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Climate change poses a risk to the financial stability of the Philippines, even as biodiversity losses currently only have a small impact on the banking system, the country’s central bank said in its annual sustainability report.
The Bangko Sentral ng Pilipinas (BSP) mission of price stability and a strong financial system “will be increasingly challenged by climate change itself and the responses to it, whether initiated locally or abroad”, governor Eli Remolona said in the report’s forward statement.
Those risks include being unable to distinguish between temporary and permanent changes to inflation, impacts on monetary policy, communication and credibility challenges due to the unpredictability of climate change shocks, and difficulty assessing policy stances.
In an analysis, the BSP found that biodiversity losses tend to only reduce bank capital ratios of banks by less than 1%, showing a “modest impact of biodiversity loss on financial stability”.
Still, the central bank noted that more data and advanced methodologies are needed to fully assess the financial impact of nature loss, as it could translate into various risks, including credit, unswerving, market, operational, and liquidity risk.
The Network for Greening the Financial System considers addressing nature-related risks to be an “imperative” and has produced a framework for assessing them.
The Philippines is at risk of increasingly extreme weather events, including droughts, rising sea levels, flooding and tropical cyclones. According to the World Bank, damages from climate change in the Philippines could impact 7.6% of the country’s total GDP by 2030 and 13.6% by 2040.
The BSP is pursuing a sustainable agenda that is inclusive and promotes a just transition, including promoting green finance in vulnerable sectors. It hopes the outcome of its agenda will include that climate and nature are incorporated into monetary policy, climate and nature-related risks are internalised by the financial sector, green finance solutions are used by vulnerable communities, and sustainability becomes ingrained in the BSP’s culture.
To achieve those goals, the BSP will prioritise managing and understanding the impact of climate risk on financial stability, as well as supporting development of a green finance market and implementing sustainability in its own operations, including investments and climate-related disclosures.
Banks in the Philippines are increasingly receptive to financing sustainable projects. In a BSP survey, the number of financial institutions interested in suitable projects or activities in the next two years increased to 90.3%, compared to 79.3% in 2021. Even so, banks noted challenges to green finance, including the capacity and bankability of sustainable projects.
The BSP relaxed some of its lending rules earlier this year to encourage green lending. In the first quarter of 2024, the total amount of peso-denominated sustainable bonds rose to 236.5bn pesos, while the total amount of foreign currency-denominated sustainable bonds went up to US$1.6bn due to a social bond issued by a thrift bank.
This page was last updated January 6, 2025
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
