BSP Endorses New Sustainable Finance Taxonomy to Guide Philippine Banks

Within the realm of sustainable finance in the country, the Monetary Board and the Bangko Sentral ng Pilipinas (BSP) have granted approval to the Philippine Sustainable Finance Taxonomy Guidelines (SFTG) for banking entities during its assembly on 14 February 2024. This initiative marks a significant stride towards integrating environmental and social sustainability into the financial sector’s operations.

Eli M. Remolona, Jr

Eli M. Remolona, Jr., the Governor of the BSP and Chairman of the Monetary Board, remarked on the importance of this sustainable finance framework, stating,

“The issuance of a taxonomy is a crucial step in our sustainability journey. It provides high-level guidance in determining the greenness of an investment. But this is just the first step to what I expect will be a long iterative process of calibrating the document to fully capture the conditions of the Philippine economy.”

The initial focus of the SFTG is on climate change mitigation and adaptation. Plans for future revisions include expanding its scope to encompass biodiversity and the circular economy.

The guidelines utilise a ‘traffic light’ system to categorise economic activities according to their sustainability credentials: ‘Green’ for full compliance, ‘Amber’ for partial compliance or transitional activities, and ‘Red’ for non-compliant activities. It is noted, though, that activities classified as ‘Red’ may still be considered for financing that is not specifically labelled as sustainable.

An aspect of the guidelines is their consideration for micro, small, and medium enterprises (MSMEs), recognising their vital contribution to the economy and aiming to facilitate their access to finance. This reflects an inclusive approach, ensuring that entities of varying sizes can partake in and benefit from sustainable practices.

To ensure a gradual adaptation, the BSP has introduced an observation period extending until the end of 2024. This timeframe is intended to allow banks to acquaint themselves with the principles of the SFTG and engage in pilot testing exercises in collaboration with the industry. The insights gained from these exercises are anticipated to contribute to refining the guidelines and developing further guidance on their application.

Aligned with national policies and the regional ASEAN Taxonomy for Sustainable Finance, the SFTG represents a concerted effort towards sustainable development, operationalising recommendations from the Philippine Sustainable Finance Roadmap set forth by the Inter-agency Technical Working Group on Sustainable Finance, or the Green Force, in October 2021.