BSP issues guidelines on sustainable finance framework

MANILA, Philippines — Philippine banks and financial institutions are now required to incorporate environmental, social and governance (ESG) and sustainability principles into their corporate strategy, risk management and bank operations framework, according to the Bangko Sentral ng Pilipinas (BSP).

BSP Governor Benjamin Diokno said the Monetary Board has approved the sustainable finance policy framework requiring the integration of sustainability principles including those covering environmental and social risk areas in the corporate governance and risk management frameworks.

“The BSP is cognizant that climate change and other environmental and social risks could pose financial stability concerns considering their significant and protracted implications on the bank’s operations and financial interests,” Diokno said.

The BSP chief said physical and transition risks arising from climate change could result in significant societal, economic and financial risks affecting banks and their stakeholders.

According to the BSP, it recognizes the critical role of the financial industry in pursuing sustainable and resilient growth by enabling environmentally and social responsible business decisions consistent with the aspirations set out for the Filipinos under the Philippine Development Plan.

Diokno said banks have three years to fully comply with the provisions of the sustainable finance framework and should submit transition plans approved by their respective board of directors within six months.

“Banks shall adopt a transition plan with specific timelines to implement the board-approved strategies and policies integrating sustainability principles into their corporate governance and risk management frameworks as well as in their strategic objectives and operations,” Diokno added.

Sustainable finance including green financing to facilitate the flow of funds to green economic activities and climate change mitigation refer to any form of financial product or service integrating environment, social, and governance criteria into business decisions.

Environmental and social issues include environmental pollution; climate risk; hazards to human health, safety and security; and threats to community; and biodiversity and cultural heritage.

Under the guidelines, Diokno said the board of directors and senior management of banks are required to promote long-term financial interest and ensure that it has beneficial influence on the economy through the adoption of sustainability principles, issuing environmental and social risk management systems, and ensure that adequate resources are available to attain sustainability objectives.

In a forum held last year, Bankers Association of the Philippines president Cezar Consing said banks are ready to comply with sustainable financing guidelines.

Consing, who is also president and chief executive officer of Ayala-led Bank of the Philippine Islands (BPI), said Philippine banks are bent on catching up, despite being behind their ASEAN peers in integrating ESG and sustainability.

The BAP has been promoting ESG through dialogue with advocacy groups and capacity-building entities since 2017 because of the importance of being able to seize the opportunities and understand the costs that come with sustainable development.

Recent private sector green bond issuances include the $225 million from AC Energy, $225 million by Yuchengco-led Rizal Commercial Banking Corp. as well as 100 million Swiss francs and $300 million by BPI.