To mobilize more capital for “green” projects, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they are considering several regulatory perks to banks that will shift to sustainable financing.
“We are now looking at the potential use of preferential rediscount rates or provision of higher loan values to enable banks to extend green loans or finance sustainable investments,” said Diokno during the Asian Financial Forum (AFF) for “Navigating the Next Normal towards a Sustainable Future”.
These perks should increase the share of green financing in banks’ loan portfolios. “The BSP is carefully evaluating these potential incentives so as not to create any unintended consequences,” he also said. “Nevertheless, we have initially proposed the inclusion of sustainable finance as a form of compliance with the mandatory credit to the agriculture sector,” added Diokno.
The BSP’s exploration of incentives to mobilize capital is part of the third phase of tits Sustainable Finance Framework. The first phase was issued in April 2020 and second phase was released in October last year.
The sustainability framework detailed the BSP’s expectations for banks to incorporate sustainability principles in their operations while the E&S showed banks’ environmental and social objectives.
A workable incentives package is part of the third phase of sustainability or ESG-related guidelines while the second phase will focus on specific expectations on the integration of climate change and environmental and social risks in the credit and operational risk management frameworks of banks.
Diokno said that under this framework, “we expect banks to progressively increase their loan allocations for green or sustainable projects as part of their set strategic environmental and social objectives.”
Diokno has been calling for more strategy in integrating sustainability into the operations of financial institutions this year.
He said the financial system in 2022 needs to have a better response to the climate crisis after the Philippines committed to reduce its carbon emissions by 75 percent by 2030 under the UN Framework Convention on Climate Change.
Last year, the BSP issued its “Environmental and Social Risk Management Framework” policies to direct the flow of capital toward green and sustainable projects.
Diokno said that there is a strong momentum in the issuance of such bonds both at the local and regional markets.
Since 2017, seven banks have issued $1.15 billion in foreign currency denominated and P85.4 billion in local currency denominated green, social and sustainability bonds.
Diokno said that amid the pandemic, two banks have issued social bonds worth approximately P29 billion to finance the needs of eligible micro, small and medium enterprises.
At the regional level, he said that sustainable bond markets in ASEAN+3 continued to expand to $389 billion as of September 2021. Some $278.5 billion worth of green bonds dominate the ASEAN+3 sustainable bond market while social and sustainability bonds amounted to $110.2 billion
The BSP, with the Department of Finance, co-chairs the inter-agency “Green Force” which is responsible for the Philippine Sustainable Finance Roadmap “to bridge policy and regulatory gaps in promoting sustainable investments.”
The government is working with other multilateral development agencies such as the Asian Development Bank, the World Bank's International Finance Corp., and the United Nations Development Program, to direct the flow of funds to sustainable projects.