SEC, BSP carve pathways toward sustainable finance

Published June 1, 2021, 12:48 AM

by Manila Bulletin

Government regulators have been putting in place frameworks to encourage key sectors of the economy — such as publicly listed companies, banks and financial institutions — to contribute to the attainment of Sustainable Development Goals (SDGs).

As a member of the United Nations, the Philippines has declared its solidarity with concerted efforts to “end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind.” Mitigating climate change that has brought on destructive typhoons is addressed by adopting sustainability programs.

Starting in 2020, the Securities and Exchange Commission (SEC) has required all publicly listed companies (PLCs) to submit an annual sustainability report, following its issuance of Sustainability Reporting Guidelines in 2019.  The SEC Chairperson stated that “the responsibility of creating a sustainable environment is an obligation so basic that it precedes any kind of law.”

When the Bangko Sentral ng Pilipinas (BSP) issued Circular 1085 on a Sustainable Finance Framework in 2020, it acknowledged that “physical and transition risks arising from climate change could result in significant societal, economic and financial risks” and urged banks and financial institutions to promote “sustainable and resilient growth by enabling environmentally and socially responsible decisions.”

In the BSP framework, banks and financial institutions must adopt an environment and social (E&S) risk management system covering potential “financial, legal, and/or reputational negative effect of environmental and social issues” including environmental pollution, climate risk, biodiversity, and human health and safety hazards.

The BSP has participated in the green bond launched by the Bank of International Settlements (BIS) to encourage sustainable investing in reserve management. Thus far, the BSP has invested $350 million in the BIS open-ended fund as part of its efforts to diversify the country’s gross international reserves. It has also joined the Network for Greening and Financial System (NGFS) among central banks that support the attainment of a sustainable global economy.

The BSP is considering the possibility of including lending for green projects as compliance to the agri-agra requirements.  This would incentivize banks to accelerate the pace of their sustainability initiatives. At end-2019, 10.6 percent of the banking system’s loan portfolio was environment-related.  Banks had issued $1.8 billion in debt securities aligned with environmental and climate risk management imperatives as of the third quarter of 2020; moreover, domestic banks had also issued about P21.5 billion worth of social bonds.

Moving investments away from traditional carbon-heavy economic projects is key to achieving climate change mitigation, along with the shift from fossil fuels to renewal energy sources.  This is a tall order considering that coal accounts for almost half of the country’s energy mix and its total share would reach 53 percent by 2030 if and when all the proposed plants become operational.

Recent moves to promote large-scale sustainability augur well for the country’s future. Positive steps starting from filing annual sustainability reports, to channeling loans toward green projects, and eventually shifting to renewable energy sources require the exercise of strong political and corporate willpower.