Beyond Green Lending: Sustainable Loans, Social Environmental Costs, and Bank Performance in Indonesia

Abstract

Abstract—While prior research on sustainable banking in Indonesia has focused predominantly on green lending, the broader regulatory mandate also requires banks to disclose social and environmental costs (SEC), that is largely overlooked. This study moves beyond green lending by jointly examining how both sustainable loans (SL) and SEC influence the financial performance of Indonesian commercial banks during the early implementation of the Sustainable Finance Implementation Policy (2019–2024). Using panel data from 44 commercial banks with core capital above IDR 6 trillion, profitability is measured by Net Interest Margin (NIM) and operating efficiency by Operating Cost to Operating Income (OCOI). Specification tests select Fixed Effects for NIM and Random Effects for OCOI, with robust estimation applied. The results show that neither SL nor SEC has a statistically significant effect on bank profitability or operating efficiency, with directionally consistent findings under one- and two-year lagged specifications. These findings provide policymakers and practitioners in emerging markets with evidence that banks can expand sustainable finance activities without compromising short-term financial performance and highlight the need for differentiated policy mechanisms that account for banks’ capital strength.

Keywords—Sustainable finance, sustainable loan, social environmental cost, emerging markets, bank performance