BSP announced plans to issue the second-phase regulation to allow the banking industry to be more responsive to risks arising from the transition to a low-carbon economy. According to the BSP Governor Benjamin Diokno, the regulation will “... provide granular expectations on the integration of climate change and other environmental and social risks in banks' credit and operational risk management frameworks.” Earlier, in April 2020, BSP had issued the sustainable finance framework, which leverages good governance and effective risk management systems and expects banks to embrace sustainability principles and take strategic, concrete, and progressive actions in response to the climate call.
BSP also announced plans to engage banks in discussions during the three-year transitory period before the full implementation of the circular on sustainable finance framework. Within this period, banks are expected to identify and execute specific actions on the implementation of board-approved strategies and policies on the integration of sustainability principles into their strategic objectives, corporate governance, risk management systems, and operations. Banks will be required to establish an Environmental and Social Risk Management System and disclose sustainability initiatives in their annual reports.
At present, BSP conducts a vulnerability assessment to assess the potential impact of climate change and other environmental risks in BSP offices and branches. It also collaborates with the development partners and interest groups in conducting capacity building activities to help banks better manage environmental and social risks. BSP is also working closely with the Department of Finance and other government agencies to embark on the development of a principles-based taxonomy to facilitate the mobilization of funds toward green or sustainable projects. Meanwhile, the industry associations, in collaboration with the World-Wide Fund for Nature Philippines, are developing an analytical framework to assess the impact of climate physical risks on the loan portfolio of banks.
Keywords: Asia Pacific, Philippines, Banking, Climate Change Risk, Transition Risk, ESG, Sustainable Finance, Credit Risk, Operational Risk, BSP
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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