Sustainable finance crucial as climate crisis worsens, BSP says

THE BANGKO SENTRAL ng Pilipinas (BSP) stressed the need to boost sustainable financing amid growing concerns on the impact of climate change on banks’ operations. 

“What this means is that the climate crisis is not an event that will happen in the distant future. It is right here, right now. That’s how crucial sustainable finance is,” BSP Governor Benjamin E. Diokno said at a briefing on Thursday.

He cited recent massive floods in the Philippines, Germany, Japan, China, the United States, as well as the forest fires experienced in the US, Canada, parts of Europe and Russia.

The central bank invested another $200 million into the green bond fund of the Bank for International Settlements “earlier this year”, bringing the BSP’s green bond investments to $550 million, he said.

With its commitment as a member of the Network for Greening the Financial System, the BSP will continue to seek opportunities to increase its green bond holdings to promote sustainable financing, he added.

“There is no explicit target levels or proportion for the bank’s exposure to green investments. As of June 2020, the BSP’s exposure to green bond investments is below 1% of its gross international reserves,” Mr. Diokno said.

In April 2020, the BSP released its sustainable finance framework which directed banks to adopt sustainability principles through environmental and social risk management systems as well as in their governance frameworks, strategies and operations. Banks were given a three-year transition period for its adoption.

BSP Managing Director for Policy and Specialized Supervision Lyn I. Javier said the framework reminds banks of the financial losses they could incur due to climate change-related factors.

“It’s like managing any ordinary risk that they have. For instance, the frequent and more serious typhoons that we are experiencing could affect their credit and operational risks,” Ms. Javier said.

“We will evaluate the effectiveness of their risk management systems and their capacity to identify the impact of climate change on our financial position or their balance sheets and see whether we need to impose additional capital considering this factor,” she added.

“The framework provides opportunities for banks to design sustainable finance instruments in order to mobilize funds towards green or sustainable projects,” Mr. Diokno said.

“To further take advantage of this market opportunity, banks can innovate and offer other sustainable finance instruments like green deposits, green and social loans, and sustainability-linked bonds,” he added.

Moving forward, Mr. Diokno said they are eyeing granting incentives to banks to accelerate the process of adopting sustainable principles.

He said the BSP, with the help of the World Wide Fund for Nature Philippines and the World Bank, will conduct vulnerability assessments and stress testing exercises to build on the existing risk management systems of banks in relation to climate change. — L.W.T. Noble