The Monetary Board approved the Guidelines on the Integration of Sustainability Principles in Investment Activities of Banks. This is the third set of regulations issued by the Bangko Sentral ng Pilipinas (BSP) aimed at promoting the sustainability agenda in the financial system.
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.
“This regulatory issuance will cover the investment process, which is another significant area of banking operations that will complement the earlier issued Circular of the BSP covering the lending operations of banks. We expect that the Circular will further facilitate financing to sectors aligned with the sustainability agenda,” BSP Governor Felipe M. Medalla said.
In line with this, banks should adopt policies implementing the sustainability objectives of investment activities. The guidelines provide sample approaches such as exclusionary screening or best-in-class selection and allow banks to adopt other practices considering their sustainability objectives and investment policy.
Under the Circular, banks are expected to assess if the investment and the issuing company are exposed to material environmental and social (E&S) risks, and to analyze potential exit strategies if the said investment is found to have high E&S risks. The banks’ due diligence review may be supplemented with the use of results of assessment of external review providers. It also refers banks to the guidelines of the Securities and Exchange Commission governing the issuance of green, social, and sustainability bonds.
The Bangko Sentral earlier issued Circular Nos. 1085 and 1128 on the Sustainable Finance Framework (April 2020) and the Environmental and Social Risk Management Framework (October 2021), respectively. The frameworks provide banks a three-year transition period from May 2020 to incorporate sustainability principles in their strategic objectives, corporate governance. and risk management system.