NextGen Day

As it publishes the third set of regulations designed to promote broader adoption of sustainability principles in the domestic financial system, the Bangko Sentral ng Pilipinas (BSP) makes further strides in the field of sustainable finance.

“The BSP understands how critical it is to forward the sustainability agenda. We are dedicated to assisting the financial institutions we monitor in building their capacity for sustainable finance. In a statement, BSP Governor Felipe Medalla stated, “This enabling approach will speed the mobilization of funds toward projects and activities to accomplish our growth ambitions and, at the same time, improve the country’s resilience to natural disasters and climate change.”

With the recent publication of draft guidelines on the integration of sustainability principles in banks’ investment activities, the BSP has entered its third phase of sustainability-related rules.

This policy proposal’s completion is scheduled for August 2022.

Releases of the Environmental and Social Risk Management Framework in October 2021 and the Sustainable Finance Framework in April 2020, respectively, served as markers for the first and second phases.

These rules outline what is expected in terms of how sustainability concepts would be incorporated into the basic strategies, governance, and risk management frameworks of banks, particularly with regard to credit and operational risks.

These regulations also incorporate the proportionality concept, which takes into account the size, risk profile, and operational complexity of a bank.

The BSP is working with industry associations, development partners, and other interest groups on the rollout of capacity-building activities for banks and other financial institutions in order to assist banks in understanding the concepts of sustainable finance and encourage the adoption of sustainable practices.

The BSP also notes that banks’ transition plans submitted over the previous six months show that they are effectively utilizing the Sustainable Finance Framework’s three-year transition window.

The BSP makes attempts to improve monitoring and risk measurement models in addition to its sustainable finance policy map.

The BSP is in charge of a stress testing exercise that will evaluate the potential effects of climate transition risk to the banking sector in cooperation with the World Bank.

To make it easier to estimate the financial effect associated with climate change and other environmental issues, the BSP will improve its data collection systems. It will also add standards that incorporate climatic stress testing design to existing laws on stress testing.

The BSP is also investigating possible regulatory incentives to promote the mainstreaming of sustainable finance.

In light of this, the BSP is in favor of changes to the Agriculture and Agrarian Reform (Agri-Agra) Law that count participation in sustainable finance as meeting the requirements of the agri-agra credit requirement.

The BSP also mentioned the surge in bank issuance of sustainable bonds that has persisted since 2017.

According to the most recent data, the total amount of sustainable bonds has reached USD1.3 billion for those issued in foreign currencies and PHP152.9 billion for those issued in pesos.

The BSP will shortly publish its 11-point plan to implement the Sustainable Central Banking Program in keeping with its promise to set an example. This will effectively represent the BSP’s enabling, mobilizing, and action-oriented functions in promoting sustainability in the financial system.

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