A Look at BSP’s Integrated Strategy To Boost Sustainable Finance

A Look at BSP’s Integrated Strategy To Boost Sustainable Finance

by July 5, 2023

The Bangko Sentral ng Pilipinas (BSP) has embraced the responsibility of championing sustainability in the Philippine financial system. As a central bank, the BSP recognises the urgent need to address climate change and other environmental risks to safeguard price stability, and financial stability, and support the sustainable development goals of the National Government.

In its maiden Sustainability Report, the BSP highlights its progress and commitment to integrating sustainability objectives across its operations, regulatory frameworks, and collaborative efforts with stakeholders.

The report highlights that despite contributing only 0.39 percent of global greenhouse gas emissions, the Philippines is one of the most vulnerable countries to climate shocks. The increasing intensity of typhoons and slow-onset events necessitates proactive measures to build climate resilience and mitigate economic losses.

Annual losses from severe calamities in the Philippines were estimated at 1.2 percent of the country’s gross domestic product (GDP). Without effective climate policy action, the underserved and unserved groups will likely be disproportionately affected by climate change impacts. Economic damages could reach 7.6 percent of GDP by 2030 and 13.6 percent by 2040.

Promoting Sustainable Finance

The global climate crisis poses irreversible environmental threats, to public health, food security, and economic development. The central bank emphasises the importance of collective action and the role of all actors, including financial institutions, in mitigating climate change risks.

The BSP acknowledges that all stakeholders must play a crucial role in shaping a sustainable future. By integrating sustainability into its financial regulation and supervision, the BSP aims to bridge financing gaps and mobilise funds towards a low-carbon, climate-resilient economy.

The central bank has taken significant steps to promote sustainable finance in the Philippines. It has issued sustainability-related guidelines that strengthen banks’ responses to managing environmental and social risks.

These guidelines incentivise banks to finance green or sustainable projects by reviewing credit exposure limits for a single borrower.

By encouraging banks to lend to such projects, the BSP aims to unlock financing for transitioning to a low-carbon, climate-resilient, and sustainable economy.

Sustainable Financing

According to the BSP’s survey conducted among universal/commercial banks (U/KBs) in August 2022, 75.0 percent of respondent banks have financed or approved loans supporting green/sustainable projects, with total outstanding loans of ₱829.7 billion and US$14.35 million as of 30 June 2022.

The total outstanding loans of the respondent banks to green/sustainable projects represent approximately 7 percent of the Philippine banking system’s total loan portfolio as of end-June 2022.

The top green/sustainable activities or projects supported by these banks are renewable energy (89 percent), sustainable water and wastewater management (56 percent), and energy efficiency and green buildings (both at 50 percent).

Strengthening climate resilience

The BSP is working on various initiatives to enhance climate risk management and contribute to the country’s climate action goals. One such initiative is the development of climate stress-testing exercises and related guidelines.

These exercises will help assess the vulnerabilities of financial institutions to climate-related risks and ensure their resilience in the face of such risks.

Furthermore, the BSP is working towards developing a local taxonomy, which will provide clarity and guidance on what constitutes sustainable economic activities in the Philippine context. The taxonomy will help financial institutions, and investors identify and support environmentally friendly projects and initiatives.

The BSP is also making improvements in prudential reports and sustainability-related disclosures. By enhancing reporting standards, the BSP ensures financial institutions provide transparent information about climate-related risks and opportunities.

This will enable investors and stakeholders to make informed decisions and contribute to the growth of sustainable finance.

The BSP’s role in climate action

As an organisation, a monetary authority, and a financial sector supervisor, the BSP recognises its responsibility to advocate for sustainable policies and practices. The BSP’s sustainability efforts are guided by the broad concept of sustainability, which covers climate change and other environmental issues and encompasses social and governance aspects.

The Basel Committee on Banking Supervision (BCBS) highlights the importance of sustainability reporting in promoting transparency. The BSP aligns its reporting with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), aiming to promote accountability and effective communication of climate-related risks and opportunities.

BSP Introduces Incentives for Sustainable Green Financing in the Philippines

Through its Sustainable Central Banking (SCB) Program, the BSP integrates sustainability objectives into its key functions and operations. The program serves as an overarching framework, guiding the BSP’s efforts as an enabler, mobiliser, and doer.

As an enabler, the BSP focuses on embedding sustainability principles in existing regulations and supervisory tools to balance managing risk and adopting sustainable practices. As a mobiliser, the BSP invests in sustainable projects and promotes inclusive green finance.

As a doer, the BSP adheres to the same sustainability standards it promotes in its operations.

The Sustainable Central Banking (SCB) programme

The BSP’s SCB Program was launched as part of its 2020 to 2023 strategy. The program aims to foster environmentally responsible and sustainable policies, work practices, and ESG integration in the BSP’s operations.

The SCB-TWG, comprised of representatives from key BSP departments, leads the coordination and implementation of sustainability initiatives.

Sustainable Financing

The SCB-TWG conducts vulnerability assessments to identify the impact of climate change on BSP facilities and enhance business continuity strategies. It also performs self-assessments to identify areas where ESG-related standards and principles can be embedded in BSP operations. The results of these assessments inform the BSP’s strategic approach and initiatives.

The 11-point SCB Strategy was developed with the technical assistance of the Asian Development Bank. It outlines targeted strategies and initiatives to mainstream green and sustainability principles in the BSP’s operations over the next two to three years.

The strategy focuses on sustainable lending, disclosure and reporting, capacity building, and green technology adoption.

Technology and innovation for sustainable finance

The BSP acknowledges the crucial importance of technology and innovation in achieving sustainability objectives. To this end, the organisation has launched the Digital Transformation (DigITALL) initiative. The primary goal of DigITALL is to optimise and digitalize business processes while reducing paper waste. The BSP aims to establish an agile and secure environment by doing so.

In line with its commitment to sustainability, the central bank plans to implement green software practices. These practices will promote energy-efficient coding and minimise the environmental impact of its digital solutions.

Furthermore, the BSP envisions the establishment of a Green Data Center. This facility will utilise renewable energy sources and adhere to green building standards, reducing its carbon footprint.

Actively engaging in global and local initiatives, the BSP is a key player in promoting sustainable finance. As a Network for Greening the Financial System (NGFS) member, the BSP actively contributes to global efforts in addressing climate and environmental risks.

Locally, the BSP collaborates with the Inter-Agency Task Force on Sustainable Finance (Green Force) to develop sustainable finance policies and harmonise projects across various government agencies.

Through its commitment and efforts in sustainable finance, the BSP is a role model for other central banks and financial institutions. By integrating sustainability into its operations and regulations, the BSP actively contributes to the country’s climate action goals and paves the way for a climate-resilient and sustainable future.

The BSP’s Sustainable Central Banking Program and initiatives such as vulnerability assessments, self-assessments, and technology adoption are leading the path towards a greener financial system in the Philippines.