FOURTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
Introduced by Senator Loren Legarda 
EXPLANATORY NOTE 
Under the 1987 Philippine Constitution, it is the policy of the State to protect and 
advance the right of the people to a balanced and healthful ecology in accord with the 
rhythm and harmony of nature. It is in this sense that the State should strike a balance 
between economic development and environmental protection. 
While current environmental laws provide mechanisms to support the State in 
endeavouring the said balance, the problems and violations of the same surface after 
the projects or ventures have already been undertaken. 
In 1996, Executive Order No. 291 was promulgated to facilitate the attainment 
and maintenance of a rational and orderly balance between socio-economic growth and 
environmental protection. It mandated the estabIishment of in-house environmental 
units in all implementing government agencies to ensure compliance of projects with 
existing standards provided in environmental laws. The EO, which covers government 
financial institutions (GFIs), was intended to ensure that loan or related funding 
applications of government and private institutions have complied with the 
Environmental Impact System. 
As the Asian Development Bank (ADB) has asserted in its study in corporate 
responsibility for environmental performance, "though governments must continue to 
play a central role in maintaining environmental quality, it is also clear that this 
traditional focus does not attempt to work directly with the most active financier and 
player in the development equation- the private sector. While governments determine 
the rules under which businesses act, the firms themselves use natural resources, make 
products, and generate pollution. Thus, a sustainable future for the region is not 
possible without the active engagement of the private sector." (ADB 2005) 
In light of the rising corporate social responsibility, especially in the area of 
environmental protection, financial institutions are now adopting the concept of 
corporate environmental policy that is grounded on sustainable development. Further, 
the risk of default as a result of environmental upgrading or costs for works incurred by 
the borrower and other costs related to environmental risks are aspects that financial 
institutions consider. 
Such are the foundations of this bill, which seeks to instate an environmental unit 
in lending institutions that will ensure that any loan or related funding applications are 
in compliance with environment laws. Moreover, monitoring of the project's 
1 


compliance is continuous until such time when the account is fully paid or the 
collaterals are released or substituted. 
The environmental unit shall be composed of three functional units: 
1. Environmental Review and Assessment Unit tasked to ensure the 
environmental soundness of the project and the account’s compliance 
with environmental laws, thereby avoiding environmental risks; 
2. Environmental Policy, Planning and Systems Management Unit tasked to 
develop/ enhance the lending institutions internal policy to effectively 
implement the above corporate environmental policy; and 
3. Environmental Program Management Unit tasked to develop/ manage 
grant-assisted environmental programs and assist project management 
units in developing environment-related lending facilities that will 
provide services/ support to the bank and its clients. 
This proposed measure shall complement the current environmental laws and 
shall contribute to their sound implementation through the proposed mechanism in 
place at the initial stage of the project - that is, before it is actualized through funds. The 
enactment of this measure will help facilitate sustainable development and likewise 
encourage sound business management. 
In view of the foregoing, the passage of this bill is earnestly sought. 
Senator 
2 


10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
FOURTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
Introduced by Senator Loren Legarda 
AN ACT 
ESTABLISHING ENVIRONMENTAL UNITS IN EVERY LENDING 
INSTITUTION TO ASSESS THE ENVIRONMENTAL COMPONENT 
OF LOAN APPLICATIONS 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
SECTION 1. Declaration of Policy. - It is hereby declared the policy 
of the State to strike a balance between economic development and 
environmental protection. 
In this regard, lending institutions are 
encouraged to adopt a corporate environmental policy to support 
environmental protection and sustainable development and to mitigate 
credit risks arising from adverse impact of loans and other projects for 
financing in the environment. Pursuant to this policy, loan evaluation, 
approval and release shalI take into consideration the borrower's 
compliance with applicable environmental laws. 
SEC. 2. There shall be created an in-house environmental unit in 
every lending institution tasked to ensure that any loan or related funding 
applications of any natural or juridical entity have complied with the 
Environmental Impact Statement System under Presidential Decree No. 
1586. 
SEC. 3. Lending institutions shall ensure that projects subject of 
financing applications and collateral offered as security shall conform 
with environmental laws. 
Compliance of projects and collaterals with environmental laws 
shall be among the basis for approval of environmental units of loan 
accounts with environmental impact. 


21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
41 
48 
49 
50 
5 1  
52 
53 
SEC. 4. 
Lending institutions shall encourage continuous 
compliance with environmental laws. 
Account officers (AOs) shall continue to monitor compliance of 
projects and collaterals until such time that the account is fully paid or the 
collaterals are released or substituted. The AOs shall look into reported 
complaints against client’s projects/collateral. 
Clients shall be required to submit copies of the periodic 
monitoring reports of the Department of Environment and Natural 
Resources of their projects/ collateral. 
SEC. 5. The environmental unit of every lending institution shall 
prepare an environmental assessment report for all projects and loans 
with environmental impact. The report shall be integrated into the project 
proposal and/or loan application. 
SEC. 6. 
The environmental unit shall be composed of three 
functional units, to wit: 
a) Environmental Review and Assessment Unit tasked to ensure 
the environmental soundness of the project and the account’s 
compliance with environmental laws, thereby avoiding 
environmental risks; 
b) Environmental Policy, Planning and Systems Management Unit 
tasked to develop/ enhance the lending institutions internal 
policy 
to 
effectively implement 
the 
above 
corporate 
environmental policy; and 
c) Environmental Program Management Unit tasked to develop/ 
manage grant-assisted environmental programs and assist 
project management units in developing environment-related 
lending facilities that will provide services/ support to the bank 
and its clients. 
SEC. 7. 
The non-compliance of borrowers with applicable 
environmental laws shall be considered a condition for default. 
SECTION 8. Separability Clause. - If any provision or part hereof is 
held invalid or unconstitutional, the remainder of the law or the provision 
not otherwise affected shall remain valid and subsisting. 


54 
55 
56 
circulation. 
SECTION 9. Effectivity Clause. -This Act shall take effect fifteen (15) 
days after its publication in at least two (2) newspapers of general 
51 
Approved,