Finance sector collaborates with BSP on sustainability guidelines

Financial regulators led by the Bangko Sentral ng Pilipinas (BSP) are arming banks, financial institutions and corporates with the necessary tools and guidance in the effective management of climate and other environment-related risks.

BSP Deputy Governor Chuchi G. Fonacier, during the GRI-SM ASEAN Sustainability E-Summit 2021 on Thursday, Oct. 21, said the government and the private sector have been working together to expand sustainable finance as it incorporates Environmental, Social and Governance (ESG) principles to fund productive activities in a low-carbon economy.

The BSP’s Sustainable Finance Framework which it issued last April 2020 is giving banks and financial institutions three years or until end-2023 to design sustainable finance instruments to mobilize funds towards green or sustainable projects.

Session 2 of the GRI-SM ASEAN Sustainability E-Summit featured financial and sustainability experts who discussed about the role of Financial Markets in Driving Demand for more Sustainable Business Practices held on October 21, 2021.

And so far, Fonacier said the BSP is satisfied with how Philippine banks are initially implementing the first phase of the sustainability guiding principles.

“The BSP has been engaging banks to discuss actions taken to meet the expectations set out by the BSP and how sustainability principles were considered in the strategy resetting exercises given the impact of the pandemic to their business operations,” said Fonacier in the E-Summit. She was one of the seven panelists in the fireside chat after a keynote speech by Yuki Yasui, the Asia Pacific Region Coordination Manager of the UN Environment Programme Finance Initiative.

Yuki Yasui, Asia Pacific Region Co-ordination Manager, UN Environment Programme Finance Initiative Asia delivered Keynote Address in Session 2: How Financial Markets are Driving Demand for more Sustainable Business Practice in the two-day GRI-SM ASEAN Sustainability E-Summit 2021

Fonacier said local banks are in different stages of implementing sustainability principles. “There are banks that are in advanced stages but the smaller ones are just starting to embed this in their strategies and operations,” she said.

The BSP, she added, issued the sustainable finance rules at the proper time, when the pandemic was in its early months in 2020 and in time with banks’ review of their strategies with the ongoing public health crisis.

Part of the BSP sustainable finance plans is to grant incentives to banks and this is now up to Congress to approve, said Fonacier. The BSP is pushing for regulatory incentives to banks to accelerate the adoption of sustainable principles as contained in the draft bills amending the Agri-Agra Law.

Fonacier said she is hopeful that the BSP’s proposed inclusion of sustainable finance, including lending to green projects as among allowable modes of compliance with the mandatory credit to the Agri-Agra sector, will be approved soon.

A workable incentives package is part of the third phase of sustainability or ESG-related guidelines while the second phase will focus on specific expectations on the integration of climate change and environmental and social risks in the credit and operational risk management frameworks of banks. The draft circular is currently being reviewed.

During Session 2 of the two-day E-Summit, UN’s Yasui in her keynote quoted former Bank of England Governor Mark Carney who said that companies that will not adapt to climate change will end up bankrupt.

“For many banks, this means that climate risks goes beyond what can be handled by due diligence of individual clients. It has become a business strategy issue that directly connects to the banks’ entire lending portfolio,” said Yasui.

She stressed that “banks can only do so much to manage away their climate change risks at the portfolio level.”

“The only way to reduce the risks which is so high, so global, and so systemic, is to be proactively be part of the solution. In the upcoming age of transition to a net zero carbon economy, the objectives of society and the objectives of businesses are coming closer together. For banks, this means financing the transition to a net zero sustainable economy is inevitable,” said Yasui.

She said there is hope since many banks – which she described as future makers — have signed up to the UN Principles for Responsible Banking launched in September 2019. There are over 250 banks in 70 countries that have signed up, and collectively these banks’ assets are worth $60 trillion, about 40 percent of global banking industry.

Fonacier, reacting to Yasui’s comments, said ESG risks “is an existential issue”. She also said that banks or financial service providers are key enablers in the transition to a net zero carbon economy. “We all have an opportunity to be future makers,” she said, noting that ESG risks posts global and systemic challenges.

“Banks may choose to be future makers (and) a number of banks in the Philippines can already be considered as future makers for being the first movers in this journey,” said Fonacier. About $1.15 billion sustainability bonds and P84.5 billion ($1.78 billion) peso-denominated green bonds have been issued in the country. These green bonds were issued by so-called “first mover” banks since 2017. In another BSP data, as of end-September, 15 local banks have issued $4.8 billion worth of green bonds, about 29 percent of ASEAN-linked green, social, and sustainability bonds.

Securities and Exchange Commission (SEC) Commissioner Kelvin Lester Lee, one of the panelists during the E-Summit, said it is a big deal already that banks are playing a unique role in ESG. He said he is “cautiously optimistic” that with 600,000 corporations in the Philippines, if all will engage in sustainable business practices, a low-carbon economy will be achieved sooner.

BDO Unibank Inc. Senior EVP Walter Wassmer, also head of institutional banking group, said BDO’s take on sustainable finance is a balancing act between the positive and negative impact for every project or loan that the bank is looking at.

“A negative impact is not only environment, there’s also a social impact that has to be considered,” he said. “It’s a balancing act that banks and financial institutions have to look at because we also have to support the growth of the larger economy.”

Wassmer said he also welcomes BSP’s move to consider sustainable finance as Agri-Agra compliance.

“The problem is COVID-19 has slowed us down,” he said. Businesses were more concerned about surviving the adverse effects of the lockdowns rather than focusing on sustainability.

Still, Wassmer said investors continued to show growing interest in renewable projects and ESG finance amid the pandemic. So far, BDO has released $2.5 million worth of ESG loans and they hope to increase this in the coming years.

Source: Manila Bulletin