BSP adopts Sustainable Finance Taxonomy Guidelines

On 21 February 2024, the Bangko Sentral ng Pilipinas (“BSP”) issued BSP Circular No. 1187 adopting the Philippine Sustainable Finance Taxonomy Guidelines (“SFTG”) for banks. 

The SFTG is a product of the collaborative effort of the Philippine financial sector regulatory authorities to address the economic impacts of climate change. The regulatory authorities composed of the BSP, the Insurance Commission, the Securities and Exchange Commission, and the Philippine Depositary Insurance Commission formed the Financial Sector Forum (“FSF”) which is an inter-agency body that aims to advance the financial sector’s understanding and management of climate-related risks, while also growing sustainable finance opportunities. With this goal, the FSF developed the SFTG. 

The SFTG will serve as a tool to classify whether an economic activity is environmentally and socially sustainable and guide stakeholders in making informed investment or financing decisions.

In BSP Circular No. 1187, the BSP amended Section 153 of the Manual of Regulations for Banks to reflect the framework under the SFTG. 

Under the amendment, banks shall now use the SFTG whenever they extend credit, make investment decisions, or design sustainable financial products and services. In issuing sustainable bonds, banks must also comply with the standards or guidelines issued by the Securities and Exchange Commission.

The SFTG provides an assessment mechanism to determine whether an activity is in line with the SFTG. Briefly, the process are as follows: first, they will determine if the activity is an excluded activity; second, they will determine the primary objective of the activity, i.e. the environmental objective (“EO”) which is relevant to the activity and may be either climate change mitigation or climate change adaptation; third, they will assess whether the activity significantly harms the other EO; and lastly, if there is harm, they shall verify that the same has been remedied or will be remedied within the required defined period. 

After the assessment, the activities will ultimately be classified as Green, Amber, or Red under the SFTG. The activity’s classification will affect its eligibility for financing, among others.

Banks have until the end of 2024 to familiarize themselves with the SFTG. Beginning in 2025, the BSP will start collecting information about the use of the SFTG.