Regional Workshop on Scaling-up Climate Finance: Urgencies to Increase Public and Private Sources for Climate and Disaster Resilient Development PHILIPPINES Country Survey Results Presentation VICTOR C. ABAINZA Senior Consultant, ADFIAP Consulting Group
Quick Background • ESCAP’s “Innovative Climate Finance Mechanisms for Financial Institutions in the Asia-Pacific Region” Program • CCC’s “whole of nation movement” for innovative and transformative green development of the Philippines called, “The Great Transformation Challenge” • ADFIAP as implementing organization • WWF and BAP as supporting/partner organizations
Quick Background Strengthen capacity of FIs to develop an enabling policy environment that promotes private investments in climate change mitigation and adaptation projects Involves consultations with banks, including a survey to collect baseline information on level of ESR awareness and help design a capacity-building program to integrate sustainability and climate change risks and opportunities in their operations
Main Activities Activities Description Responsible Time Entity Frame Conduct a survey to assess baseline of how January banks take into account climate risks and ADFIAP with 2019 – 1 their green product offering. A gap analysis BAP’s support March of the results will be carried out and a 2019 customized capacity development plan will be prepared for participating banks Conduct a ”Sustainable Finance Forum” UN- 2 where terms and “universe” of green ESCAP/CCC/ April investments will be defined through a clear ADFIAP/WWF/ 2019 framework and where the results of the BAP survey will be shared Sponsor a voluntary “Green Finance UN- April 3 Roadmap” that banks can sign up to ESCAP/ADFIAP 2019- committing to mobilize green investments with BAP’s May 2019 and champion green finance in the support Philippines
Main Activities Responsible Time Frame Activities Description Entity 4 Conduct awareness -raising seminars and UN- June 2019 – ESCAP/CCC/ August 2019 implement capacity-building programs and e- ADFIAP/WWF learning modules /BAP 5 Engage the BSP in coming up with a policy CCC with April 2019 - BAP’s support September action plan 2019 ADFIAP with October 6 Give “Climate Leadership Awards” during one BAP’s support 2019 On Hold of the special events of BAP, BSP or CCC Organize and launch a “Climate Finance ADFIAP April 2019 7 Community” , a mobile-friendly website & to On-Going virtual community that will serve as platform December for building collaboration among different 2019 stakeholders within the climate finance
Where we are: E & S* Maturity Profile E&S MATURITY PROFILE *E&S : Environmental and Social Report made in 2017
Survey Rationale To determine the training needs of BAP member-banks and design a capacity- building program to better integrate sustainability, climate risks, and business opportunities into their operations.
Survey Participants Awareness and Perception to Environmental & Social Risk Management (ESRM) 20 banks; 13 local ; 12 in top 20 based on asset size and 9 have mobilized funding from international / DFI sources 7+ Trillion combined assets
Top 3 Investment Portfolios 71% Power & Energy Highest portfolios are 50% Real Estate climate change & ESRM relevant 43% Retail / Trading
Current Lending Programs 70% Renewable Energy & Energy Efficiency A few have climate resilience, clean transportation, sustainable water and water management facilities
Other Survey Highlights 95% see opportunities and benefits: Believes involvement in green finance or climate-smart projects will enhance reputation and strengthen brand value Sees green finance business can deepen relationship with existing clients Attracts investments from international FIs/DFIs that support E&S
Top 3 Drivers to Lending 58% say it will improve the credibility and reputation 47% say potential new businesses can be tapped from the market It may improve portfolio risk
Other Drivers (below 35% score) Competitive pressure to comply with international best practice Due to legislation including labor, health, safety and environmental laws Financial sector regulation on climate change and ESRM Requirement from parent company Requirement from source of funding / DFIs
More importantly, 100% believes… That “greening” the bank and/or enhancing environmental and social risk management will… Tap new markets and attract new clients ; and Improve financial and non-financial performance of the Bank.
Opportunities are open! Partnerships can be forged and may attract funding to finance green or climate-smart projects. 47% 47%
Conclusion No. 1 “It makes a lot of business sense to go into green finance or climate-smart projects for as long as environmental and social risks are managed well.”
Top Constraints to Climate Finance & ESRM 57% Absence of regulations/guidelines on ESRM for FIs 50% Absence of ESRM laws and regulations 36% - Lack of internal capacity for FIs -High cost of implementing ESRM
Difficulties in Launching/Expanding Green Finance Funding High cost, low return Political risk Market risk No incentive from regulator
The Need for Effective Management 82% sees increased operational costs 35% says it will result to reduced competitiveness 35% believes it will redound to loss of clients
Standards & Tools to Manage E & S Risks 33% use : 47% Embedded in IFC Performance credit evaluation, i.e., credit Standards scoring National legislative 26% IFC categorization requirements 28% use Equator 26% Third party E&S Principles risk assessment 22% no standards used
Elements covered by Bank’s E & S Mgmt. System 63% has sustainability or ESRM policy in place, including screening procedures for lending or investments 37% has ESRM checklists incorporated at key points in the lending or investment cycle 37% benefit from internal ESRM staff training but only 10% have incentive schemes to motivate credit/ investment officers to consider ESRM risks
Rejection Rate For those who monitor, 50% of the banks indicated that there were no disapprovals of loans due to climate finance and E&S issues while the other 50% experienced rejection .
ESR is appreciated but… 83% recognizes climate change and ESR as business risks and reflected in bank’s organizational policy 63% consider climate finance and E&S issues in the approval process Yet 32% does not require any environmental permit from clients during due diligence process which is vital
Conclusion No. 2 Capacity-building is necessary because there: • Is lack of awareness on ESRM regulations, i.e., requiring environmental permits • Are only about 37% who are trained, hence green finance or climate-smart projects are not extensively tapped • Are about 22% of the FIs do not use or unaware of any standards to be able to assess projects better and improve approval rate, or may not have a lending framework
Monitoring & Reporting 58% has E&S performance metrics in their management systems Only 41% report to a regulator/DFI/ stakeholder on climate smart/green loan performance Only 13% say they encountered a loss due to poor E&S performance
Responsibility Sharing Risk Mgmt Business / Investor Legal Credit Relations Dept Compliance
Available Resources Contract consultants via technical assistance Dedicated budget for green loan activities IT systems
Training & Consultants 88% say that about 15% of staff have attended green finance or ESRM training 70% say that senior management (CEO, BoD) have been exposed to green finance training 56% used consultants to assist in climate-smart/green finance/ESRM implementation
Top Training Models of Choice 86% Easy access to information e.g., tools resources, guidance, best practices 56% Annual training program with several training events per year for selected staff 56% On-going technical assistance/ on-the-job training
Suggested BAP Support to Green Finance/ E&S 84% To conduct awareness-raising workshops, training events, conferences and seminars for management and staff 58% To provide advisory service for developing ESRM internal policies and procedure, developing business opportunities and new products 47% To provide financial resources to build internal E&S systems and capacity
Support Needed For green finance/investment to be a success: Funding Regulatory support Capacity-building of bank staff involved in green finance Policy support from BSP / guidance in standardizing best practices
Conclusion No. 3 Apart from capacity-building, BAP’s assistance to the banks could include : Coordination with BSP and other government agencies to support their green initiatives Information on best practices on green finance/investment
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