The Bangko Sentral ng Pilipinas (BSP) continues to make progress in sustainable finance as it releases the third phase of regulations aimed at fostering wider adoption of sustainability principles in the domestic financial system.
“The BSP recognizes the urgency of promoting the sustainability agenda. We are committed to helping our supervised financial institutions develop their capacity in sustainable finance. This enabling approach will accelerate mobilizing funds toward projects and activities to achieve our growth targets and, at the same time, reinforce the country’s resilience to natural disasters and climate change,” said BSP Governor Felipe M. Medalla.
The BSP is now on its third phase of sustainability-related regulations with the recent release of draft guidelines on the integration of sustainability principles in banks’ investment activities. The finalization of this policy proposal is targeted for August 2022.
The first and second phases were marked by issuances of the Sustainable Finance Framework in April 2020 and the Environmental and Social Risk Management Framework in October 2021, respectively. These 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.
To help banks understand the sustainable finance concepts and promote adoption of sustainable practices, the BSP is collaborating with industry associations, development partners, and other interest groups on the rollout of capacity-building activities for banks and other financial institutions.
The BSP also reports that transition plans submitted by banks over the past six months indicate that they are making good use of the three-year transition window provided by the Sustainable Finance Framework.
The BSP complements its sustainable finance policy map with efforts to strengthen surveillance and risk measurement models. In collaboration with the World Bank, the BSP is leading a stress testing exercise that will assess the potential impact of climate transition risk to the banking system.
The BSP will enhance its data collection tools to facilitate the assessment of climate- and other environment-related financial impact. It will also supplement existing regulations on stress testing with guidelines that integrate climate stress testing design.
Moreover, the BSP is looking into potential regulatory incentives to further mainstream sustainable finance. In relation to this, the BSP supports amendments to the Agriculture and Agrarian Reform (Agri-Agra) Law which consider engagement in sustainable finance as compliance with the mandatory agri-agra credit.
The BSP likewise notes the continued rise in banks’ issuance of sustainable bonds since 2017. Latest data show that sustainable bonds have reached USD1.3 billion for those issued in foreign currency, and P152.9 billion for peso-denominated sustainable bonds.
In line with its commitment to lead by example, the BSP will soon release its 11-point strategy to implement the Sustainable Central Banking Program. This will embody the BSP’s roles as enabler, mobilizer, and doer in championing sustainability in the financial system.