The Bangko Sentral ng Pilipinas adopts Sustainable Central Banking as one of its strategic thrusts in view of the significant impact of climate and environmental risks on 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.
The BSP fosters a conducive policy and regulatory environment that enables its supervised financial institutions to take a balanced and proportionate approach on the adoption of the sustainability agenda.
The BSP earlier rolled out a two-pronged approach to promote sustainable finance. These are increasing awareness and capacity-building activities and issuance of enabling regulations.
In increasing awareness and capacity-building initiatives, the BSP actively takes part in regional or international groups of central banks and supervisors such as the Network for Greening the Financial System, 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 and task force or working groups at the ASEAN level.
The BSP also holds 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” and the “Report on The Roles of ASEAN Central Banks in Managing Climate and Environment-related Risk”, which is a collaborative project of the ASEAN Central Banks.
It also teams up with local and international organizations or developmental agencies in the conduct of fora and training for deepening the capacity and enhancing the skill sets of the banking community.
Sustainability guidelines
Cognizant of the evolving nature of sustainable finance concepts and best practices, the BSP adopted a phased approach in introducing sustainability-related guidelines on the principle of proportionality.
The first phase involved the issuance of Circular No. 1085 that pertains to Sustainable Finance Framework. The key areas of the framework are the roles of the board of directors and senior management; environmental and social risk management; and disclosure requirements.
The framework underscores the role of the board in leading and institutionalizing the adoption of sustainability principles. This brings to fore the key elements of board and senior management responsibilities encompassing company culture, risk management oversight, accountability and transparency.
The second phase is the issuance of Circular 1128 (Environmental and Social Risk Management Framework). This 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 cover short, medium and long-term horizons, including progressively increasing loan allocations for green or sustainable projects.
The third phase is the issuance of Guidelines on the Integration of Sustainability Principles in Investment Activities of Banks (Circular 1149). The regulations provide the expectations on the integration of sustainability principles in investment activities of banks, particularly in the banking book.
Banks should consider their sustainability objectives and risk appetite in their investment activities and ensure that such investment does not contribute to sectors considered to have harmful effects to the environment or society.
The BSP said it would 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; and development of sustainable finance taxonomy.
The BSP is also working with the World Bank, World Wide Fund for Nature 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 BSP was one of the early investors in the green bond funds of the Bank for International Settlements. Initial investment amounting to $150 million was done in October 2019. Since then, the BSP’s total investments in the green bond funds have grown in size, reaching above $500 million.
The BSP, through its membership in the Executives’ Meeting of East Asia-Pacific Central Banks, has also taken part in discussions on promoting green bonds in the region.
The Sustainable Central Banking Roadmap sets 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.
The conduct of vulnerability assessment of BSP offices and branches intends to improve the resiliency of BSP facilities to better withstand the challenges brought about by natural hazards; and enhance emergency response systems and business continuity strategies to reduce business disruptions.
Green initiatives
In May 2021, the BSP issued an internal policy prohibiting the use of disposable or single-use plastic materials and encouraging its employees to utilize reusable utensils, containers, and tumblers, among others.
In 2018, the BSP adopted an electronic transmission and distribution of Monetary Board Agenda Papers which significantly reduced paper usage during MB discussions.
In April 2022, the BSP began its phased issuance of polymer banknotes in its bid for “smarter” (more secure and sustainable), “cleaner” (more hygienic and sanitary) and “stronger” (durable and cost-effective) paper banknotes.
Recently, the BSP issued guidelines on the proper handling of polymer banknotes. These include storing banknotes in wallets where they fit properly (the typical bi fold wallet fits this criteria), keeping them clean and using them as payment for goods and services.
Green facility
The BSP is also developing a new complex in New Clark City which is envisioned to become “a global benchmark for a smart, green and modern facility, promoting environmental sustainability and efficiency.”
It will transfer its decades-old Security Plant Complex in Quezon City to Central Luzon in parallel with the government’s move of transferring other government agencies outside Metro Manila to help decongest the metropolis of heavy traffic that has been causing around P3.5 billion economic losses daily, according to a a recent study by the Japan International Cooperation Agency.
The BSP is also in the process of acquiring certification for Building for Ecologically Responsive Design Excellence which espouses green building principles.