THE central bank will unveil the second-phase regulation for sustainable financing, which will take into account climate change risk in the assessment of credit and operational risk management of the banking industry.

“This issuance will provide granular expectations on the integration of climate change and other environmental and social risks in banks’ credit and operational risk management frameworks,” Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said at the Investment Forum on Energy Transition held on May 20.

The upcoming regulation is anchored on expectations for banks to gear towards sustainability principles through pushing for strategic, concrete, and progressive actions to address climate change.

“The framework safeguards the stability of the financial system against potentially significant and protracted impact of climate change and other environment related risks,” Mr. Diokno said.

In April last year, the central bank launched its sustainable finance framework and gave banks a three-year transition period to adopt its provisions.

The regulation includes directing banks to adopt sustainability principles through environmental and social risk management systems as well as environmental, social and governance (ESG) considerations in their governance frameworks, risk management systems, strategies and operations.

Part of the sustainability drive is launching instruments to boost financing for sectors affected by the crisis such as micro-, small- and medium-sized enterprises (MSMEs), health, education and food security.

The central bank governor stressed that reducing greenhouse gas concentrations by shifting from fossil fuels to renewable sources is crucial to the climate change mitigation goal.

“We should note, however, that a successful transition is not just a matter of isolated changes in the energy sector. We must also consider the potential risks associated with this transition given the interplay among economic activities,” he said. — Luz Wendy T. Noble