THE growing impact of climate change could pose a significant risk to the stability of the local financial sector, regulators noted in a policy draft.

A consultation document released by the inter-agency Financial Sector Forum (FSF) said that the Philippines was particularly at risk from natural disasters, being located in the Pacific Ring of Fire and regularly visited by destructive storms, among others.

“The disruptive effects of climaterelated disasters have the potential to adversely affect production and the economy more broadly,” added the FSF, which is composed of the Bangko Sentral ng Pilipinas, Securities and Exchange Commission, Insurance Commission, and the Philippine Deposit Insurance Corp.

It noted that the country had set out policy responses to deal with the effects of climate change, including committing to a 75-percent reduction in greenhouse gas emissions by 2030.

Given the financing challenges involved, the FSF said that it was setting up “an extensive engagement in greening” the local financial sector.

“The overall objective of the program is to advance the financial sector’s understanding and management of climate-related risks, while also growing sustainable finance opportunities,” it said.

“A key component focuses on supporting efforts to develop a sustainable finance taxonomy for the financial sector with a view to mobilizing and scale sustainable finance and would be significantly informed by the Philippine’s Sustainable Finance Roadmap and Sustainable Finance Guiding Principles,” it added.

The establishment of the taxonomy, it noted, would help companies, investors, financial institutions and others to make informed decisions. Supporting policies and incentives will also boost financial flows that can be directed towards environmental and socially sustainable objectives.

The consultation paper, for which comments have been solicited up to October 6 this year, involves recommendations for the design of the Philippines Sustainable Finance Taxonomy Guidelines (STFG).

The proposals were said to have been drawn from experiences by other countries and regions, among others, and also extensively draws on the Association of Southeast Asian Nation’s framework.

“Initially, the SFTG will focus on the objectives of climate change mitigation and climate change adaptation, with a view to adding biodiversity and circular economy, as well as potential social objectives in future iterations,” the FSF said.

“Other environmental and social considerations are proposed to be considered through additional screening based on the ‘do no significant harm’ principle, and minimum social safeguards appropriate to the Philippines context,” it added.

Among others, certain “prohibited activities” have been proposed for exclusion. A transition category is also on the table and guide questions and decision trees have also been included to guide users.

The FSF said that particular focus had been given to the significant role of MSMEs in the economy and it thus sought feedback on how these could benefit.

“Financial inclusion considerations are also critical, ensuring that the impact of a taxonomy can bring along all members of society in its sustainability journey,” it added.

Lastly, it said that FSF members were also considering potential regulatory measures to “activate” the potential of the taxonomy to increase and redirect fund flows.