The country’s big banks have so far issued $2.78 billion worth of green, social and sustainability bonds, broken down as $1 billion sustainability bonds and P84.5 billion ($1.78 billion) peso-denominated green bonds.
These green bonds were issued by so-called “first mover” banks since 2017, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. This is to encourage green finance for the country’s sustainable infrastructures.
“We expect more banks to follow suit as enabling regulations had been laid down complemented by continued capacity building activities for the industry,” he said during a recent COP26 Climate Change Defenders Roundtable Discussion.
Diokno said banks are crucial in mobilizing funds to finance green and sustainable projects – “and at the same time, in safeguarding financial stability from shocks coming from climate and other environment-related factors.”
To encourage the “greening” of banks, the BSP has the Sustainable Finance Framework which it issued last April 2020 (Circular No. 1085). It works well with the Securities and Exchange Commission’s guidelines for Green, Social or Sustainability Bonds, said Diokno.
“The BSP has strengthened governance standards on treasury activities and streamlined processes to allow for more bond issuances of BSP supervised financial institutions and to contribute to the accelerated growth of the capital markets,” he said.
The BSP has likewise adopted the Sustainable Central Banking Program and has an ongoing vulnerability assessment on the impact of climate change to BSP offices and branches. It is currently conducting a gap analysis to cover key BSP functions or operations such as monetary policy, supervision, reserve management, and currency production, said Diokno. A snapshot of this study will be released in the third quarter this year.
The BSP is implementing a three-year transitory provision to give banks enough time to comply with the sustainable finance rules and expectations. It expects banks to adopt a transition plan with specific timelines to implement strategies and policies approved by their board of directors.
Diokno said the BSP has started to closely monitor banks’ sustainable finance transitioning. The new guidelines on sustainable banking will be fully implemented in 2023.
Diokno said banks should be able to identify and implement specific actions to comply with its policies on the integration of sustainability principles into their strategic objectives, corporate governance, risk management systems, and operations.
In a report last May, Moody’s Investors Service said Philippine banks are one of the more vulnerable sectors to physical climate risks in the region because of the country’s “weak” infrastructure. Local banks also face asset risks from large exposures to sectors susceptible to carbon transition risks, said Moody’s.
The BSP said climate change and other environmental and social (E&S) risks have an effect on financial stability such as on a bank’s operation and financial interest. Risks including physical (floods, typhoons, earthquakes) and transition risks due to climate change could result in significant societal, economic and financial risks affecting the banks and their stakeholders.
At the moment, the BSP is proposing other rules for banks’ integration of climate change and E&S rules. The proposed guidelines seek to ensure the integration of sustainability principles in the risk management system to E&S objectives covering short, medium, and long term horizons related to the management of specific risk areas.