Empowering sustainable financing in the Philippines
Due to extreme weather events and other catastrophic global events that climate change has brought, the impact of climate change has caused the government, industries, and individuals to act upon the worsening situation, especially when it is hindering developmental goals.
Banks and the financial sector hold a powerful role in terms of promoting sustainable policies and practices, and for them to do their share in mitigating climate change, they have to make sure that the financial system is resilient against climate risks. Finance is one of the key facilitators for quicker climate action, thus, funding for climate actions is crucial for the country to achieve its climate goals.
In response, the Bangko Sentral ng Pilipinas (BSP) plans to emphasize the importance of sustainable and green financing in the Philippines. To strengthen BSP and its commitment to its sustainability agenda, they intend in incorporating environmental, social, and corporate governance (ESG) and other policies and regulations within the banking system in the country.
“To bridge financing gaps, the BSP is promoting an environment that enables financial institutions to fulfill their critical role of mobilizing funds toward the transition to a low-carbon, climate-resilient, and sustainable economy,” BSP Former Governor Felipe M. Medalla was quoted in a foreword of the central bank’s first sustainability report released earlier in July.
“As part of whole-of-society efforts, the BSP will ensure the promotion of an enabling environment for sustainable finance by forging closer ties and collaboration with key stakeholder groups in the public and private sectors. This will support the achievement of the sustainability objectives, including the promotion of inclusive green finance,” Mr. Medalla added.
According to BSP’s Sustainability Report 2022, to facilitate sustainable financing in the country, the central bank has launched many initiatives and programs to support its sustainability agenda. To start off, BSP established its own Sustainable Central Banking Program (SCB), which is part of BSP’s 2022-2023 Strategy, where it will help banks in managing climate-related risks and help provide financing to eco-friendly economic activities.
“The SCB Program aims to foster environmentally responsible and sustainable policies and work practices as well as integrate ESG aspects in the BSP’s key functions and operations through the roll-out of various initiatives,” the report says.
Last December 2022, BSP unveiled its 11-point sustainable central bank strategy, to further embrace its sustainability agenda within the country’s financial system as an enabler, mobilizer, and doer. According to the report, in order to incorporate these green and sustainability practices into financial operations, BSP plans to implement it’s the said strategy over the course of the next two to three years.
Moreover, the 11-point strategy is implemented through three phases, namely “Increasing awareness and understanding of sustainable practices within the financial sector,” “Conducting vulnerability and self-assessment exercises to determine areas where ESG-related standards and policies can be implemented,” and “Holding expert meetings with relevant BSP departments.”
BSP’s report also noted that the BSP is also taking part in the Inter-Agency Technical Working Group for Sustainable Finance, also known as the Green Force, which has been tasked with identifying sustainable investments and projects, mobilizing financing sources, reviewing and developing policies for sustainable financing, and coordinating related projects across government agencies.
In 2021, the Green Force established the Sustainable Finance Roadmap, which offers high-level plans for the growth of sustainable financing in the Philippines; and the Sustainable Finance Guiding Principles, which were developed to educate stakeholders, highlighting the different sustainable economic activities in the country.
“The BSP aims to be an internationally recognized central bank that advocates green and sustainable policies and practices. The 11-point SCB Strategy also recognizes the different levels of engagement of the BSP—as a central monetary authority, as a financial sector supervisor, and as an institution that is part of the government system. Leveraging from these engagements, the BSP aims to contribute to the development of the green or sustainable finance market in the country,” the report says.
The report also added that for this year onwards, the BSP will focus on completing the 11 action points and related initiatives under the SCB Strategy, including the implementation of the earlier issued sustainability-related guidelines.
One of these is completing the conduct of climate stress testing in collaboration with the World Bank (WB), which the central bank said may be expanded to cover other environment-related exposures such as biodiversity loss.
“Building on this exercise, the BSP will provide detailed guidelines for banks in conducting the same using their own data,” the report added.
Another move noted is the reviewing of the single borrower’s limit (SBL) regulations to promote lending to social and green projects under the Sustainable Finance Framework of the national government, among others.
More recently, the central bank is proposing an increase single borrower’s limit (SBL) of 15% for loans and 0% reserve requirement rate for sustainable bonds. This effort is to entice other banks in supporting sustainable initiatives in the sector.
“This measure aims to support the financing of green and sustainable projects, including transition activities that contribute to the achievement of the national government’s climate commitments and sustainable development goals as laid down in the Philippine Development Plan and Nationally Determined Contributions,” the BSP said in the draft circular on the proposed rule.
Recognizing the importance of a taxonomy in facilitating further inflows of investments toward green or sustainable projects, the BSP is also working with the Securities and Exchange Commission and the Insurance Commission to develop the sustainable finance taxonomy guidelines, with the support of the WB.
“The development follows an iterative process focusing initially on climate change mitigation and adaptation. The taxonomy will later cover other environmental and social aspects,” the report added.
BSP’s current governor, Eli M. Remolona, noted the continuation of a development of a taxonomy in line with the central bank’s commitment to achieving sustainable outcomes.
“What we’re trying to do is work with climate scientists to develop a taxonomy of bank assets related to climate change,” was quoted as saying in a BusinessWorld report last July 14. — Angela Kiara S. Brillantes
