Addressing disaster and climate risk in the financial system

ANOTHER storm is coming our way. Fortunately, we seemed to have learned our lessons as government leads the way in taking the necessary steps to be ready for whatever the typhoon will bring about. Allow me to share the Development Bank of the Philippines (DBP) journey in disaster and climate risk management as one of the government financial institutions (GFI) in the country.
In 1989, multilateral (World Bank, Asian Development Bank) and bilateral (Japan’s Overseas Economic Cooperation Fund or OECF), Germany’s KfW, Sweden’s Swedish International Development Cooperation Agency, among others) institutions found DBP as an excellent fit and partner in their country assistance strategies being a government development finance institution and at the same time tasked to be the main conduit for the official development assistance funds to the Philippines. Funders compelled DBP to prescribe to project eligibilities and conditionalities heading to sustainable development. They strongly advocated the inclusion of good governance, human rights and equity agenda, and environmental integrity in the face of climate change.
Initially building on these conditionalities, DBP marked a milestone in its environmental journey in January 2002 when it became the first Philippine bank to receive an international certification on Environmental Management System (EMS) under ISO 14001 standards. Achieving this was not easy with the stringent standards of ISO 14001. Over the years, the said system enabled DBP to successfully translate and integrate a responsible environmental strategy into practices that compels the employees to exude environmental ethics.
The bank tried another formula in ensuring minimal impact in the environment while achieving its sustainable economic growth goals. In 2014, EMS was combined with Quality Management System to entwine environmental considerations in its quality processes. In the same year, DBP’s Integrated Management System was also conferred compliant to the International Organization for Standardization (ISO) in both the Environmental Management System (ISO 9001:2008 Standards) and the Quality Management System (ISO 14001:2004 Standards), a first for the Philippine GFI’s.
Our environmental efforts are critical since the Philippines is considered a country at risk with natural disasters. The Asian Development Bank in its Climate Change and Disaster Risk Reduction Assessment cites that the Philippines is one of the world’s most natural hazard-prone countries. And, it belongs to the top 20 countries likely to be most adversely affected by climate change. It further reports that 60% of our total land area is subjected to multiple hazards and 74% of our population is vulnerable to natural disasters. Verisk Maplecroft in its published report on March 4, 2015, mentions parallel findings. It accounts that eight of the 10 world cities highly exposed to natural disasters are located in the Philippines. The more than 20 typhoons hitting the country annually are compounded by risk of volcanic eruptions, earthquakes and floods. Typhoon Haiyan (Yolanda) became a global concern when it hit the Philippines. Carrying with it wind speeds beyond 300 kilometers per hour and storm surges of more than four meters, the National Economic and Development Authority places the total damage and loss at P571.1 billion or$12.9 billion (@ $1=P44.135, Bangko Sentral ng Pilipinas exchange rate, 12/12/2013).
In fulfilling our dual mission of sustainability coupled with sound corporate governance, the bank integrates facets of disaster risk reduction in its processes. Our approach is both precautionary and corrective in nature, anticipating and preventing potential negative impacts. DBP’s practice in credit evaluation which incorporates environmental, technical and social concerns remains pacesetting in the Philippine banking industry.
This necessitates DBP to prescribe project eligibilities and conditionalities heading to sustainable development. It also advocated the inclusion of good governance, human rights and equity agenda as well as environmental integrity in the face of climate change. Hence, all environmental project proposals received by DBP are subject to Environmental Due Diligence processes conducted through evaluation reports and required documents for submission which includes environmental compliance certificate. This information is then included in the loan proposals to establish credit worthiness and determine its eligibility to specific overseas development funding facilities.
This brings back memories of the devastation caused by Super Typhoon Haiyan (Yolanda). In response, DBP released the Guidelines for the Implementation of the National Rehabilitation Program for Calamity Stricken Areas within a month. This is to provide support for borrowers and non-borrowers that are adversely stricken by the said calamity. This encompasses the extension of grace period of existing loans within the allowable maximum set by the Bangko Sentral ng Pilipinas, re-structuring of accounts, new or additional loans to support selected clients, and waiver of fees and condonation of penalty charges.
The DBP Circular required all marketing units to monitor its accounts falling under the category and to propose appropriate recommendation to assist the accounts. The interventions resulted to the rehabilitation/restructuring of 44 MSME accounts totaling P218.31 million, seven local government units accounts with an aggregate loan amount of P333.89 million, one water district project with loan amount of P22.08 million, three private borrowers totaling P44.5 million, and one corporate account amounting to P900 million in the affected provinces. Further, five new borrowers were financed under the DBP Rehab Program totaling P121.50 million.
Strengthening the organization to continue its operations during disasters, a bank-wide Disaster Recovery Test is annually conducted to ensure system availability, integrity and readiness of the Business Continuity Plans as well as Disaster Recovery sites. To keep up the environmental and disaster risk awareness in the bank, regular sessions for Board of Directors, Management and key junior officers are held regarding risk assessment and climate change. Briefings were conducted by World Wide Fund for Nature (WWF-Philippines).
DBP is only one of two Philippines banks sitting as a bonafide member of the United Nations Environment Program Finance Initiatives. The bank also ensures that the projects it financed is aligned with the UN Sustainable Development Goals and complements the implementation of the Philippine government’s Environmental Impact System (Presidential Decree No. 1586).
A handful of Philippine banks incorporating disaster risk-measures in its operations are not enough to successfully influence and scale up the adoption of disaster-relevant safeguards. While we know the advantages of valuating economic, social and environmental concerns in our portfolio, and the high cost entailed in resource mobilization and relief efforts during calamities, lengthened efforts are foreseen in formulating an industry-wide banking policy.
There is still a need for regulatory framework that will embed these safeguards as part of the normal process of credit and loan recommendation of the banking sector. In the meantime, prospective borrowers, perhaps with big-ticket items are given the free hand to scout for creditors with less-stringent requirements.
Thus, we encourage a concerted movement to ensure that financial institutions implement the ESG (Environment, Social, Governance) framework in its processes.
 
Benel D. Lagua is Executive Vice-President at the Development Bank of the Philippines. He is an active FINEX member and a long time advocate of risk-based lending for SMEs.