The Bangko Sentral ng Pilipinas (BSP) is reminding all banks to implement adequate environmental and social risk management (ESRM) rules fit to how big their operations are and their risk profiles.
In a memo (Memorandum No. M-2022-042) that BSP Deputy Governor Chuchi G. Fonacier signed on Sept. 29, the BSP issued the guidelines for banks’ initial steps or approaches in their ESRM development.
“Consistent with the principle of proportionality, banks should adopt an ESRM System commensurate to their size, risk profile, and complexity of operations,” said Fonacier in the memo.
She said banks “may employ other approaches which are considered more feasible considering their business model, risk appetite, and operational capacity, provided that these are consistent with the BSP regulations and international standards.”
Banks are also encouraged to keep abreast with the local and global developments in the sustainability front and strengthen their awareness and capacity in response to the evolving climate and environmental and social or E&S risks.
The latest guidance on ESRM describes the BSP’s minimum expectations based on issued circulars and provides information and reference to publications of the Network for Greening the Financial System (NGFS) and the Basel Committee on Banking Supervision (BCBS), among others, to support the development of an ESRM System.
Meantime, Fonacier said the BSP “recognizes the ongoing efforts of banks to develop or enhance policies and strategies in line with the expectations” under Circular No. 1085 which the BSP issued last April 19, 2020 on the Sustainable Finance Framework.
Other issuances are Circular No. 1128 released on Oct. 26 2021 on the ESRM Framework and Circular No. 1149 issued on Aug. 23 this year covering the Guidelines on the Integration of Sustainability Principles in Investment Activities of Banks.
Last month, BSP Governor Felipe M. Medalla said he is hoping the number of banks with sustainable financing will increase after the release of Circular No. 1149 which are the rules on green investments.
Circular No. 1149 is the third phase of sustainable finance regulations. The guidelines cover banking book investments or debt and equity securities portfolios that are not being traded by the bank as part of its proprietary position.
Banks are expected to consider their sustainability objectives in their investment activities and ensure that such investment contributes to sectors considered to have beneficial impact to environment or society, said the BSP.
The first and second phases of regulations set out the expectations on the integration of sustainability principles in banks’ core strategies, governance, and risk management frameworks, especially in the areas of credit and operational risks. These rules also embed the principle of proportionality, which takes into consideration a bank’s size, risk profile, and complexity of operations.