Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they will soon issue the next tranche of the Sustainable Finance Framework, the second-phase regulation to encourage green banking in the country.
“We are set to release the second issuance on the Sustainable Finance Framework, which aims to provide granular expectations in managing environmental and social risks in relation to credit and operational risk areas,” said Diokno during the Philippine Sustainable Finance Roadmap and Guiding Principles Launch Event and Donors’ Forum on Wednesday, Oct. 20. The event was organized by the British Embassy Manila in partnership with the Green Force which is the inter-agency technical working group on sustainable finance.
Diokno said the BSP is also completing various initiatives under the Sustainable Central Banking Program to “embed sustainability principles in the BSP’s operations and functions.”
“While multiple efforts are underway to rethink and reset banking strategies to meet the expectations under the framework, there is an undeniable need for a clear and strategic direction from the government side,” he said in the forum.
Diokno reiterated that the framework as guidepost will open up various opportunities for green banking and to smoothen the industry’s transitioning to a low-carbon economy.
“(This will) accelerate the mobilization and reallocation of capital towards green and sustainable activities,” he said, as well as guidance for banks’ climate and environmental and social risk management.
Diokno said the BSP is focused on harmonizing future policy initiatives as well as regulatory interventions and business strategies for a “genuinely sustainable and low-carbon transition.”
“Sustainability, as a principle, is embedded in the charter of the BSP. We are committed to remain responsive and proactive in our stance towards these risks to maintain price and financial stability,” said Diokno in a separate statement, also on Oct. 20.
The BSP is a member of the Network for Greening the Financial System since July last year. So far, the BSP has invested $550 million in green bonds which is part of the country’s gross international reserves.
The BSP said banks and financial institutions have some ways to go to understand and manage climate change and Environmental, Social, and Governance (ESG) risks to “fully maximize opportunities behind lending or investing in green or sustainable projects.”
“As we advance sustainability initiatives and continue to collaborate with relevant government agencies and other multilateral development partners, we hope that the sustainability agenda will have a big leap for the next five years,” said Diokno.
The BSP has started to closely monitor banks’ sustainable finance transitioning. They have until 2023 to transition when the new guidelines on sustainable banking will be fully implemented.
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.
BSP’s Circular No. 1085 on Sustainable Finance Framework, which it issued April 2020 require banks to establish an environmental and social risk (E&S) management system and to include sustainability initiatives in their annual reports.
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,” said Diokno.