Banks more exposed to climate risk – BSP

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March 24, 2026 | 12:00am

MANILA, Philippines — Climate risks are becoming a major financial concern for Philippine banks, particularly those serving rural areas, with the Bangko Sentral ng Pilipinas (BSP) warning that these vulnerabilities could increasingly influence lending decisions and borrowing costs.

BSP assistant governor Pia Bernadette Tayag said climate risk is now among the top risks faced by banks, especially rural and cooperative lenders, reflecting the growing exposure of businesses to extreme weather events and environmental disruptions.

“If we look at our smaller rural and cooperative banks, they recognize climate risk as a top three operational risk. Because of that, we can expect they’re putting in place systems to manage those risks,” Tayag said during the Economic Journalists Association of the Philippines sustainability forum yesterday.

She noted that the Philippine business sector remains largely unprotected, with “only 20 percent of businesses in the Philippines” having safeguards against hazards such as flooding and other climate-related shocks.

“Physical risks are rising much higher than the mechanisms to mitigate them,” Tayag said.

The central bank official stressed that mitigating climate risks is not an external burden imposed on firms, but an inherent business reality that must be recognized and managed.

“It’s not really shifting the burden, it’s a reality that their business faces these risks,” she said, adding that companies are “duty-bound to recognize what risks their businesses are facing, and to manage them, or to price them.”

As disclosure improves, these risks could begin to influence borrowing costs.

“If you recognize the risks, you can price them,” Tayag said, noting that firms with higher exposure may face higher rates, while those adopting climate-resilient practices could benefit from better financing terms.

Still, the transition toward sustainability remains uneven across the broader corporate sector.

Tayag said larger firms are emerging as first movers in sustainability reporting, while many smaller companies lack the capacity to immediately comply with new standards. This has prompted regulators, including the Securities and Exchange Commission, to adopt a phased roadmap aligned with global sustainability disclosure frameworks.

For banks, however, the BSP said expectations are clearer following the issuance of sustainability guidelines as early as 2020.

Data from the central bank’s surveys show that about 70 percent of banks are already incorporating sustainability into their strategies, while 90 percent are inclined to support sustainable financing such as renewable energy, climate-resilient agriculture and green infrastructure.

Sustainable finance activity has also accelerated, with green, social and sustainability bond issuances reaching $765 billion as of January, up from $455 billion just eight months earlier.

To further encourage participation, the BSP has rolled out incentives, including a zero reserve requirement for sustainable finance exposures and higher single borrower limits for eligible projects.

Tayag said these measures, along with alternative compliance mechanisms, have helped improve banks’ adherence to mandated lending for agriculture and agrarian reform, with most lenders now generally compliant.

She added that clearer guidelines, including a more granular sustainable finance taxonomy, would help banks align investment decisions with environmental objectives.