Philippines’ Financial Sector at Risk as Climate Change Impact Grows, Warns Regulators
Philippines' Financial Sector Faces Climate Change Risk, Initiates Sustainable Finance Taxonomy
The local financial sector in the Philippines is facing a significant risk due to the growing impact of climate change, according to regulators. The Financial Sector Forum (FSF), which includes the Bangko Sentral ng Pilipinas, Securities and Exchange Commission, Insurance Commission, and the Philippine Deposit Insurance Corp, highlighted that the country is particularly vulnerable to natural disasters as it is located in the Pacific Ring of Fire and frequently experiences destructive storms. The FSF emphasized that climate-related disasters have the potential to disrupt production and the broader economy. In response, the Philippines has implemented policy measures, including a commitment to reduce greenhouse gas emissions by 75% by 2030.
Recognizing the challenges associated with financing climate change initiatives, the FSF announced plans to engage extensively in “greening” the local financial sector. The objective of this program is to enhance the sector’s understanding and management of climate-related risks while promoting sustainable finance opportunities. A crucial aspect of the initiative involves developing a sustainable finance taxonomy for the financial sector, which will be informed by the Philippine’s Sustainable Finance Roadmap and Sustainable Finance Guiding Principles. The establishment of this taxonomy will enable companies, investors, and financial institutions to make well-informed decisions. Additionally, supportive policies and incentives will encourage financial flows towards environmentally and socially sustainable objectives.
The FSF has released a consultation paper seeking feedback on the design of the Philippines Sustainable Finance Taxonomy Guidelines (SFTG). The proposed guidelines draw on experiences from other countries and regions, with a particular focus on the framework of the Association of Southeast Asian Nations. Initially, the SFTG will prioritize climate change mitigation and adaptation objectives, with the potential inclusion of biodiversity, circular economy, and social objectives in the future. The paper also suggests screening activities based on the “do no significant harm” principle and implementing minimum social safeguards tailored to the Philippines context. Prohibited activities and a transition category have been proposed, and guide questions and decision trees are included to assist users.
The FSF highlighted the crucial role of micro, small, and medium enterprises (MSMEs) in the economy and is seeking feedback on how these enterprises can benefit from sustainable finance initiatives. Financial inclusion considerations are also a priority to ensure that the benefits of the taxonomy extend to all members of society. Finally, the FSF is exploring potential regulatory measures to activate the full potential of the taxonomy in increasing and redirecting fund flows. The consultation period for the paper is open until October 6, 2021.
