Sustainable central banking...

Climate risk stress test

In the next months and years, the BSP will issue more regulations including the conduct of climate risk stress testing by banks, improvements to prudential reports for data collection and surveillance analysis, and to incentivize the lending or financing of green or sustainable projects or activities.

The SCB roadmap and the 11-point strategy and related initiatives are aimed at mainstreaming green and sustainability principles and practices in BSP operations and across the financial system.

The Philippines has committed to reduce its carbon emissions by 75 percent by 2030 under the UN Framework Convention on Climate Change. The BSP, with the Department of Finance, also co-chairs the Green Force which is responsible for the sustainable finance roadmap.

BSP Deputy Governor Chuchi G. Fonacier said the country’s transition to a sustainable and low-carbon economy is a collective responsibility. “Let us strive to make sustainability principles the norm rather than the exception,” she said.

“Besides being sound and stable, our desire is to have banks and financial institutions that are mindful of the environment and the pressing issues and threats of climate change to price and financial stability. Walking the talk, the BSP is also committed to serve as a role model for our regulated entities,” said Fonacier.

Under the SCB strategy, the BSP will foster a policy environment conducive to the adoption and growth of sustainable finance. It also commits to adhere to the same standards set for supervised financial institutions in managing risks and in making environmentally and socially responsible investment decisions.

Banks are also encouraged to keep abreast with the local and global developments in the sustainability front and strengthen their awareness and capacity in response to the evolving climate and E&S risks.

The latest guidance on Environmental and Social Risk Management or ESRM describes the BSP’s minimum expectations based on issued circulars and provides information and reference to publications of the NGFS and the Basel Committee on Banking Supervision (BCBS), among others, to support the development of an ESRM System.

Fonacier said earlier that the BSP “recognizes the ongoing efforts of banks to develop or enhance policies and strategies in line with the expectations” under Circular No. 1085 which the BSP issued last April 19, 2020 on the Sustainable Finance Framework.

Other issuances are Circular No. 1128 released on Oct. 26, 2021 on the ESRM Framework and Circular No. 1149 issued on Aug. 23, 2022 covering the Guidelines on the Integration of Sustainability Principles in Investment Activities of Banks.

Medalla is hoping the number of banks with sustainable financing will increase after the release of Circular No. 1149 which are the rules on green investments.

Circular No. 1149 is the third phase of sustainable finance regulations. 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, said the BSP.