Enforcing Green Banking: A Comparison of Legal Mechanisms for ESG Compliance in Corporate Lending

Abstract

The application of Environmental, Social, and Governance (ESG) principles in the banking sector has become an important tool to promote sustainable development and mitigate financing risks for business activities that negatively impact the environment or society. However, the effectiveness of green banking implementation still faces challenges due to differences in legal compliance mechanisms for ESG in the corporate credit distribution process across various jurisdictions. This study aims to analyze and compare the legal mechanisms used to enforce ESG compliance in corporate lending and identify relevant regulatory models to strengthen green banking implementation in Indonesia. The research method used is normative legal research with a statute approach, comparative approach, and conceptual approachResearch shows that countries like the European Union, the UK, and Singapore have integrated ESG standards into banking regulations through requirements like sustainability due diligence, climate risk reporting, and regulatory oversight of financing portfolios. Meanwhile, Indonesia still places ESG compliance within a sustainable finance framework that hasn’t been fully integrated into corporate credit enforcement mechanisms. This study offers a model for strengthening green banking compliance through harmonizing ESG regulations, implementing sustainability-based credit assessments, and enhancing regulatory supervision to create a sustainable banking system focused on long-term risk mitigation.