WITH the goal of further promoting sustainability in the financial sector, the Bangko Sentral ng Pilipinas (BSP) is looking into providing regulatory incentives to banks implementing such an initiative.
BSP Governor Benjamin E. Diokno said they are studying the “potential use of preferential rediscount rates or provision of higher loan values to enable banks to extend green loans or finance sustainable investments.”
Diokno said that the BSP is evaluating the potential perks to be extended to said financial institutions to avoid “unintended consequences.”
“Nevertheless, we have initially proposed the inclusion of sustainable finance as a form of compliance with the mandatory credit to the agriculture sector,” he noted.
The central bank governor said that providing regulatory incentives is in line with the third phase of the Sustainable Finance Framework. The first two phases were issued in the past two years.
“Under this framework, we expect banks to progressively increase their loan allocations for green or sustainable projects as part of their set strategic environmental and social objectives,” Diokno explained.
The BSP chief said that the country, through the Inter-Agency Technical Working Group on Sustainable Finance, is coordinating with the Department of Finance in developing policies to further widen the reach of sustainable finance.
In addition, the government also teams up with multilateral development agencies to raise funds for sustainable projects. These include the Asian Development Bank, the International Finance Corp. and the United Nations Development Program.
Last month, the BSP released the “Environmental and Social Risk Management,” or ESRM, framework, supporting its bid in promoting sustainability. The framework is slated to take effect in 2023.
“The ESRM framework provides specific expectations on the management of environmental and social [E&S] risks in relation to credit and operational risks, taking into account the size, risk profile and complexity of operations of banks,” Diokno said. “It builds on the Sustainable Finance Framework issued in April 2020, which provides the broad expectations on embedding sustainability principles in the corporate and risk governance frameworks, business strategies and operations of banks.”
With the ESRM framework in place, the regulator expects that financial institutions will incorporate E&S risks with their credit risk strategies and overall credit risk management system.
The board of directors, as such, is also enjoined in setting strategic E&S objectives, which may include boosting allocations for green project funding or financing.
“It is important to consider the economic sector and location of the borrower as well as the collateral for the loan, among others, in assessing the exposures to such risks,” Diokno said.
In addition, the financial institutions under the said framework are expected to factor in the E&S risks in their operational risk management framework and to hold vulnerability assessments of their operations, systems and offices and branches to physical risks and natural disasters.