Banks seen to boost sustainable lending

FINANCIAL institutions are seen to provide more sustainable lending this year as central banks and regulators stress the economic impact of climate change, Accenture B.V. said.

In a report released on Monday, the technology consulting and outsourcing services provider said that banks are expected to begin integrating environmental impacts into credit risk assessment and pricing models this year.

Regulators, meanwhile, are likely to be more stringent when it comes to related disclosure standards, it added.

“2021 will likely be an inflection point in sustainable lending as central banks and regulators are now acknowledging the dire macroeconomic consequences of unfettered climate change,” the report said.

Globally, borrowings for coal projects have declined, the report said adding that, however, this has been offset by other fossil fuel loans.

“Fossil fuel projects will continue to be funded, but the cost of that capital will rise, and the lenders will face escalating reputational and regulatory risks,” the report said.

“As they pivot to green lending expect pressure to build on banks to also start prioritizing and reporting on broader ESG [environmental, social and governance] goals like funding the minority- and women-owned businesses disproportionately hit by Covid-19,” the report said.

In the Philippines, the Bangko Sentral ng Pilipinas (BSP) is also promoting sustainable financing.

The Central Bank, in fact, released the Sustainable Finance Framework in March last year. This regulation aims to incorporate sustainability principles, including those covering environmental and social risk areas, to the banks’ corporate governance framework, risk management systems and strategic objectives.

The banks were given three years from effectivity of the circular to fully comply with all the included provisions. They were also tasked with providing a transition plan.

In a report released in December last year, Asean central banks, including BSP, said they are set to address climate change with the help of green financing, incentives and supervisory authority.

“Central banks should be in a state of readiness to manage the risks stemming from climate change and environment-related events more proactively to ensure Asean continues to grow and prosper in a sustainable manner, into the far future and for the generations to come,” the report noted.