By Eric Luchangco
The world is experiencing the many effects of climate change. From rising temperatures to melting polar ice caps and rising sea levels, the environmental damage caused by humans is becoming increasingly apparent. Climate change poses a threat to lives and livelihoods, and it will not resolve itself.
The Intergovernmental Panel on Climate Change (IPCC) forecasts that the global temperature will likely reach or exceed 1.5˚C of warming within the next two decades, suggesting that climate-related damage will only get worse. This is a bleak prediction, and the way to address this problem is for everyone to do their part in creating a more sustainable and livable world.
International organizations have started to commit to more sustainable activities amid the growing climate-related problems. These efforts include The Paris Agreement, which mandates countries to reduce carbon emissions; the United Nations’ Sustainable Development Goals (SDGs), which include the development of climate-resilient structures; and global social movements that advocate for holistic climate action.
There are also initiatives from governments and financial institutions to be more sustainable. One example is the financing of projects that aim to mitigate climate change impact. This is referred to as green financing. The World Economic Forum defines green financing as a structured financial activity that aims to ensure better environmental outcomes. Simply put, more money is allocated to projects that help save the environment. But how does this work exactly? Let us take a look at some practices in other countries.
In 2018, the US government issued USD 118.6 billion of green bonds to finance renewable energy, sustainable infrastructure, transport, and water management. Additionally, large US financial institutions have also invested in sustainable activities. Goldman Sachs committed USD 150 billion (around Php 8 trillion) for clean energy investment, while the Bank of America committed USD 125 billion (around Php 6.7 trillion) for investing and lending to low-carbon businesses.
Another example is France’s support for the green bond market, which is institutionalized through the Energy Transition and Green Growth Act. To comply with this law, the French government issued its first green bond commitment worth 7 billion euros (Php 394 billion) in 2017 and the same amount in 2021 for its second green bond commitment. Proceeds of these bonds are used to fund sectors under Green Eligible Expenditures, i.e., energy efficiency investments, sustainable public transportation, and renewable energy.
These are significant developments because the US and France are two of the largest industrial countries in the world and it is encouraging to see that they are leading the way to sustainable financing.
We do not have to go far to see green financing at work. Our very own Bangko Sentral ng Pilipinas (BSP) has issued two policy frameworks to help its supervised financial institutions (BSFIs) fund climate-friendly projects and to include sustainable principles in their operations. These are the Sustainable Finance Framework (BSP Circular 1085) and the Environmental and Social Risk Management Framework (BSP Circular 1128).
As one of the largest banks in the country, the Bank of the Philippine Islands (BPI), guided by these policies, is leading the way in sustainable financing in the Philippines. In line with BSP’s sustainability goals, BPI has instituted its own Sustainable Funding Framework, which includes the bank’s issuance of Green or Sustainability Bonds to finance projects that promote renewable energy, energy efficiency, and sustainable agriculture and water management.
A crucial component of BPI’s Sustainable Funding Framework is an exclusion rule that states that the net proceeds of its green bonds and loans shall not be used towards financing of fossil fuel-related assets and activities. As of 2021, 48% of BPI’s power portfolio is dedicated to clean energy and 48% of its corporate portfolio financed projects contributing to the SDGs. BPI has now disbursed Php 157.8 billion for renewable energy projects, Php 28 billion for energy efficiency projects, and Php 35.2 billion for climate resilience projects.
For businesses, the shift to green financing requires a delicate balance between prioritizing profitable activities that can potentially harm the environment (use of fossil fuels) and investing in opportunities that do not endanger the earth’s ecosystems. We need to remember that doing business should not come at the expense of the environment. The examples above show that it is possible for companies to be environmentally responsible by incorporating sustainability practices in their strategies.
In my opinion, green financing in the Philippines is already ripe for the picking. We already have a policy environment that allows financial institutions to invest in environment-friendly projects. All we need to do is follow through with these commitments and remember that the future of our planet is at stake if we do not act.
Climate change is not just an environmental problem. It can adversely affect the way we live in many ways. This is especially true for the Philippines because it is one of the most vulnerable countries to climate change hazards like floods and storm surges. Therefore, it is of utmost importance that we take a collective action against the effects of climate change to protect our economy, infrastructures, biodiversity, and lives.
About the Author: Eric Luchangco is Chief Finance Officer and Chief Sustainability Officer at the Bank of the Philippine Islands (BPI).