BSP tells banks: Climate-proof the financial system

Published December 6, 2021, 5:03 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) is currently reviewing investments to assist banks to climate-proof the financial system and to issue more green, social and sustainability bonds.

BSP Governor Benjamin E. Diokno

BSP Governor Benjamin E. Diokno said on Monday, Dec. 6, that the central bank is reviewing its “investment strategy to consider strategic allocation of investments toward those that espouse environmental, social, and governance principles.”

Diokno also renewed his call for banks to climate-proof, fund and invest for the post-pandemic recovery of micro, small and medium enterprises and the agriculture sector.

“Climate-proofing the financial system provides growth opportunities for banks (and several banks) have already started participating in the growing green, social, and sustainability bond market,” Diokno said in a forum.

The BSP has $550 million investments in the Green Bond Fund managed by the Bank for International Settlements. So far, some $1.15 billion and P84.5 billion worth of foreign and local currency denominated bonds have been issued by local banks for “greening” projects.

To further enhance the regulatory environment, the BSP issued the Sustainable Finance Framework (SFF) and Environmental and Social Risk Management Framework (ESRMF), setting the essential groundwork for succeeding BSP policy issuances in sustainable finance.

The SFF, released in 2020, highlights overarching principles of integrating sustainability and environmental, social, and governance considerations in banks’ corporate and risk governance frameworks, business strategies and operations.

The ESRMF which was released in October this year, in the meantime, are detailed supervisory expectations on the management of environmental and social risks in the context of credit and operational risks.

Diokno has said that the BSP may increase its exposure to green bond investments to $1 billion by 2023.

The current $550-million worth of green bondsn is part of the BSP gross international reserves.

The BSP conducts regular strategic asset allocation (SAA) exercises to scout for possible foreign investments. The SAA is determined and approved by the Monetary Board in line with BSP’s risk tolerance.

The BSP first allotted $150 million as investments in the Green Bond Fund in October 2019. The fund is administered by the Bank for International Settlements or BIS. In 2020, it invested $200 million more and another $200 million in March this year, for a total of $550 million.

The BSP invests in the BIS open-ended fund as this enhances the BSP’s environmental sustainability objectives. It also helps promote green finance in the Philippines.