Introduction: Climate risk as a financial imperative
Climate change poses a systemic risk to the Philippines’ economy, threatening both growth and stability. The Bangko Sentral ng Pilipinas (BSP) has reframed this risk as an opportunity to build a more resilient financial system. While the country faces frequent river and coastal flooding and recent disruptions from events like Typhoon Ragasa, the BSP’s approach is to integrate climate risk into everyday banking and to mobilize finance toward green adaptation projects.
BSP’s three-pronged approach to climate risk
The BSP has laid out a holistic framework that integrates climate considerations into the core of financial policy:
- Managing climate-related risks to price stability and financial soundness: Banks must incorporate environmental, social, and governance (ESG) factors into risk management and lending decisions.
- Embedding sustainability in central bank operations: The BSP models the financial system against climate scenarios and aligns its procurement, data, and oversight with a climate-conscious lens.
- Channeling finance toward green adaptation: The BSP actively mobilizes capital for resilience—funding projects that reduce disaster risk and promote sustainable growth.
As Assistant Governor Pia Bernadette Roman Tayag notes, central banks are uniquely positioned to address climate risks by protecting the real economy and seizing new opportunities in green finance.
Incentives that boost green lending
To accelerate the flow of capital into climate resilience, the BSP has deployed targeted incentives for banks. Notably:
- Top-up on single-borrower limits: Banks can extend higher credit exposure to green projects, with a 15% top-up that allows up to 30% of a bank’s net worth to be exposed to a single borrower or group for green or sustainable ventures.
- Lower reserve requirements for green bonds: The reserve requirement for green and sustainable bonds was reduced from 3% to 0%, making it cheaper for banks to issue and hold green instruments.
Tayag reports these measures have already spurred more green financing for large-ticket initiatives in sectors like renewable energy, waste management, water management, energy efficiency, and clean transportation. These incentives run through the end of 2026, with ongoing reviews to determine whether to extend or enhance them.
Capacity building and data access
One barrier to scale is knowledge. The BSP emphasizes capacity building to close the knowledge gap around green financing. Recent efforts include:
- Climate risk assessment workshops: Tailored training for smaller banks to help them evaluate climate risk and integrate it into risk frameworks.
- Regular knowledge-sharing: Quarterly meetings on sustainable finance opportunities for banks and investors.
Improved data access is also a priority. The BSP aims to make information on green investment performance, risk measurement, and blended finance mechanisms more readily available to financial institutions—reducing uncertainty and unlocking new funding channels.
Challenges and opportunities in adaptation finance
Adaptation finance remains underfunded globally, and the BSP is exploring structures such as blended finance to unlock capital for resilience projects. Tayag highlights the need for better data to assess risk and to structure financial instruments that support adaptation alongside mitigation efforts. By promoting biodiversity finance, the central bank recognizes the Philippines as one of the world’s megadiverse countries, with a biodiversity strategy that seeks to restore degraded areas and reduce the financing gap. The goal is to treat biodiversity financing not as a niche but as a mainstream opportunity within the financial system.
Looking ahead: A climate-resilient financial system
The BSP’s vision goes beyond risk management. It is about ensuring the Philippine financial sector remains “safe and stable today, and ready for tomorrow.” By aligning monetary policy with sustainability, expanding green finance, and bridging knowledge gaps, the central bank aims to bolster resilience against climate shocks and to channel capital toward the adaptation that communities will need in the decades ahead.
