BSP invests $550 million in sustainable bonds

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) raised its investments in sustainable and green bond funds to $550 million as it continues to ramp up sustainable finance framework by encouraging banks to issue more green, social, and sustainability bonds.

In his weekly virtual press conference, BSP Governor Benjamin Diokno said the central bank invested another $200 million in green bonds through the green bond fund for central banks of the Bank for International Settlements (BIS) earlier this year.

“So this brings the total investments of green bonds to $550 million,” Diokno said.

The BSP invested an additional $200 million in green bonds early last year to augment its first $150 million investment made in October 2019.

As of end-June last year, BSP’s investments in green bonds is below one percent of the country’s gross international reserves (GIR) level.

The BSP chief explained the central bank regularly conducts strategic asset allocation exercises.

“There is no explicit target level or proportion for the bank’s exposure to green investments,” Diokno said.

As a member of the Network for Greening the Financial System (NGFS), Diokno said the central bank would continue to look for opportunities to increase its green bond holdings in the future to promote green finance and enhance its environmental sustainability objectives.

During the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) last July 14, Diokno said the BSP and other central bank members agreed to promote investment in green bonds though the Asian Bond Fund (ABF).

“This is aimed at helping catalyze the further deepening of the local currency denominated green bonds in the region,” he said.

As of end-June this year, the total ASEAN-labeled green, social, and sustainability bonds issued amounted to $12.07 billion.

Of the total amount, Diokno said Philippine companies accounted for 35 percent or $4.28 billion.

The BSP chief pointed out the regulator’s Sustainable Finance Framework promotes the stability of individual financial institutions and the entire financial system through the effective management of climate and other environment-related risks.

It provides opportunities for banks to design sustainable finance instruments to mobilize funds towards green or sustainable projects.

“Sustainable finance creates a positive disruption into how financial markets work as it incorporates the environmental, social and governance (ESG) lens when investors assess the value, performance, and long-term growth of an asset. This supports the financial system’s ability to fund productive activities in the new and low-carbon economy,” Diokno said.

The regulator has taken a phased approach in implementing sustainability or ESG-related guidelines, first phase of which is the release of the framework in April last year providing broad expectations on the integration of sustainability principles in the corporate governance, risk management systems, business strategies and operations of banks.

The BSP is now evaluating comments on the draft circular for the second phase that focuses on specific expectations on the integration of climate change and environmental and social risks in the credit and operational risk management frameworks of banks.

For the third phase, Diokno said the BSP would study the grant of potential regulatory incentives to banks to accelerate the adoption of sustainable principles.

In the draft bills amending the Republic Act 10000 or the Agri-Agra Law of 2009, Diokno said the BSP has proposed the inclusion of sustainable finance, including lending to green projects as among allowable modes of compliance with the mandatory credit to the agri-agra sector.

Aside from the incentives, BSP assistant governor Lyn Javier said the Sustainable Finance Framework helps BSP supervised financial institutions to understand that possible financial losses.

“It’s like managing any other ordinary risks that they have. For instance, the frequent and more severe typhoons that we’re experiencing could affect their credit and operational risk,” Javier said.