Introduction: A Climate-Resilient Financial System in a Vexed Era
The Philippines faces increasing climate risks, from riverine floods to coastal storms. In this context, the Bangko Sentral ng Pilipinas (BSP) is taking proactive steps to ensure the country’s financial system can weather climate shocks while steering capital toward green, adaptive projects. Recognizing climate risk as a systemic threat, the central bank is pursuing a three-pronged approach: managing climate-related financial risks, embedding sustainability in its operations, and mobilising finance for adaptation and green growth.
Three-Pillar Strategy: Risk Management, Operations, and Green Finance
BSP’s framework rests on three interlinked pillars. First, it integrates climate and environmental risks into price stability and financial stability analyses, ensuring that risk management reflects evolving climate realities. Second, the central bank embeds sustainability into its own operations and governance, signaling that resilience starts at the core of the financial system. Third, BSP actively mobilises capital toward green adaptation measures for households, firms, and communities, aligning monetary policy with climate goals.
Integrating ESG into Banking Risk Management
Since issuing its sustainable finance framework in 2020, BSP expects banks to incorporate environmental, social, and governance (ESG) factors into corporate and risk management systems. This is not theoretical: it shapes lenders’ decisions, influences loan pricing, and steers funds toward projects that reduce vulnerability to climate impacts.
Incentives that Drive Green Financing
Recognising that policy leverage matters, BSP introduced incentives to boost green lending. Notably, it offered a 15% top-up on single borrower limits for green or sustainable projects, allowing banks to extend up to 30% of a lender’s net worth to a single borrower. In addition, reserve requirements for green and sustainable bonds were reduced from 3% to 0%. These measures have contributed to an uptick in financing for renewable energy, waste management, water sustainability, energy efficiency, and clean transportation.
What This Means for Banks and the Real Economy
According to BSP’s assistant governor, the incentives have helped large banks finance high-ticket green projects and issue sustainable bonds. The impact is not just about compliance; it is about enabling banks to support the real economy’s transition to cleaner, more resilient infrastructure and services.
Capacity Building: Filling the Knowledge Gap
A persistent challenge in scaling green finance is limited awareness and expertise. BSP is addressing this by conducting climate risk assessment workshops for smaller banks and hosting quarterly discussions on sustainable finance opportunities for banks and investors. By raising financial literacy around climate risk, the central bank hopes to expand the pool of banks capable of evaluating and funding green projects.
Adaptation Finance and Blended Finance: Unlocking New Sources of Capital
With adaptation finance often underfunded globally, BSP is exploring blended finance structures and data-driven risk assessment tools to unlock more capital for resilience. The central bank stresses the importance of data accessibility and new financing mechanisms to price climate risk accurately and attract private investment in adaptation measures, such as flood defenses, resilient infrastructure, and water management systems.
Biodiversity as a Finance Vector
Beyond climate risk, BSP acknowledges biodiversity as a core financial concern. The Philippines, a megadiverse country, has a biodiversity strategy that aims to conserve ecosystems and gradually close financing gaps. Incorporating biodiversity-related financial risks and opportunities into banking assessments reflects a broader view of resilience, where ecological health supports long-term financial stability.
Looking Ahead: Measuring Impact and Expanding the Toolkit
As climate risk evolves, BSP plans to assess the effectiveness of incentives, deepen green finance data availability, and refine blended finance models. The goal is a financial system that is safe and stable today, while being prepared for future climate scenarios and ready to seize sustainable growth opportunities.
Conclusion: The BSP’s Role in a Climate-Resilient Philippines
By weaving climate risk into supervisory standards, expanding green finance, and fostering capacity among banks, the BSP positions the Philippines to withstand climate shocks and to channel private capital toward resilience. In a country where disaster risk is high, such proactive, system-wide action is essential for economic stability and sustainable development.
