While challenges in financing climate mitigation persist, several banks are stepping up efforts to integrate environmental, social, and governance (ESG) into their risk management systems, a ranking official of the Bangko Sentral ng Pilipinas (BSP) said.

“More banks are now integrating ESG into their governance and their risk management systems,” BSP Assistant Governor Pia Bernadette Tayag told reporters on the sidelines of the Economic Journalists Association of the Philippines’ (EJAP) sustainability forum on Monday, March 23.

This comes as BSP-supervised lenders are expected to comply with a central bank rule issued in 2020, mandating all domestic banks to integrate sustainability principles into their governance, risk management, and strategic operations.

“So they’re also really building up their own capacity,” Tayag said.

Under BSP Circular No. 1085, banks are required to implement a customized environmental and social risk management system (ESRMS), which must address climate-related physical and transition risks. These should also be integrated into the bank’s stress testing and internal audit processes.

Tayag stressed the importance of climate change adaptation, noting that it is a lived reality, not a distant occurrence—demanding urgent collective attention from the banking industry and sectors that play a significant role in balancing economic growth with exposure to climate risks.

“Adaptation is what we need to make our economy, our firms, our households, and our individuals more resilient. We also want financing to go to sound adaptation activities that can reduce the risks of climate change,” Tayag said.

Meanwhile, Tayag said not all companies operating in the Philippines are ready to deliver high-quality, investor-grade, decision-useful data at present, noting that some large players have greater capacity while smaller entities still need to ramp up their efforts.

“There are first movers, and larger firms have greater capacity. We’re not yet at the point where we can say most companies are there,” Tayag said.

“That’s why the requirements of the Securities and Exchange Commission (SEC), which we are aligning with the adoption of the information security strategic plan (ISSP), include a roadmap that recognizes not all companies will immediately have the capacity to comply,” she added.

Banks were given three years from the issuance of the circular to transition to full compliance with sustainability integration. A key requirement is maintaining transparency by disclosing sustainability objectives, environmental and social risk exposures, and progress on initiatives in their annual reports.

Tayag noted that adaptation remains a significant challenge compared with climate mitigation, such as the shift to renewable energy (RE). She added that the Philippines is highly vulnerable to climate impacts even as it contributes little to global greenhouse gas (GHG) emissions.

Globally, most climate finance goes to mitigation, with less than 10 percent allocated to adaptation, Tayag said. To address this, the Philippines needs clearer policies and innovative financing to support adaptation, particularly in agriculture and food systems.