Sitting across the typhoon belt, the Philippines is the most exposed country to tropical storms. Like many Filipinos who live with the reality of having to batter these dangerous storms and catastrophic flooding, veteran banker Atty. Federico P. Tancongco also has a personal story about surviving a typhoon.
In 2019, the archipelago experienced a Pacific typhoon season that was the costliest ever recorded. “There was one Saturday I was just working from my office in Makati and a staff member from the reception came to tell me I had to move my car as the basement was flooded and filling up with water. I stepped out and it looked like many parts of the Makati business district was under knee-deep water,” he recalls.
Tancongco, the senior vice president and chief compliance officer of BDO Unibank, says it was the most harrowing, first-hand experience he has had with a disaster event, having grown up in the southern part of the Philippines, which rarely sees typhoons. “It reminded me of how real the climate risks are and made me realise time is not on our hands,” he said of the experience, adding that storms and cyclones are intensifying and becoming increasingly unpredictable with climate change.
That day, Tancongco had little choice. He left his SUV at a mall and waded through chest-deep water from Makati, the country’s financial hub in the Metro Manila region, to his home in Pasig, almost 10 kilometres away, to find that the entire first floor of the house was flooded. “What was in front of the house almost looked like a raging river,” said Tancongco. The family quickly decided to climb up onto the roofs, with Tancongco resorting to tying bedsheets into a rope which he tied between their second-storey balcony to the balcony of a higher adjacent apartment. Swimming against the currents to secure the “escape route”, Tancongco managed to help most of his neighbours make the difficult crossing, where they could wait for help.
It is these tangible, life-threatening incidents that warrant a closer look at climate resilience, especially from financiers, Tancongco notes. Beyond floods and typhoons, severe and extreme water scarcity exists in parts of Luzon, he adds, especially in the greater Metro Manila region and nearby provinces where many Filipinos experience water stress.
Earlier this year, BDO Unibank released an impact report on blue bond financing – a type of financing mechanism specifically designed to support sustainable water- and ocean-related projects. The report details results achieved such as water saved from groundwater extraction, avoided water loss, and wastewater treated from projects funded from the proceeds. The lender raised US$100 million from its maiden issuance of blue bonds through an investment from the International Finance Corporation (IFC) in May 2022 – the first private sector issuance of this emerging financing instrument by a commercial bank in Southeast Asia.
In this interview, Tancongco shares more about how this partnership came about, and the progress of an energy transition financing statement the bank released in August 2022, pledging that it will reduce its coal exposure by half by 2033.
“
We agree with the regulators that borrowing limits should not become a hindrance to the implementation of green initiatives. When there are issues at a statutory or congressional level where we think the government should play a stronger role in driving projects, we push for that too.
How have your personal experiences impacted your work?
I believe my personal experiences have taught me the importance of resilience and that time is not on our hands.
Weather patterns are also changing and go beyond floods and typhoons. We are now seeing droughts in places once thought drought-free, which has brought about water stress. Our blue bond issuance comes at a critical time and is our emphasis now. The Philippines is an archipelagic country composed of 7,641 islands and water supply is unevenly distributed. In many places, available water cannot keep up with fast-rising demand, and resources are running out. The risks are real and we have to help local communities adapt and transition.
The impacts of marine pollution is also an issue. Plastic waste from the “single-use sachet economy” chokes the Philippines and solid waste management is still poor. This in turn impacts tourism. You can’t have tourist-friendly beaches when plastics and litter are washing up on your shores. We hope the issuance of blue bonds can help change this.
What led to BDO opting for blue bonds as a financing mechanism?
We have been partners with IFC for more than 10 years and they understand our financing framework and philosophy. We also understood that for the Philippines to expand its renewables sector, clean energy will have to come from the hydropower from rivers and offshore wind. These are ways for proceeds from blue bonds to contribute to a sustainable economy.
It also demonstrates how the board now increasingly understands the need to discuss climate and environmental issues beyond the perspective of risks. We have to continue to prepare the board, develop our metrics and approach, and our point of view, so that we can carefully articulate how we want to be a catalyst in the environmental, social and governance (ESG) space. The other banks look to us and we want to show them that there is good business in ESG.
Plastic waste washes over the port district in Malate, Metro Manila in the Philippines. Image: AdamCohn, CC BY-SA 3.0
What role does the bank want to play in this aspect and what has it been working on?
We are building the technical capacity and competencies of our sustainability office by expanding it and making it more efficient through technology and analytics. BDO is a conglomerate of 27 corporations, consisting of three types of banks: a universal bank, a small and medium enterprise bank, and our local banks. We also help our philanthropic clients to manage wealth. We want to leverage our understanding of these different clients, all of whom have different needs and [risk] appetites.
When we look at the regulations in the Philippines, we know that sustainability practices need to evolve. We advocate for ESG with other banks and the regulators. For example, we commend the Bangko Sentral ng Pilipinas (BSP) for its exception to the Single Borrower’s Limit [a rule that limits or restricts a bank’s risk of exposure to single borrowers]. We agree with the regulators that the limit should not become a hindrance [to the implementation of the project]. When there are issues at a statutory or congressional level where we think the government should play a stronger role in driving projects, we push for that too. The government needs to assure investors that green projects will not suddenly be affected by a change in rules or policies.
Has it been challenging playing that role?
The BSP, our central bank, is very proactive. They want to see what is happening in the region and be more involved in current conversations.
For example, the regulators have said they will revise the sustainability reporting guidelines and align themselves to new International Sustainability Standards Board (ISSB) rules. They are in step with the latest ESG reporting developments.
But we also cannot follow North America and Europe in everything they do; the change has to be specific and within the Philippine context. BDO has been part of a transition finance study group consisting of some of the largest Asian banks since 2021 and we have been exploring how to put in context Asia’s transition finance mechanisms with the world’s. It is challenging work because you have to be context-sensitive. Different countries are at different levels in their green transition journeys. Some are beginning to embed European Union-led rules in their processes while others have to be further empowered, for example with technology. If the transition doesn’t happen smoothly, it could break them and they may take a long time to recover.
Can you give us some examples of how BDO has been approaching transition finance in a different way as compared to the West?
Distribution of renewable energy is challenging in the Philippines. If you are thinking of doing that via ocean cables, you are going to kill the project with the huge costs. For now, we are still dependent on fossil fuels, but BDO has been financing renewables nationwide for over a decade.
In the mid-1980s to late 1990s, the Philippines experienced brownouts [a reduction in voltage levels] for five to eight hours daily. Therefore, in our energy transition finance statement released in August 2022 – in which the BDO board declared that the bank has ceased financing new coal capacity since 2019 and will impose stricter conditions for coal-related financing and accelerate the renewables push – we also said that in a situation where the Philippine government implements provisional emergency measures to address an energy crisis, or to the extent that the country’s energy resources can no longer meet its energy demands, we will take a pause. We will reconsider the extension of capital [for coal projects]. This is different from what banks and companies in Europe are doing. They seem to treat their sustainability statements like press releases and now have to start walking back on some of their commitments. We also feel that it is unfair that the climate burden is on us when the Philippines contributes very little to greenhouse gases, yet suffers from the most number of typhoons.
We have also increased focus on supporting the micro, small and medium enterprises (MSMEs). The transition of communities and workers who might have their jobs and livelihoods impacted during a green energy transition is our priority. Our subsidiary BDO Network Bank is focused on MSMEs and was physically present on the ground to ensure the transition continued during the Covid-19 crisis. We all know that there was an explosion of online transactions during the pandemic, but the untold story is that a lot of people still needed cash for a sense of security, say for hospital bills. So we needed to put boots on the ground. This cannot be done “on the cloud”.
Micro, small and medium enterprises remain a priority in BDO Unibank’s outreach. Image: Hitoshi Namura / Unsplash
Our bank branches are now in 94 per cent of the barangays or the smallest local government unit in the Philippines. The communities living there will be impacted by climate change in different ways. They have specific needs as some are fisherfolk, some are farmers and some work in cottage industries. Financial inclusion and literacy are also important.
What is the current progress of commitments made under the energy transition finance statement?
We are on track with our commitment to reduce our exposure to coal. In the foreseeable future, we will not walk it back. If we do well on the inclusion front, we may accelerate it [and reduce our coal exposure by half before 2033]. There is new technology and we are beginning to understand our clients and products. The increase in understanding shortens the period of transition. I am hopeful but it is guarded optimism.
Right now, we have to continue educating the board, especially at the corporate governance level. What has changed is that most board members now have a missionary zeal towards ESG and the transition statement has become our Bible for risk management. For many board members, ESG issues have now become their personal legacy; sustainability is now about survival and business, and goes beyond risk, compliance, communications and branding. We also have to start embedding sustainability in all our decisions, including who we decide to work with.
Do you foresee BDO at any point in time reviewing the statement to bring the target closer to any time before 2033?
We intend to review the statement regularly and base it on our environment and social risk management metrics. The committee meets monthly and we look across our investment and loan portfolio. We might still have fossil fuels on our books, but at this stage, we would rather do our best to engage with our clients [fossil fuel companies] on transition instead of dropping them. In our statement, we also said we will provide access to capital for communities and individuals that will be affected by the transition. This is our ecosystem approach to transition and our way of ensuring that no one is left behind.
