Philippine central bank launches sustainable finance taxonomy

The Central Bank of the Philippines (BSP) on February 22 approved the use of a new sustainable finance taxonomy for banks.

The BSP said in a statement that banks could use the Philippine Sustainable Taxonomy Guidelines (STFG) to identify whether an economic activity was environmentally and socially sustainable, and guide their funding appropriately.

It added that the taxonomy would provide banks with a simplified approach to assess the economic activities of micro, small and medium-sized enterprises. 

Last September, the Financial Sector Forum – a coalition of Philippine financial agencies, including the BSP – proposed a draft STFG.

The approved version of the guidelines focuses on climate change mitigation and adaptation. Future versions will also cover biodiversity and the circular economy, the central bank said.

The BSP said banks would have “an observation period” until the end of 2024 to become familiar with the taxonomy. During this period, the central bank will organise a pilot testing exercise with the banking sector. It said it would draw on the results to develop additional guidance on how banks should use the taxonomy.

The SFTG uses a traffic light system. If an activity is classified as “green”, this means it is aligned with the taxonomy. “Amber” activities are partially aligned with the SFTG; these include temporary measures to remedy an actual or potential harm, or those considered to be “enablers” of climate change mitigation and adaptation objectives. “Red” activities are not aligned with the SFTG, but may still be eligible for ‘unlabelled’ financing. 

BSP governor Eli Remolona said: “The issuance of a taxonomy is a crucial step in our sustainability journey… 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.” 

Creating the taxonomy was one of the aims listed in the Philippine Sustainable Finance Roadmap. 

Green Force, a taskforce comprising financial authorities including the central bank and key government agencies, released the roadmap in October 2023, with the aim of co-ordinating efforts to promoting green finance. 

Other central banks in the region have been developing their sustainable finance taxonomies in recent years. In April 2021, Bank Negara Malaysia issued the Climate Change and Principle-based Taxonomy, a standardised classification system for banks to report their climate-related exposures.

In December 2023, the Monetary Authority of Singapore launched a taxonomy, which sets criteria for mitigation activities in eight sectors, including energy, real estate, transport, and carbon capture and sequestration.

In May 2023, the Hong Kong Monetary Authority launched a consultation to develop a prototype green classification framework. Its deputy chief executive Darryl Chan told the South China Morning Post today (February 26) that it would start preparing for a transition taxonomy this year, alongside its ongoing efforts to develop a green taxonomy.