Profitable yet pro-environment works, say GFIs

The Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) are two of the profitable government corporations wading among dozens of hemophiliac government corporations.

But more significantly, the two are also one of the few major financial institutions in the country that takes environmental protection quite seriously.

For the past decade, the two have extended loans with total amounts in the vicinity of P52 billion for programs and projects that are directly or indirectly related to environmental protection and conservation.

"Industrialization and advancements in technology have immensely improved human productivity, but every stride come with a cost to the environment," LBP president and chief executive officer Margarito ‘Gary’ B. Teves said in a forum.

In fact, Metro Manila has been tagged by the United Nations Industrial Development Organization (UNIDO) as one of the most polluted urban areas in the world.

The Asian Development Bank (ADB) said that while government has a major role to play in environment protection and conservation, it is the private sector, especially corporates and multinationals, that are chronic exploiters and destroyers of the natural resources.

Global agencies are already calling for more vigilance from not only regulators in Asia but also financial institutions to play a key role in protecting the environment without losing sight of economic development.

"Given the trade-off between progress and environmental degradation, we need to strike a balance between our developmental efforts and our commitment to protect the environment," Teves added.

In the early ’90s, the DBP started a unique program to improve the competitiveness of domestic industries. However, it required that loans granted under a $175-million program would have a component to address environmental concerns. In other words, the government financial institution was compelled to fund only environmentally-sound projects through this credit facility.

DBP chief operating officer and senior executive vice president Edgardo F. Garcia said that implementation was difficult at first since it meant requiring borrower-companies to conduct environmental impact assessments and including loan conditions to ensure compliance with environmental regulatory requirements.

"Aside from financial risks, DBP also included environmental risks as another factor to consider in loan evaluation such that possible environmental non-compliance was considered in the credit process as this may lead to company shutdown by DENR (Department of Environment and Natural Resources).

The bank considered this as a valid concern as it may also inevitably impact on loan repayment," Garcia explained.

DBP reasoned that the bank was in a unique and strategic position to protect the environment. "The bank’s basic strategy was to provide financial credits and technical assistance for environmental investments."

DBP is the one of few major financial institution that requires an environmental risk assessment for loans on some of its lending programs. It is also one of fewer financial institutions that has expanded its lending portfolio for investments in natural resources development, efficient production and environment-friendly technologies and practices, environmental protection, occupational health and safety, and solid waste management.

Studies have shown that environmentally responsible practices, in addition to enhancing corporate image, can also increase work productivity, reduce expenses and significantly boost profits and earnings.

DBP Forest, an environment project that aims to help government in its forestation and soil and water conservation efforts.

In 1996, DBP opened the first-ever credit facility in the Philippines dedicated solely to environmental infrastructure investments.

With funding from the Japan Bank for International Cooperation (Jica), the ¥5-billion Environmental Infrastructure Support Credit Program was able to support at least 18 firms nationwide in implementing environmental projects.

It also formalized an agreement with KfW of Germany for a DM10- million credit for the first phase of the Industrial Pollution Control Lending Program.

It was a challenging year but DBP was able to move these environmental credit facilities with minor problems.

Starting 1992, the Swedish International Development Cooperation Agency (Sida) provided a technical assistance program with DBP. The program had the DBP work with the DENR and selected industry associations in coming up with subsector-specific Environmental Management Plans.

These now form part of the environmental consent agreement (ECONA) which 10 subsectors recently forged with the DENR.

These industry subsectors are cement, pulp and paper, sugar milling, furniture, distillery, tuna canning, ship repair, tourism, plastics, and the semiconductor industry.

The implementation of the program was concluded last year.

The LBP meanwhile implements programs that address a wide range of environmental issues.

Teves said the bank is the financial agent and co-implementing agency of the $10.58-million National Chlorofluorocarbon or CFC Phase-out Plan, funded by the Montreal Protocol Multilateral Fund through the World Bank.

It extends financial assistance to major companies, enabling them to rid their operations of ozone-depleting substances. The facility is also made available to those who want to introduce innovations that reduce CFC consumption.

The LBP has several programs in the pipeline to address the growing demand for environmental financing. These include the IBRD-Manila Third Sewerage Project, the City Development and Investment Project, and the UNEP Renewable Energy Finance Project.

The GFI also requires all the projects it supports to comply with the DENR’s stringent environmental regulations and standards.

Speaking before a forum of financial institutions, Teves urged financial institutions and financial intermediaries to continue working together to promote the viable and sustainable use of environmental resources.

The forum was organized by the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), and the Asia Pacific Roundtable for Sustainable Consumption and Production (APRSCP).

"With that in mind, let’s prioritize environmental protection and cleaner production so that we can bring about sustainable development and lasting progress for our children, their children and the succeeding generations of Filipinos," he added.