BSP okays changes to 'green' banking framework

The Bangko Sentral ng Pilipinas (BSP) has made some revisions to its “green” banking guidelines and issued a circular on the Environmental and Social (E&S) Risk Management Framework on bank directors and senior management roles in advocating sustainability in the financial system.

BSP Circular No. 1128, signed by BSP Governor Benjamin E. Diokno on Oct. 26, amended Section 153 of the Sustainable Finance Framework on the duties and responsibilities of a bank’s board of directors and senior management. The changes were specifically related to E&S objectives, risk appetites and sustainability principles.

BSP Governor Benjamin E. Diokno

The approved guidelines will “govern the integration of E&S risks in the enterprise-wide risk management frameworks of banks,” according to Diokno in the circular memo.

The new circular also contained the guidelines set out for directors and senior management relating to the Environment and Social Risk Management System which includes the following: banks’ credit risk management system; credit risk strategy; credit risk identification and assessment; and risk measurement, monitoring, reporting and control.

The BSP also set out the rules on how banks will handle E&S operational risk management system, and risk control and mitigation.

The next tranche of the Sustainable Finance Framework aims to provide granular expectations in managing E&S in relation to credit and operational risk areas.

Last week, in various events tackling sustainability and “green” banking, Diokno reiterated that the framework as guidepost will open up various opportunities for responsible banking that are well-prepared for climate change, and to smoothen the industry’s transitioning to a low-carbon economy.

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.”

The BSP is implementing a three-year transitory provision or until 2023 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.

The BSP has started to closely monitor banks’ sustainable finance transitioning since 2020.

BSP’s Circular No. 1085 on Sustainable Finance Framework, which it issued April 2020 require banks to establish E&S risk management system and to include sustainability initiatives in their annual reports.