lending </li></ul><ul><li>Green institution fund </li></ul><ul><li>Efficiency (R3) </li></ul>Participating active in environmental management <ul><li>Community development </li></ul><ul><li>Engagement green community </li></ul>Compass Paradigm / Stream Managing Sustainability …
    16. 16. Jun 1, 2010 Page Agenda Strategy & Approach Progress Challenges
    17. 17. Challenges <ul><li>EXTERNAL </li></ul><ul><li>Limited partner : </li></ul><ul><li>Green spirit’s not common yet for domestic company </li></ul><ul><li>Regulation : </li></ul><ul><li>Unequal playing field for implementing green policy </li></ul><ul><li>INTERNAL </li></ul><ul><li>Number of channel distribution : </li></ul><ul><li>Wide of covering area (+/- 1000 local + 5 abroad outlets) </li></ul><ul><li>Characteristic employee : </li></ul><ul><li>Large number (+/- 23.000) & multi background (educational, culture, etc) </li></ul>
    18. 18. Accolades <ul><li>Best Corporate Governance , from Euromoney Magazine </li></ul><ul><li>‘ Best Managed and Governed Companies -Asia poll 2010 . </li></ul><ul><li>Green Leadership Award & Community Engagement Award, from Asia Responsible Entrepreneurship Award, 2009 </li></ul><ul><li>Green Property Award 2009 </li></ul>

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