Wednesday, July 29, 2020

From New Normal To Better Normal: What's In It For Banks?

Wazzup Pilipinas!

The framework for a better normal, enabled by sustainable finance, has been laid down.

The World Wide Fund for Nature and the Bankers Association of the Philippines hosted a CEO Forum, “From New Normal to Better Normal: What’s in it for Banks?” with a focus on supervisory expectations and ways forward by the banking sector with the April 29 BSP issuance of the Sustainable Finance Framework, under Circular No. 1085.

Mr. Fabian Dee, BAP Second Vice President and Metropolitan Bank and Trust Company President, recounted the beginning of BAP's partnership with WWF-Philippines for the attending local banks during the forum.

The Association took its first foray into sustainable finance with WWF as early as 2018, beginning with a peer learning exchange with the Association of Banks in Singapore and the ASEAN Bankers Association (ABA), BAP Second Vice President and Metropolitan Bank and Trust Company President Fabian Dee said. The BAP is Permanent Chair of the ABA Education Committee. As part of its remit, the BAP has partnered with WWF to provide capacity building on sustainable finance for its member banks.

The Framework, issued during stringent lockdowns in Metro Manila in response to the public health crisis, is seen by the Bangko Sentral ng Pilipinas as an important and timely contribution towards foresight and mitigation by the banking industry of future systemic risks - not unlike COVID-19 and climate change - that are detrimental to financial stability.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno presented the government's current operations and strategies in response to the pandemic. He was joined by BSP Deputy Governor Chuchi Fonacier in presenting their mandate as well.

Despite the economy’s forecasted contraction due to restrictions in movement and dampened consumer spending, BSP Governor Benjamin Diokno pointed to the country’s strong position before the pandemic hit. The 4-pillar response strategy of government also intersect with the UN Sustainable Development Agenda, showing consistency between recovery and building a green and sustainable economy.

Alongside the Circular, Mr. Diokno announced sustainable central banking as one of its strategic objectives, through improved internal capacity and assessment of climate and environmental risks to its regional operations. The financial regulator also signified its intent to apply as member to the Central Banks and Supervisors Network for Greening the Financial System, the aim of which is to enhance the role of the financial system to manage risks, and to mobilize capital towards sustainable development. He also counted innovative sustainable finance products that were launched by international and local banks to support health, labor, and MSMEs during the pandemic, and the rise of digital banking and payment, among the components of a toolbox to boost the Philippines’ recovery efforts.

BSP Deputy Governor Chuchi Fonacier reiterated the mandate of the BSP in maintaining price stability conducive to the economy’s sustainable growth that supports national commitments towards long-term ecological, social and economic balance. Building upon existing corporate and risk governance standards, Ms. Fonacier said the new framework subscribes to high-level sustainability principles and places accountability on the banks’ board and management in adopting effective environmental and social (E&S) risk management systems. Banks are also expected to disclose their banks’ sustainability strategic objectives and risk appetite, breakdown of E&S exposures, and existing and emerging E&S risks’ impact on the bank. She closed with the important role of banks in sending a powerful signal to the business community of their new strategic approach towards sustainability, and in inspiring their clients and stakeholders in making similar responsible business decisions.

BAP Risk Committee Chair and RCBC President and CEO Eugene Acevedo provided recommendations to optimize existing bank units and highlighted current bank practices to meet the Circular’s requirements. Further, global standards and opportunities in greening critical sectors such as energy provide means for banks to contribute in meeting the Sustainable Development Agenda and the Paris Agreement.

Climate change is both a source of financial risk and instability, and the BSP Circular reflects regional and global trends of jurisdictions developing regulatory frameworks to integrate sustainability into banks’ strategies and operations to protect against systemic environmental and social risks such as climate change, WWF Vice President Sylvain Augoyard said. He also mentioned the Basel Committee on Banking Supervision recently set up a high-level Task Force on Climate-related Financial Risks, one of whose objectives is to address climate-related financial risks through a set of supervisory practices.

Mr. Edgardo Tongson, WWF Sustainable Finance Chief of Party, emphasized the importance of WWF's framework in helping identify the areas of support needed by local banks to meet demands on sustainability.

WWF Engagement Manager Claine Avelino also pointed to WWF’s annual Sustainable Banking Assessment report, which helps local banks analyze strengths and gaps in their initiatives against international standards and the new Circular, and identifying areas of support for banks to readily comply.

Given the range of internationally accepted sustainability reporting frameworks, WWF Sustainable Finance Chief of Party Edgardo Tongson highlighted the need for alignment among standard-setters and report preparers, and the opportunity to meet increasingly sophisticated investor expectations on sustainability.

Philippine banks were also invited to join the Principles for Responsible Banking by UNEP Finance Initiative Yuki Yasui, which currently has 180 signatories collectively worth over $47T, roughly a third of global banking assets. The Principles were developed by banks, for banks, to ensure that the sector, which has become increasingly intertwined with the world’s finite natural resources, is resilient and sustainable through international cooperation. The Philippines’ own DBP is one of 30 founding member banks of the PRB.

WWF and BAP will work with stakeholders in the finance sector to integrate sustainability into banks’ strategies, products, and corporate governance and risk management frameworks. A series of webinars will be launched to support banks in meeting supervisory expectations while unlocking sustainable development opportunities for their clients and stakeholders in repairing the Philippine economy post COVID-19.

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