The Bangko Sentral ng Pilipinas (BSP) recently issued Memorandum Order 2022-042 to give banks and financial institutions additional guidelines on how they could implement their respective Environmental and Social Risk Management (ESRM) systems.
The BSP memo forms part of BSP’s Sustainable Finance Framework (Circular No. 1085, series of 2020), which recognizes the critical role of the financial industry sector in pursuing environmentally and socially responsible business decisions.
In a press statement, BSP Deputy Governor Chuchi Fonacier said that the guidance aims to inform banks on the initial steps or approaches that they may consider in developing an ESRM system.
Consistent with the principle of proportionality, the BSP also advised banks to adopt an ESRM system commensurate to their size, risk profile, and complexity of operations.
“The BSP recognizes that climate change and environmental hazards could pose significant risks to the safety and soundness of individual financial institutions and the entire financial system,” Fonacier said in a press release.
“Banks may employ other approaches that are considered more feasible considering their business model, risk appetite, and operational capacity, provided that these are consistent with BSP’s regulations and with international standards,” she added.
The BSP also encouraged banks to keep abreast with local and global developments on the sustainability front and to strengthen their capacity in response to the evolving climate as well as to environmental and social risks.
The regulator also outlined minimum expectations required to support the development of an ESRM system, which are embodied in various circulars such as the Network for Greening the Financial System (NGFS), and the Basel Committee on Banking Supervision (BCBS), among others.
Thrift bank association to support BSP’s sustainable finance roadmap
In a related development, the umbrella organization of thrift banks in the Philippines recently expressed support for the new guidelines and the BSP’s Sustainable Finance Roadmap.
“Recent and current events like the ongoing COVID-19 pandemic and natural calamities have triggered awareness about the importance of sustainability in various industries, including banking,” said Cecilio San Pedro, president of the Chamber of Savings & Development Banks (CTB), in a statement. “We aim to jumpstart our members’ response to this urgent call of the Bangko Sentral for sustainable development.”
The CTB said that the group’s support to the BSP is in line with the organization’s mandate to contribute to the country’s economic development, which entails servicing the needs of the household in terms of fund gathering and lending as well as providing medium and long-term credit to country’s micro, small, and medium enterprises (MSMEs) and housing.
“The CTB pledges to continue serving and guiding our member-banks as we move forward toward digitalization and a focus on other growth sectors such as agriculture and tourism, green banking, digital payments, and MSME (micro, small and medium enterprise) financing,” San Pedro added.
As of this writing, the CTB and its members are currently drumming up commitment to sustainability as they gather for their yearly convention on October 12 to 13, 2022.
The BSP’s sustainable finance road map covers green finance, which is designed to facilitate the flow of funds toward planet-friendly economic activities, as well as climate change mitigation and adaptation projects. Sustainable finance is defined as any form of financial product or service which integrates the environmental, social, and governance criteria into business decisions; they, in turn, support economic growth and provide lasting benefits for both clients and society, all while reducing pressures on the environment.