The Bangko Sentral ng Pilipinas (BSP) invested an additional $200 million in green bonds, bringing to $350 million the total so far, and this is now part of the country’s $98 billion gross international reserves (GIR).
BSP Governor Benjamin E. Diokno said the investment in the Bank for International Settlements (BIS) open-ended fund will enhance the BSP’s environmental sustainability objectives and will promote green finance. It is also part of the GIR diversification.
“Investing in green bonds provides diversification benefits,” he said. Besides supporting the greening of the financial system, the BIS green bonds offer adequate returns compared to other fixed-income assets, as part of reserve assets portfolio.
“The reason for the additional allocation was the growing significance of sustainability assets in the investment landscape,” said Diokno during his regular virtual “GBED Talks” on Thursday.
“Green bonds offer institutional investors with the means of accessing sustainable investments in the fixed-income market while providing greater transparency on how the funds are used by the issuer,” he added.
Diokno also said that the BSP “continues to monitor and assess the developments in the financial markets and the ESG (Environmental, Social, and Corporate Governance) landscape of future investment opportunities.”
The initial investment of $150 million in the BIS-managed green bonds which is an investment pool facility, was made in September last year, and the second $200 million was transacted earlier in 2020, said Diokno.
Diokno said the BSP’s “Sustainable Central Banking” for 2020-2023, will focus on environmentally responsible and sustainable policies and practices in the workplace. It will improve the BSP’s climate and environmental risk management, assess the vulnerability of BSP offices and operations to such risks, and develop a “Sustainable Central Banking Roadmap.”
In the meantime, Diokno said the BSP is “working closely” with the banking community which were given three years to comply with BSP’s Sustainable Finance Framework, approved this year, to promote green practices. “The impact of COVID-19 certainly provides impetus for crafting a sustainable recovery plan. Thus, the BSP and the banking industry are working together to advance the sustainability agenda in the financial sector,” he said.
So far, some banks have issued about $1.795 billion worth of green or sustainability bonds and social bonds amounting to P21.5 billion.
“Based on the sustainability/allocation reports of selected banks, around 10.6 percent of the total loan portfolio of the banking system at end-2019 were disbursed in loans to finance green and social projects,” noted Diokno.
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. Based on a BSP circular (Circular No. 1085 “Sustainable Finance Framework”) 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.