BSP proposes guidelines for sustainable investing

THE BANGKO SENTRAL ng Pilipinas (BSP) is proposing guidelines for banks’ integration of sustainability principles in their investment activities.

“These guidelines are being issued to set expectations on the prudent conduct of investment activities and the minimum practices that a BSP-supervised financial institutions should establish for the management and control of risks associated with investments,” according to the draft circular posted by the central bank on Thursday.

Under the proposed rules, the central bank recommended strategies to help banks assess the sustainability of their prospective investments.

Among these methods is integration, or for banks to explicitly include environmental and social (E&S) risks in their investment analysis for better risk management and improving returns.

Under the screening strategy, banks may actively avoid investing in securities that belong to companies they believe “counter moral values… or standards and norms.” This means not investing in firms that are part of gambling or military weapons industries or entities that don’t respect human rights and environmental protection.

Conversely, via screening, banks may prefer companies that are known for relatively better E&S risks compared with their peers. By screening, lenders may also opt for “impact investing” with the goal to “generate and measure social and environmental benefits alongside a financial return.”

The BSP will also allow control mechanisms to help financial institutions prevent falling into the “greenwashing” trap when investing.

“Greenwashing refers to the deceptive marketing used to persuade the public that an organization’s products, aims, and policies are environmentally friendly,” the BSP said.

Under the proposed guidelines, a bank’s board of directors is responsible for ensuring that sustainability principles are integrated into their investment activities.

Stakeholders are given until June 1 to give their feedback on the proposed circular.

The central bank launched the second phase of its sustainable finance framework in November that directed banks to monitor environmental and social risks in their credit exposures and business operations. — Luz Wendy T. Noble