BSP okays adoption of sustainable finance taxonomy guidelines

It has a “traffic light system” in classifying if finance activities are SFTG-aligned.

The Philippine central bank’s Monetary Board has approved adoption of sustainable finance taxonomy guidelines (SFTG) for banks in a 14 February meeting, the Bangko Sentral ng Pilipinas (BSP) said in a 22 February announcement.

SFTG is a classification tool for identifying whether an economic activity is environmentally and socially sustainable. Notably, it aims to provide a simplified approach in assessing taxonomy as well as a simplified approach in assessing the economic activities of micro, small and medium enterprises (MSMEs). 

An observation period for banks is set until end-2024 to give them time to familiarise with the SFTG principles. During this period, a pilot testing exercise will be conducted in partnership with the industry, the BSP said in its announcement.

This first version of the SFTG focuses on two environmental objectives: climate change mitigation and climate change adaptation. Future iterations will cover biodiversity and circular economy.

The SFTG notably uses a “traffic light system” to classify activity. “Green” is for an SFTG-aligned activity, “Amber” for partially aligned, and “Red” for not aligned. 

An “Amber” classification includes activities that are in transition to remedy an actual or potential harm done, BSP said. 

A “Red” classification means that the activity does not meet the higher ambitions of the SFTG, but these activities may still be eligible for ‘unlabeled’ financing.

The issuance of a taxonomy is a crucial step in the country’s sustainability journey, said BSP Governor and Monetary Board Chairman Eli M. Remolona, Jr.

“It provides high level guidance in determining the greenness of an investment.  But this is just the first step to what I expect will be a long iterative process of calibrating the document to fully capture the conditions of the Philippine economy,” Remolona said.