Benel Lagua l August 17, 2023 l Manila Bulletin
One capstone project this writer takes pride in during his stint with the Development Bank of the Philippines (DBP) was shepherding the bank’s initiative to be a founding signatory of the “Principles for Responsible Banking” in 2019. Members of the UN Environment Programme’s Finance Initiatives (UNEP-FI) crafted the principles to serve as their formal pledge of commitment to sustainability finance.
Sustainability encompasses the business role in balancing environmental and social (human rights and labor issues) as well as economic issues. Sustainability development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Signatories of the Principles pledge the following:
- Alignment. “We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.”
- Impact and Target Setting. “We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and the environment resulting from our activities, products and services.”
- Clients and Customers. “We will work responsibly with our clients and customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.”
- Stakeholders. “We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.”
- Governance and Culture. “We will implement the Principles through effective governance and a culture of responsible banking.”
- Transparency and Accountability. “We will periodically review our individual and collective implementation of these principle and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.”
A signatory bank is expected to take steps that will ensure the credibility of commitment. Through impact analysis, the bank will review its main activities to identify significant positive and negative impacts for the people and environment where it does its business. The bank will then set ambitious targets to reduce significant negative impacts and increase positive impacts.
There should be milestones for effective monitoring and measurement. Finally, the bank must adapt a reporting and self-assessment template to keep track of its progress.
The DBP journey to that landmark 2019 signing was not a walk in the park. The bank’s green financing initiatives began in 1989 with the launch of the World Bank funded Industrial Restructuring Project (IRP). It ushered the involvement of the bank in environmental management and protection initiatives. A component of IRP is a technical assistance (TA) dubbed as Environmental Management Project for the development of environment management plans for selected industrial subsectors.
Subsequently, the DBP developed and implemented various policy-based credit facilities funded through Official Development Assistance (ODA). Some of there are: Environment Infrastructure Support Credit Program Phase I and II funded by JICA; Industrial Pollution Control Loan Project Phase I and II funded by KFW; LGU-Urban Water and Sanitation Project from the World Bank; Credit Line for Solid Waste Management funded by KFW; and another Environmental Development Project from JICA.
These successfully implemented ODA credit facilities created positive impact on the environment, specifically in waste management, pollution control, water supply and sanitation, and clean energy generation. To build on these gains, DBP institutionalized the integration of environmental consideration in all aspects of its operations and services, asset management and business operation with the adoption of an Environmental Policy Statement in 1997. In 2016, the bank also adopted a Social Safeguards Policy.
In 1999, DBP developed Environmental Due Diligence Manual and Environmental Performance Monitoring Manual. The bank achieved ISO 14001 Certification for its Environmental Management System in 2002 and has been consistently re-certified. It started publishing a Corporate Environmental Report in 1998 until 2007 and then shifted to Sustainability Development Report starting 2008 to cover the triple bottom line.
In 2020, the Bangko Sentral ng Pilipinas issued the Sustainable Finance Framework with broad expectations on the integration of sustainability principles in the corporate governance and risk management framework, business strategies and operations of banks. The BSP also issued the guidance on the implementation of the Environmental and Social Risk Management System in 2022 where the regulator listed its minimum supervisory expectations for banks.
It took DBP, in hindsight, all of 30 years to build its capacity and competence in handling sustainability issues and it had a lot of external support. The collaboration with the international community through ODA credit facilities and the TA’s that went with them contributed immensely.
While this column supports the BSP mandates, hopefully the implementation will be studied well, handled conscientiously and deliberately, and will not be rammed down on the private banks. The private banks are already being burdened by the increasing costs of regulatory compliance. There must be reasonable balance.
*** (Benel Dela Paz Lagua was previously EVP and Chief Development Officer at the Development Bank of the Philippines. He is an active FINEX member and an advocate of risk-based lending for SMEs. Today, he is independent director in progressive banks and in some NGOs. The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as FINEX.)