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13 July 2021
Recognizing the critical role of the financial industry in developing resilient growth, Bangko Sentral ng Pilipinas responded to the global COVID-19 pandemic by facilitating environmentally and socially responsible business models through a Sustainable Finance Framework. Governor Benjamin E. Diokno shares important learnings about how this has changed the way the central bank implements policies for future disasters.
In October 2018, Bangko Sentral ng Pilipinas (BSP) adopted a policy that provided temporary relief measures to banks affected by natural calamities. This was formalized with the issuance of its Policy Framework on the Grant of Regulatory Relief to Banks/Quasi-Banks Affected by Calamities. The framework provides regulatory relief to financial institutions affected by natural disasters to assist in their recovery and restart of operations.
The same baseline relief measures were activated when the COVID-19 pandemic put to test the strength and resiliency of the Philippine financial system in March 2020. BSP promptly responded by deploying a calibrated mix of monetary policy instruments and supervisory tools to assist the financial system and the economy.
Considering the disruptive impact of lockdowns and quarantine protocols on borrowers’ operations and cash flows, as well as on banking operations and services, BSP issued additional regulatory and operational relief measures to assist BSP-supervised Financial Institutions (BSFIs) in their operations and support households and businesses during the health crisis. These measures provide incentives to BSFIs to extend financial relief to their borrowers, incentivize bank lending, promote continued access to credit/ financial services. The measures also support the level of domestic liquidity through continued delivery of financial services that enable consumers to complete financial transactions during the lockdown periods.
Despite the challenges financial sector was facing during the pandemic, this was an opportune time for BSP to issue its Sustainable Finance Framework as financial institutions review and reassess their business strategies. The Sustainable Finance Framework provides principles-based expectations in identifying, assessing, and managing environmental and social risk exposures. The framework is aimed at enabling banks to adopt policies suited to their operations.
BSP found that environmental and social risks arising from the health crisis offered a glimpse of how severe and long-lasting other, potentially systemic risks, such as climate change, could drag the banks’ performance and long-term growth. For instance, the inevitable shift of the economy towards minimal or contactless payment systems and processes (often digital) to minimize disease transmission resulted in losses and shutdowns in many businesses that rely heavily on face-to-face transactions or service delivery. BSP expects that the environmental and social risk management systems of banks would allow them to effectively respond to future similar threats, including climate change.
Key challenges
The lack of a “green” definition through a taxonomy and limited awareness on the risk-return profiles of green projects or investments are some of the main challenges in ushering funds towards climate adaptation and mitigation activities.
BSP believes that these challenges may be addressed by taking a whole-of-government approach. In this regard, BSP, in collaboration with key government agencies that are in the frontlines of climate action, committed to develop a harmonized and cohesive approach towards promoting green or sustainable finance. The inter-agency collaboration called the “Green Force” is working on a Sustainable Finance Roadmap for the
country and the principles-based taxonomy which will provide guidance on identifying economic activities that contributes to sustainable development.
Building sustainable solutions
While the financial sector’s sustainability journey is still at the nascent stage, the central bank has made a strategic move by adopting the Sustainable Central Banking (SCB) Program. The program is aimed at championing sustainability in the financial system by fostering environmentally responsible and sustainable policies and work practices within BSP.
Complementary to the SCB Program BSP launched its Digital Payments Transformation Roadmap (DPTR) in 2020 to broaden the use of digital payment platforms while ensuring that it is supported by robust infrastructures that are in line with internationally recognized standards. The end goal of the DPTR Roadmap is to create an efficient, inclusive, safe, and secure digital payments ecosystem that supports the diverse needs and capabilities of individuals and firms, towards the achievement of BSP’s mandates. It is anchored in three pillars:
While the potential of this initiative to offer solutions in addressing climate concerns is yet to be explored, it already sets a strong backdrop for more climate-related developments and innovations to take place in line with BSP’s sustainability approach. The promotion of digital banking in the country is one of the key initiatives of the DPTR.
The country’s Nationally Determined Contribution (NDC), which aims to reduce its projected carbon emissions by 75 percent by the Year 2030, provides a clearer direction and a greater impetus for BSP and the government to work together on building resilience and mitigating climate change that ensures sustainable development for the Filipinos. The NDC considers the Sustainable Finance Framework, which emphasizes the BSP’s vital role in steering the financial system towards aligning with the transformative policies and measures of the country and move along the pathway to a low-carbon economy.
The Inclusive Green Finance workstream is part of the International Climate Initiative (IKI), supported by the German Federal Ministry of the Environment, Nature Conservation and Nuclear Safety (BMU), based on a decision by the German Bundestag.
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