As part of climate change initiatives and to push for sustainable finance, the Bangko Sentral ng Pilipinas (BSP) has joined the Network for Greening the Financial System (NGFS) which is a group of 69 central banks and supervisors dedicated to enhancing the financial sector’s global response to all risks to the environment.
BSP Governor Benjamin E. Diokno said the Philippines, mostly hit with cyclones, and other natural disasters such as volcano eruptions and earthquakes, could help other nations in the response mechanism as a disaster-prone country.
“The Philippines has a lot to share with respect to our country’s experience in coping with calamities and natural disasters,” he said.
Diokno also said that as a member of NGFS, this will “strengthen BSP’s collaboration with counterpart regulators in building awareness and contributing to the effective management and mitigation of the impact of climate and other environment-related risks in the financial sector.”
In the middle of COVID-19 and community lockdowns, the BSP issued Circular No. 1085 or the Sustainable Finance Framework which covers sustainability principles on environmental and social risk areas, corporate governance and risk management. The circular will apply to all banks while branches of foreign banks may adopt their parent banks or companies’ sustainable finance policies but it should be consistent with that of the BSP’s policy.
Based on the circular that Diokno signed on April 29, climate change and other environmental and social risks may have an effect on financial stability such as on a bank’s operation and financial interest, and this new policy will address that. Risks include floods, typhoons, and earthquakes, and transition risks due to climate change. All these will have economic, financial and societal impact on banks.
Under the new circular, banks are expected to “embed sustainability principles, including those covering environmental and social risk areas, in their corporate governance framework, risk management systems, and strategic objectives consistent with their size, risk profile and complexity of operations.”
A three-year transitory provision is included in the circular to give banks enough time to comply with the sustainable finance rules and expectations. However, a transition plan should be submitted to the central bank before the November or December 2020 deadline, or six months from the effectivity of the circular.
Sustainable finance, as defined by the BSP, is “any form of financial product or service which integrates environmental, social and governance criteria into business decisions that supports economic growth and provides lasting benefit for both clients and society while reducing pressures on the environment.” This covers green finance which funds green economic activities and climate change mitigation and adaptation projects, said the BSP.
The BSP itself has began investing in the greening of the financial sector by putting in $150 million initially in the Bank for International Settlements-managed open-funded Green Bonds in 2019.
“The BSP has been actively involved in building awareness and highlighting the shared accountability of regulators and financial institutions in pursuing the sustainable finance agenda in the industry,” the BSP said in a statement Tuesday.
“As a recognized champion in this field, the BSP has adopted Sustainable Central Banking as one of its strategic objectives. In this regard, it commits to embed sustainability principles in key areas of BSP’s operations to the greatest extent possible,” said the BSP.
The BSP has said that climate change is “inevitable” and the financial sector “has a significant role to play in pursuing sustainable and inclusive growth in the global economy, the environment, and society.”