Philippine central bank sets policies to normalize ‘green banking’

BSP-to-normalize-green-banking

The central bank is working to ensure that adherence to green banking principles will become the rule rather than the exception in the local banking system by issuing a steady stream of regulations governing sustainable finance.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno stressed regulators’ commitment to help protect the environment through policies that make funding for climate-friendly undertakings cheaper and those for climate-damaging ones more prohibitive.

Second is mainstreaming sustainable finance through the issuance of enabling regulations. BSP has already issued the first two regulations on Sustainable Finance and Environmental and Social Risk Management Frameworks.

“Future regulations are directed at potential areas of investment activities of banks, climate stress testing, prudential reporting, and potential regulatory incentives,” the BSP chief said.

The BSP has also proposed the recognition of sustainable finance as one of the allowable forms of compliance with the required credit to the agriculture sector.

“We hope to achieve two things with the passage of bills amending the Agri-Agra law,” said Diokno. “First, mainstreaming sustainable finance and second, mitigating climate change impact in the agriculture sector,” he said.

The BSP issued its Sustainable Finance Framework issued in April 2020, which laid down high-level supervisory expectations on the integration of sustainable principles including environmental, social and governance considerations in the corporate and risk governance frameworks, business strategies, and operations of banks.

Responsibilities of the board of directors and senior management in leading and institutionalizing the sustainability principles across the organization.

Adoption of the environmental and social risk management system, which should include policies, procedures, and tools to identify, assess, monitor, and mitigate exposures to environmental and social risks.

Disclosure requirements, which will enhance market discipline and promote transparency by requiring disclosure of several elements of the banks’ sustainability agenda in their annual reports.

Banks were given a three-year transition period to fully comply with the expectations under the new scheme, while being encouraged to disclose their initiatives or progress in sustainability earlier that the deadline.

The BSP also issued in October a circular detailing expectations for the setting of strategic environmental and social objectives for the bank’s credit operations and to ensure that material environmental and social risks are captured in the banks’ internal capital planning process.

“Banks are expected to progressively increase their targets on the proportion of the loan portfolio allocated for sustainable finance, and to consider environmental and social risks factors in credit underwriting and determining allowance for credit losses,” Diokno said.

Source: https://business.inquirer.net/334960/bsp-sets-policies-to-make-green-banking-the-norm

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