BSP to work closely with banks in their transition to ‘greening’ – Manila Bulletin
Bangko Sentral ng Pilipinas (BSP) said it has started to closely monitor banks’ sustainable finance transition until 2023, when the new sustainable banking guidelines will be fully implemented.
BSP Governor Benjamin E. Diokno said in a statement on Friday that banks “should identify and execute specific actions on the implementation of strategies and policies approved by the Monetary Council on the integration of sustainability principles in their strategic objectives, corporate governance, risk management systems, and operations. “
“We recognize that the tone at the top is vitally important to making a bank’s sustainability initiatives a reality,” he added.
The BSP is putting in place a three-year transitional provision to give banks sufficient time to comply with the rules and expectations of sustainable finance. He expects banks to adopt a transition plan with specific timelines to implement strategies and policies approved by their board of directors.
BSP Circular No.1085 on the Sustainable Financing Framework, which it published in April 2020, requires banks to put in place an environmental and social risk management (E&S) system and to include sustainable development initiatives. in their annual reports.
In a report released this week, Moody’s Investors Service said Philippine banks are one of the sectors most vulnerable to physical climate risks in the region due to the country’s “weak” infrastructure. Local banks also face asset risks associated with significant exposures to sectors sensitive to carbon transition risks, Moody’s said. About 22 percent of gross loans are borrowings from sensitive sectors or carbon-intensive sectors.
The BSP said that climate change and other E&S risks have an effect on financial stability, for example on the operations and financial interests of a bank. Risks such as physical (floods, typhoons, earthquakes) and transition risks due to climate change could lead to significant societal, economic and financial risks affecting banks and their stakeholders.
Diokno, at the time of issuing the circular, said the BSP recognizes the “critical role” of banks in sustainable and resilient growth, and they expect banks “to incorporate the principles of sustainability, including including those covering the areas of environmental and social risks, in their corporate governance. framework, risk management systems and strategic objectives compatible with their size, risk profile and complexity of operations. ”
BSP defines sustainable finance as “any form of financial product or service that integrates environmental, social and governance criteria into business decisions that support economic growth and deliver lasting benefits to customers and society while reducing pressures on the environment.”
This covers green finance that finances green economic activities and climate change mitigation and adaptation projects, PASB said.
E&S risks, meanwhile, are those that are considered “a potential negative financial, legal and / or reputational effect of environmental and social issues” on banks. E&S issues include environmental pollution, climate risks, physical and transitional risks, risks to human health, safety and security, and threats to community, biodiversity and cultural heritage, between other.
Diokno said last week that BSP will release a “second phase of regulation” as part of banks’ transition to a low-carbon economy, including climate change scenarios for “stranded asset risk”.
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