PHL banks need clarity on ‘green’ financing to boost ESG compliance, BSP says

PHILIPPINE BANKS are open to incorporating sustainability standards in their frameworks but are still seeking clarity about what kinds of activities are considered environmentally or socially sustainable, a Bangko Sentral ng Pilipinas (BSP) official said on Monday.

BSP Assistant Governor and Chief Sustainability Officer Pia Bernadette Roman-Tayag said a clearer sustainable finance taxonomy would encourage more lenders to support environmental, social, and governance (ESG) measures.

“[Banks need] clarity,” she told reporters on the sidelines of the Economic Journalists Association of the Philippines’ sustainability forum in Makati City. “I think the sustainable finance taxonomy is a good way to show banks this is what we mean by activities that are green, that are contributing to our environmental objectives.”

“So, we want that to be as granular as possible so it’s clear for them, so when they make investment decisions, they know they’re aligned.”

In the BSP’s Banking Sector Outlook Survey for 2023, 90.3% of banks surveyed said they were willing to invest in sustainable financing, particularly in areas such as agriculture, renewable energy, energy efficiency, and sustainable water and wastewater management.

She said local banks have been building their capacity for sustainable financing since the BSP established its regulations six years ago.

“I could say that more banks are now integrating ESG into their governance and their risk management system.”

In April 2020, the BSP introduced a sustainable finance framework for banks, requiring them to integrate sustainability principles into their environmental and social risk management, governance frameworks, strategies, and operations.

Ms. Roman-Tayag said the Philippines is struggling with climate change adaptation amid limited financing, noting that only below 10% of global climate finance goes to this while 90% is allotted for mitigation.

“Our problem really is adaptation. Climate change is already here, and the Philippines is so vulnerable,” she said during a panel discussion, adding that the Philippines needs additional funding for these efforts.

She said these would help cushion the economy from climate risks.   

“Adaptation is what we need to make our economy, our firms, our households, our individuals more resilient,” Ms. Roman-Tayag said. “We also want that financing goes to sound adaptation activities that can reduce the risks of climate change.

The central bank’s mandated credit for agriculture and agrarian sectors has also been effective in pushing for sustainable finance in the banking sector, she added.

Based on preliminary BSP data, banks lent out about P2.52 trillion to the agriculture sector as of September last year. This includes loans for agrarian reform beneficiaries, agrarian reform communities, or other priority sectors.

This accounted for 101.78% of the banking system’s P2.46-trillion total loanable funds during the period, well above the BSP’s 25% quota. — Katherine K. Chan