COVID-19 Op-ed

Connecting the dots: How Bangko Sentral’s new sustainable finance framework can benefit farmers and businesses post-COVID

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Genalyn Aquino and Amanda

Genalyn Aquino is an advocacy specialist for
Finance Asia Philippines
and a project
research coordinator for the Initiatives for Advancing Community
Transformation project (I-ACT Project). She is currently taking her doctorate
at the University of the Philippines. Amanda Lingao is a media officer for
the Initiatives for Dialogue and Empowerment through Alternative Legal
Services (IDEALS, Inc). She writes about social, human rights, and labor
issues in the Philippines.  and handles external communications for Fair
Finance Asia in the Philippines.

Last April, the Bangko Sentral ng Pilipinas
(BSP), or the Philippine Central Bank, signed a Sustainable Finance Framework
for all banks in the Philippines. The framework is a gamechanger for local
finance. In the next three years, banks in the country will be required to
adopt sustainability principles in their operations, including environmental
and social risks in annual reports, corporate governance, and risk management
frameworks.The BSP Sustainable Finance Framework runs parallel to the
initiatives of the Security and Exchange Commission which released mandatory
Sustainability Reporting Guidelines for Philippine Publicly-Listed Companies
(PLCs) last year. These guidelines provide that by 2020,  companies must
disclose their climate-related risks and opportunities in their
sustainability reports.Ripe for changeAs
with any policy, its impact will lie in its effective implementation. For
BSP’s framework to truly take effect, it must translate to tangible change
for the marginalized sectors that need it the most.The BSP’s framework is a
soft policy that lays expectations for banks to embed sustainability measures
in their operations. The framework is flexible enough for banks to create
their monitoring mechanisms, depending on their risk appetites.  It
comes at a time that local business and financial sector are most ripe for
change. With the onset of the COVID-19 pandemic, many businesses are gearing
up for the new normal. This is a challenge that requires them to adapt to a
new reality after the pandemic. Still, it is also an opportunity for
businesses and financial institutions to move towards more sustainable and
resilient business models that will better weather market volatility.Start with farmers and
food producers
A good area for banks to start is
with agribusiness venture arrangements (AVA) that disadvantage marginalized
farmers instead of lifting them from poverty. In Davao de Oro, many banana
farmers are tied to skewed contracts that peg their produce at a fixed price
of $4.25 per box, regardless of market value, for ten years.After Typhoon
Bopha, known in the Philippines as Typhoon Pablo, ravaged the province in
2012, the Land Bank of the Philippines required agrarian reform beneficiaries
(ARB) to enter into tripartite agreements with a corporate partner, the
multinational banana export company Sumifru, to secure loans for
rehabilitation. The farmers had very limited options – they signed these
agreements. Since then, Sumifru has unilaterally set the price for the
bananas and required the ARBs to buy fertilizer and other resources that are
used in farm production from the company. Our findings show that Land Bank,
which does not interfere with internal arrangements between the company and
its subsidiaries as a matter of policy, has only a “transactional”
relationship with the farmers despite its mandate to serve farmers and
fisherfolk.The case is specific to Davao de Oro farmers but occurs in
different permutations around the Philippines. Many smallholders – who have
land but no money – have little access to formal credit or traditional
collateral. They then turn to AVAs to secure loans from banks but then become
buried in debt when they can no longer meet the terms of their contract.
Women smallholder farmers are impacted the most as they try to manage the
limited resources available while also dealing with disproportionate care
work burdens. Some turn to usurious lenders, which then increases their
debt.Spotlighting women smallholder farmers
With the new sustainable finance framework, banks
are tasked to be more conscious of the social and environmental impact of the
loans they approve – and, subsequently, the conditions attached to it. This
means banks like Land Bank must be more selective in their use of AVAs as
collateral substitutes for their loans. It can also be a stepping stone for
banks and businesses to pay more attention to women farmers who have less
access to resources than men and thus have fewer social and economic
opportunities.Women farmers, with proper support, can help boost agricultural
output by more than 4%, according to the Food and Agriculture Organization.
This is enough to reduce the number of undernourished people in the world by
more than 100 million.Support
fair and sustainable contracts
It’s not just
farmers who will benefit from this move. Supporting and encouraging fair and
sustainable contracts will also profit both banks and companies in the long
run. Research shows a positive relationship between responsible business and
financial performance.Based on a 2014 study of 500 companies by the CDP
Worldwide group, companies that build sustainability into their strategies
outperform their peers. A concrete way for companies to do this is to develop
a board-approved transition plan integrating sustainability principles. Such
a plan would be valuable to investors, especially those who put a premium on
the environmental, social, and governance (ESG) performance of
companies.Sustainable finance – a step in the right
Fair Finance Asia, which has lobbied for
the integration of ESG guidelines for banks in the Philippines, strongly
supports the sustainability framework’s issuance. The framework will not just
impact the banking sector; it also aligns with multi-sectoral initiatives
such as the Gender Transformative & Responsible Business Investment in
South East Asia (GRAISEA) initiative, which works towards sustainable value
chains and the empowerment of farmers – especially women— in Southeast Asia.
We urge Philippine banks to seriously enforce the framework’s integration
within their company policies.While the sustainable finance framework is a
small start towards responsible, conscious, and accountable financing, it is
a step in the right direction. With the COVID-19 pandemic pushing us towards
a new normal, our new goal must not just be to rebuild our shattered economy,
but to build it back better.References:Dalabajan,
Dante, and Anna Kristina Dinglasan. 2018. “Land But No Freedom: Debt, Poverty
and Human Suffering in the Philippine Banana Trade.” : 12.Gostin, Lawrence O.
et al. 2019. “The Legal Determinants of Health: Harnessing the Power of Law
for Global Health and Sustainable Development.” The
393(10183): 1857–1910.Oxfam in Asia. 2017. “Gender
Transformative & Responsible Business Investment in South East Asia
(August 24, 2020).Oxfam Pilipinas. 2018. “‘Brutal Treatment’ of PH Banana
Farmers Featured in Global Campaign to Stop Inequality in Supermarket Supply
Chains | Oxfam in Philippines.” Oxfam Pilipinas.
(August 24, 2020).

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