THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to release this June guidelines incorporating environmental, social, and governance (ESG) finance in banks’ operations.

“They should already incorporate the assessment or impact where some environmental risks would materialize. It would be applicable to all banks, but we are cognizant of the business model. It will largely dependent on the business model and the complexity of size of the operations,” BSP Deputy Governor Chuchi G. Fonacier told reporters in Makati on Tuesday.

“We’re trying to finalize it within May for exposure to the industry…and hopefully by June we can already have it,” Ms. Fonacier said.

Ms. Fonacier said that the guidelines will come out as a circular, but will not be specific rules, as there is no “one-size-fits-all” ESG model for the banks.

“One-size-fits-all is not the approach… High level principles lang siya. Hindi siya sobrang detalyado (It will only contain high level principles. It won’t be very detailed),” Ms. Fonacier said.

In her speech, Ms. Fonacier said the earthquakes that hit the country last week should serve as a wake up call to develop sustainable finance.

“We should prepare for threats or risks that may happen any time especially those that have prolonged significant impact such as those resulting from environmental degradation, climate change or social risks,” Ms. Fonacier said.

She noted that a mandatory approach to sustainable finance may result in short-lived success and even derail progress in embedding ESG in the finance industry as some banks may choose to simply pay penalties “rather than get exposed to uncertain risks” — which is a challenge the BSP is already facing in its mandated lending programs.

“Thus, the BSP believes that the best regulatory approach remains to be one that is “enabling.” An enabling regulatory environment provides high level principles rather than mandatory requirements and considers the business model as well as the size, structure, and complexity of operations of a bank in defining expectations on sustainable finance,” Ms. Fonacier said.

The official said the BSP’s existing regulations on corporate and risk governance will serve as a foundation for its ESG guidelines.

“The proposed policy expects banks to conduct scenario analysis to assess their vulnerabilities over several ESG scenarios and incorporate such results in their capital planning exercises. Banks shall be given flexibility with respect to managing environmental and social risk. We are looking at initially adopting a “comply or explain” approach as we transition to higher expectations in this respect,” she explained. — RJNI