benjamin e diokno : sustainable finance towards a climate - resilient philippine economy speech by mr benjamin e diokno, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the 2nd annual national business climate action summit, pasay city, 21 november 2019. * * * secretary emmanuel de guzman of the climate change commission, ms. ma. alegria limjoco, president, philippine chamber of commerce and industry, mr. titon mitra, resident representative of the united nations development programme ( undp ) philippines, colleagues from the other government agencies, fellow speakers, friends from the banking industry, development partners, sustainability advocates, esteemed guests, a pleasant morning to all of you! first, let me congratulate the climate change commission, the pcci, the philippine business for the environment, and the undp for organizing this 2nd annual national business climate action summit. i am honored to join you in this important gathering as we exchange views on sustainable finance and firm up our commitment in pursuing a low - carbon, climate - resilient, and sustainable development pathway for the philippines. according to a study made by climate central and published on the nature communications journal, the impacts of sea - level rise and coastal flooding is seen to become more extensive that could erase coastal cities by 2050. the philippines is one of the countries identified to be in danger and the national capital region could likely be submerged due to climate change. then, last 8 november 2019, we commemorated the 6th year anniversary of typhoon yolanda which is considered to be the strongest typhoon that struck the country in 2013. lastly, three major earthquakes hit north cotabato and surrounding provinces in october 2019 alone. thousands of families were affected and scores of houses and infrastructures were damaged. after what happened, we cannot help but ask ourselves if we are ready to withstand any other form of calamity that may befall on us? if we are uncertain with our answers, all these headlines should serve as a strong wakeup call. we should prepare for threats or risks that may happen any time especially those that have prolonged significant impact such as those resulting from environmental degradation or climate change risk. several climate vulnerability reports have consistently positioned the philippines at the top as one of the countries exposed and vulnerable to natural disasters or climate change hazards. these facts provide a strong impetus and sense of urgency for all stakeholders to work together to address environmental issues including climate change.

perspectives from a myopic compliance exercise to a forward looking stance that puts greater weight on the long term financial interest and sustainability of the organization. following this approach, the bsp will be issuing esg related regulations in phases. the first phase will provide high level principles and broad expectations on the integration of esg and sustainability principles in the corporate and risk governance frameworks as well as in the business strategies and operations of banks. the second phase will provide more granular expectations in managing climate change and other environment - related risks in relation to credit, market, liquidity, and operational risks. the third phase may cover potential regulatory incentives. complementary to the policy issuances is our own research on the impact of natural disasters on the philippine banking performance. using existing regional data, we found that episodes of extreme weather conditions have negative impact on financial intermediation ( deposits, loans, npl, provision for npl, profitability ). however, the impact is short - lived given the sound financial position of banks. the damage tapers off after a year or so. it is important, however, to underscore that we are not starting from scratch. the bsp ’ s existing corporate and risk governance standards serve as the underpinning regulations for our esg issuance. in particular, since 2012, we have established the accountabilities of the board and senior management in promoting good governance and in adopting effective risk management systems in banks. the bsp regulations also emphasize the adoption of appropriate credit and operational risk management systems, including stress testing framework. this is to ensure that various risks including environmental issues and climate change risks are considered in the banks ’ decision - making process and stress testing exercises. the results of the stress testing should feed in the capital planning and business continuity arrangements of banks. moreover, with the geographical location of the philippines, banks are prone to physical risks from severe weather condition. it is in this light that the bsp adopted a policy that provides temporary regulatory relief to banks which are located in areas affected by natural calamities. the regulatory relief aims to assist affected banks in their recovery and allow them to resume normal operations. this refers to the risks resulting from climate change which can be event - driven ( acute ) or longer - term shifts in climate patterns ( chronic ) that may cause direct damage to assets or indirectly through the disruption of supply chain. acute physical risks include floods, typhoons, droughts, wildfires, earthquake. chronic physical risks include