By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) is preparing the policy framework for sustainable finance that would cover the integration, stress testing and risks for banks’ environmental and social governance (ESG).
“The BSP has come up with a proposed policy framework for sustainable finance, and we are currently in the process of consolidating and evaluating comments from industry players,” according to BSP Governor Benjamin E. Diokno.
In the recent Asian Banker forum, Diokno revealed the highlights of the proposed regulatory framework, which are as follows: Banks are expected to integrate ESG and sustainability principles in their strategic direction, as well as in their corporate governance and risk management frameworks; and banks will conduct scenario analysis and stress testing of its business exposures to assess their vulnerabilities over several ESG scenarios.
“Results will be taken into account in their capital planning and business strategies,” said Diokno.
The BSP chief also said that the proposed framework will require banks to disclose their sustainability agenda in their annual reports, including risk appetites in the ESG field.
“The policy framework will be embodied in a circular that we will issue soon — the first of a series of circulars on sustainable finance,” said Diokno.
The BSP chief said they know the “crucial role” that sustainable finance has in promoting investments that centers on “climate-resilient, green, and sustainable growth.”
“The BSP has a two-pronged approach to promoting sustainable finance: capacity building and awareness campaigns, and enabling regulations,” said Diokno.
He said BSP is part of the ASEAN Task Force on the Roles of Central Banks in Addressing Climate and Environment-Related Risks. “The task force will conduct a study on the roles of central banks in addressing climate and environment-related risk to monetary, financial, and broader macroeconomic stability,” said Diokno.
The BSP is also a member of the International Finance Corporation (IFC)-supported Sustainable Banking Network, he added. “The BSP, together with IFC, conducted a scoping research to better understand how to best embed environmental and social risk management as well as sustainable finance principles in the business decisions of financial institutions,” said Diokno.