RCBC Chief Risk Officer talks about Sustainable finance and Sustainable Banking

 

During the 2nd Annual National Business Climate Action Summit, BSP Governor Benjamin Diokno pointed out that climate change and environment challenges can pose risks to the stability of the financial system.  A whole of country approach is necessary to address such risks and scale up promotion of green andsustainable finance.

The banking sector is called upon to accelerate efforts towards a Sustainable Banking and Finance.

RCBC Chief Risk Officer Jamal Ahmad explains that sustainable finance is about making sustainability considerations a part of financial decision-making which means more climate neutral, energy and resource efficient and circular activities.

Jamal added that sustainable banking is the integration of sustainability into bank’s core businesses through the inculcation of environmental and social consideration into product design, mission policy and strategies. 

In the recently held press briefing hosted by RCBC, Jamal spoke about the challenges and risks that banks face because of climate change.

He said that physical risk arises from the impact of climate change such as extreme weather, geological events, or changes in ecosystem equilibria, such as soil quality or marine ecology.  These risks can be event driven or acute, or they can be long term in nature, that is, chronic. He pointed out that the devastation caused by super Typhoon Yolanda is an example of an acute climate event. 

Transition risk, on the other hand, arises from efforts to address climate change.  These include – abrupt or disorderly introduction of public policy, technological changes, shifts in investor sentiment and disruptive business model innovation etc. This could result in assets becoming stranded. 

A McGlade and Elkins study (2015) found that in order to have at least a 50% chance of keeping global warming below 2 degrees Celsius, over 80% of current coal reserves, half of gas reserves and a third of oil reserves should remain unused from 2010 to 2050.  As the risk related to stranded assets is not reflected in the value of companies that extract, distribute and rely on these fossil fuels, these assets may suffer from unanticipated and sudden write-downs, devaluations or conversions to liabilities.

Physical and Transition risk manifest into financial risks through - credit, market, operational, liquidity, legal, Insurance and reputational risk.

 

Sustainable Finance in RCBC



In January 2020, the bank released its first ever Green and Sustainability  Bonds Impact report which explained the impact the bank’s financing activities have created. It outlines the bank initiatives to uphold environmental and social responsibility in all its business activities.