SUSTAINABLE CENTRAL BANKING

The Bangko Sentral ng Pilipinas (BSP) aims to be an internationally recognized central bank that advocates green and sustainable policies and practices.

Overarching Sustainable Central Banking Framework

The price and financial stability mandates of the BSP provide scope for the adoption of the Sustainable Central Banking as one of the strategic thrusts of the BSP. This is in view of the potentially significant impacts of climate and environmental risks on the prices of goods and services and on the safety and soundness of financial institutions.

The Sustainable Central Banking Framework embodies the BSP’s role as an enabler, mobilizer, and doer with respect to advocating sustainability in the financial system.

As an enabler, the BSP fosters a conducive policy and regulatory environment that enables BSP supervised financial institutions to take a balanced and proportionate approach on the adoption of the sustainability agenda.

As a mobilizer, the BSP leads by example and shapes financial institutions' behavior in investing in sustainable projects or assets.

As a doer, the BSP adheres to the same standards for supervised institutions and embeds sustainability principles in the BSP’s key functions and operations.

Awareness and Capacity Building Initiatives

  1. Membership in regional or international groups of central banks and supervisors such as the Network for Greening the Financial System (NGFS), Sustainable Banking and Finance Network, Inclusive Green Finance Working Group of the Alliance for Financial Inclusion, Executives’ Meeting of East Asia-Pacific Central Banks Working Group on Banking Supervision (EMEAP-WGBS), and task force or working groups at the ASEAN level.
  2. Conduct of various studies or preliminary insights on sustainable finance such as the “Impact of Extreme Weather Episodes on the Philippine Banking Sector using Branch-level Supervisory Data”, "Climate Change and Monetary Policy: Some Preliminary Thoughts" by the BSP, and the “Report on The Roles of ASEAN Central Banks in Managing Climate and Environment-related Risk”, a collaborative project of the ASEAN Central Banks.
  3. Partnership with both local and international organizations or developmental agencies in the conduct of several fora and trainings for deepening capacity and enhancing skillsets of the banking community.

Issuance of Enabling Regulations

Cognizant of the evolving nature of sustainable finance concepts and best practices, the BSP adopted a phased approach in introducing sustainability related guidelines with due regard to the principle of proportionality.

❯ First Phase

Sustainable Finance Framework
(Circular No. 1085)

The key areas of the Framework are the

  1. Roles of the Board of Directors and Senior Management,
  2. Environmental and Social Risk Management (ESRM) System, and
  3. Disclosure Requirements.

The Framework emphasizes the role of the board in leading and institutionalizing the adoption of sustainability principles. This brings into fore the key elements of board and senior management responsibilities encompassing company culture, risk management oversight, accountability, and transparency.

❯ Second Phase

Environment and Social Risk Management Framework
(Circular No. 1128)

The Framework provides granular expectations on the management of environmental and social risks in relation to credit and operational risk exposures of banks.

Banks are expected to set strategic environmental and social objectives which covers short, medium and long-term horizons, including progressively increasing loan allocations for green or sustainable projects.

Banks should also adopt comprehensive policies, processes, and procedures to manage operational risk arising from environmental and social risks such as extreme weather events, to quickly resume operations and ensure operational resilience.

❯ Third Phase

Guidelines on the Integration of Sustainability Principles in Investment Activities of Banks
(Circular No. 1149)

The regulations provide the expectations on the integration of sustainability principles in investment activities of banks, particularly in the banking book.

Banks shall consider their sustainability objectives and risk appetite in their investment activities as well as ensure that such investment does not contribute to sectors considered to have harmful effects to the environment or society.

Initiatives in the Pipeline

The BSP will soon issue regulations covering the following areas:

  • Conduct of climate risk stress testing by banks
  • Amendments to Disclosure Requirements under Circular No. 1085
  • Enhancements of prudential reports for data collection and surveillance analysis
  • Incentivized lending or financing of green or sustainable projects or activities
  • Development of sustainable finance taxonomy

The BSP is also working with the World Bank, World Wide Fund for Nature (WWF) Philippines, the Philippine Institute of Volcanology and Seismology and volunteer banks in the conduct of climate stress testing and vulnerability assessment to better understand climate and other environmental-related risks and estimate its potential impact on the banking system.

The Mobilizer’s Influence on Sustainable Investments

The BSP was one of the early investors in the green bond funds of the Bank for International Settlement (BIS). Initial investment amounting to US$150.0 million was done in October 2019. Since then, the BSP’s total investments in the green bond funds have grown in size, reaching above USD500 million. The BSP, through its membership in the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP), has also taken part in discussions on promoting green bonds in the region.

Doing the Sustainability Agenda

The Sustainable Central Banking Roadmap sets forth a set of 11 targeted strategies and related initiatives that the BSP will pursue in the coming years to mainstream “green” and sustainability principles and practices in BSP operations and across the financial system. Click here for the strategy and video.

New BSP Complex Design, image by AIDEA

BSP’s Commitment at COP26

The BSP expressed its support in achieving the global climate goals under the Paris Climate Agreement during the 26th United Nations Climate Change Conference of Parties (COP26) summit in Glasgow, Scotland. In line with this, the BSP is committed to:

  1. Champion the sustainability agenda in the financial system through the roll out of the initiatives under the Sustainable Central Banking Framework to foster environmentally responsible and sustainable policies and work practices.
  2. Provide an enabling regulatory environment to equip banks in managing climate change, environmental, and social risks, and at the same time, unlock financing to economic activities contributing to sustainable development.
  3. Facilitate the conduct of climate stress-testing exercises and collection of more granular data on climate, and environmental and social risks exposures in the banking industry.
  4. Promote a collaborative approach in the financial sector and harmonize policies and align initiatives with the objectives and strategies of the Philippine Sustainable Finance Roadmap and Guiding Principles.
  5. Build partnerships to intensify awareness and capacity-building activities for the financial sector.

BSP Collaboration with Counterpart Regulators and Government Agencies

Inter-agency Technical Working Group on Sustainable Finance or the Green Force

The BSP actively participates in the Inter-agency Technical Working Group on Sustainable Finance or the “Green Force”. This is composed of financial sector authorities and critical government agencies which include the Department of Finance, Climate Change Commission, BSP, Securities and Exchange Commission (SEC), Insurance Commission (IC), Department of Energy, Department of Environment and Natural Resources, National Economic and Development Authority, among others.

The Green Force is tasked to support and contribute to the acceleration of the development of a sustainable economy. In line with this, it will identify pipeline of sustainable investments, mobilize financing sources, and harmonize and coordinate policies and projects across all government agencies, among others.1

The Green Force has released and launched in October 2021 the (i) Philippine Sustainable Finance Roadmap and (ii) Sustainable Finance Guiding Principles.

1 The Philippine Sustainable Finance Roadmap, October 2021

Financial Sector Forum (FSF)

The BSP, SEC and IC, under the auspices of the Financial Sector Forum (FSF) are working on the harmonization of existing regulations on sustainable finance covering the aspects of corporate governance, risk management, disclosure requirement, and sustainable finance taxonomy. The FSF agencies are also working on the operationalization of the policy pillar of the Sustainable Finance Roadmap and Guiding Principles.

ASEAN Central Banks

The BSP also participates in the ongoing works of the ASEAN in promoting sustainable finance such as memberships in the ASEAN Senior Level Committee (SLC) Task Force on Sustainable Finance and Working Group 1 of the ASEAN Taxonomy Board.

The BSP had participated as a member of the ASEAN Task Force on the Roles of ASEAN Central Banks in Managing Climate and Environment-related Risks (Report). The task force was tasked to conduct a study on the roles of central banks in addressing climate and environment-related risks to monetary, financial, and broader macroeconomic stability. The Task Force published the Report in November 2021.

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