The independent Bangko Sentral ng Pilipinas (BSP) on Thursday, Dec. 22, launched its 11-point Sustainable Central Banking (SCB) Strategy, four years after issuing its first sustainability principles.
BSP Governor Felipe M. Medalla said the 11-point strategy is its own sustainability commitment that embodies and fulfills BSP’s role as “enabler, mobilizer and doer” in promoting sustainability in the financial system.
Medalla said the Philippines, even as it has “very small” greenhouse gas emissions compared to other countries, is one of the most affected by climate change. For one thing, climate change impacts the extreme weather disturbances in the Philippines, and this will in turn strike food supply which will lead to inflation because of large supply shocks resulting to second order effects, he explained.
“Clearly it will also affect how we regulate banks,” said the BSP chief during Thursday’s event. “Obviously, capitalization requirement should be commensurate enough to bear the risks. The risky you are the more capital you have to (build) up and clearly, climate change will increase the risks,” said Medalla.
He added that what the BSP is doing is both symbolic and basic, and he called on all sectors of society, not just the government, to work together to take a “long term review which is a sustainable way, and also in the long run (it is) the more efficient way.”
As such, the BSP’s price and financial stability mandate has some scope to adopt the SCB as its strategic thrusts “in view of the potentially significant impacts of climate and environmental risks on the prices of goods and services and on the safety and soundness of financial institutions.”
Meantime, BSP Deputy Governor Chuchi G. Fonacier said the BSP wants banks and financial institutions to be mindful of the environment and the pressing issues and threats of climate change to price and financial stability.
“Walking the talk, the BSP is also committed to serve as a role model for our regulated entities,” she said during the launch.
Basically, with the SCB strategy, Fonacier said the BSP “will foster environmentally responsible and sustainable policies and work practices, as well as integrate environmental, social, and governance, or ESG, principles in its key functions and operations.”
According to the newly-launched SCB website, part of the 11-point strategy is to increase awareness and capacity building activities, and issuance of enabling regulations. These include membership to regional or international groups of central banks and supervisors such as the Network for Greening the Financial System (NGFS), Sustainable Banking and Finance Network, Inclusive Green Finance Working Group of the Alliance for Financial Inclusion, Executives’ Meeting of East Asia-Pacific Central Banks Working Group on Banking Supervision (EMEAP-WGBS), and task force or working groups at the ASEAN level.
The BSP will also conduct various studies or preliminary insights on sustainable finance such as the “Impact of Extreme Weather Episodes on the Philippine Banking Sector using Branch-level Supervisory Data”, "Climate Change and Monetary Policy: Some Preliminary Thoughts" by the BSP, and the “Report on The Roles of ASEAN Central Banks in Managing Climate and Environment-related Risk”, a collaborative project of the ASEAN Central Banks.
In terms of BSP’s sustainability rules and regulations for all banks, it has already issued the first and second phase frameworks, while the third phase is still ongoing.
In the next months and years, the BSP will issue more regulations including the conduct of climate risk stress testing by banks, improvements to prudential reports for data collection and surveillance analysis, and the incentivation for the lending or financing of green or sustainable projects or activities.
The SCB roadmap and the 11-point strategy and related initiatives is aimed at mainstreaming green and sustainability principles and practices in BSP operations and across the financial system.
The BSP’s 11 SCB strategies are: to conduct a comprehensive vulnerability assessment of the economy and financial system, accounting for physical and transition risks and other environmental risks; it will enhance mandatory disclosures of climate-related financial risks by all banks, building on the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations; and it will issue guidance on mandatory climate stress testing for banks; explore the integration of E&S risk into prudential practices.
The strategies also include for BSP to: incorporate macroeconomic effects of climate change into monetary policy analysis; consider incentive schemes for the promotion of green lending by banks; include sustainability considerations in its portfolio management and risk management and sign the UN Principles for Responsible Investment (UN PRI); develop a task force for inclusive green finance; to include climate- related financial disclosures in its annual report; adopt sustainable practices for its own facilities and operations; and to roll out a capacity-building program for all staff in relevant areas.
The Philippines has committed to reduce its carbon emissions by 75 percent by 2030 under the UN Framework Convention on Climate Change. The BSP, with the Department of Finance, also co-chairs the Green Force which is responsible for the sustainable finance roadmap.