Company Bank of the Philippine Manual:* Corporate Credit/Business Banking Document Type: Policies

Name:* Islands Manual

Main Cat- Loans Sub-Category:* All Loans Process:* General Management
egory:*
Owner:* Chief Risk Officer Effective Date:* Security Classification:* Internal Use Only
Last Reviewed:
Document Title:* Components and Taxonomy of Sustainable Finance

INTRODUCTION
Today’s modern society underscores sustainability as one of the most important mainstream
considerations of the Philippine financial sector. In the present context of global climate change,
devastating natural disasters, poverty, hunger and occupational inequality, the BSP released Circular
1085 otherwise known as the “Sustainable Finance Framework”, which sets the basis for banks to embed
sustainability principles including those covering environmental and social risk areas, to their corporate
governance framework, risk management systems, and strategic objectives consistent with their size, risk
profile and complexity of operations.

Toward this end, this policy action was launched to provide clarity and guidance as well as introduce a
standard identification process wherein our Loans Originations Units may be able to track and hunt for
products, projects and initiatives linked to the concept of Green and Sustainable Linked Financing.
Recognizing that the Bank can play a catalytic role in the adoption of environmentally and socially
friendlier lending output practices in the Philippine economy, the proposed guidelines hope to engender
future policy actions and business decisions in support of greening internal credit processes and practices
to support all customer market segments.

SCOPE
This policy shall be observed by all concerned employees and Business units of the Unibank.

OBJECTIVE/S
.
1. Introduce the basic components and taxonomy of sustainability financing, which covers a wide
range of environmental and social risk industries and areas and incorporate the same in the
Bank’s credit risk management framework.

2. Establishment of an identification mechanism wherein Business Units may be able to mobilize

resources in the pursuit of products, projects and initiatives that would enable the Bank towards
achieving sustainable growth, in alignment with its existing sustainable funding framework and
development goals.

I. COMPONENTS OF SUSTAINABLE FINANCE

Several key components make up the body of Sustainable Finance. These include the concepts of Green
Banking, Sustainable Linked Finance, Sustainable Agriculture, Sustainable CMSME, and Socially
Responsible Finance activities, all of them tied together with respect to sustainability (See Diagram 1)
Diagram 1:

Sustainable
Finance

Other
Sustainable
Green Banking Sustainable
Linked Finance
Linked Finance

Sustainable Sustainable Socially

Agriculture CMSME Responsible
Finance

II. TAXONOMY OF SUSTAINABLE FINANCE

The Sustainable Finance Taxonomy is a robust, empirical-based classification system which establishes,
a structured mechanism for identifying and recognizing a project, product or initiative’s potential as a
green or sustainable activity. Overall, this mechanism is crucial to provide concerned stakeholders with a
better understanding of the criteria, and knowledge on targeted sectors/projects in consideration of
multiple sustainable objectives. (See Diagram 2)

Diagram 2

Identification of
Sustainable Linked
v Identification of Finance: Agriculture,
Other Financed CMSME, Socially
Linked to Responsible Finance
Sustainability
Sustainable Finance
Taxonomy

A. Identification of Sustainable Linked Finance

1. Sustainable Agriculture Finance – financing activities aimed at promoting conservation agriculture

and productivity typically through climate change adaptation projects including but not limited to
location specific integrated/composite farming system, soil and moisture conservation,
comprehensive soil health management and rain-fed technologies. These measures can make the
agriculture sector more productive, sustainable, remunerative and climate resilient.
 a. Sustainable Agriculture Sectors:

> Cash crops;

> Irrigation Equipment;
> Agri Equipment;
> Livestock & Poultry Farming;
> Fisheries;
> Grain storage and trading;
> Agro-feeds manufacturing;
> Palay milling;

Along with the target sectors, financing for all other agri-related areas would enable people to
maximize their returns to sustain livelihood and mitigate the impacts of drought, floor or other
extreme weather events.

3. Sustainable CMSME (Cottage, Micro, Small and Medium Enterprises) – financing activities aimed
to advance financial inclusion among the most vulnerable by building resilience and enabling
mitigation to climate change. Banks should target initiatives to scale up finance for CMSMEs, with
a focus on specific sustainable/inclusive sectors. CMSME financing decisions on ESG
considerations should address issues of inequality, inclusiveness, investment in human capital
and communities with respect to preservation of biodiversity, pollution prevention and a circular
economy.

Per existing policy detailing implementation standards of the Bank’s Sustainable Funding
Framework, eligible CMSME borrowers should:

 meet the qualifications as set by the Bangko Sentral ng Pilipinas or the Securities and
Exchange Commission;
 Be entrepreneurs or business entities disadvantaged by disasters triggered by natural
hazards such as but not limited to: COVID-19 (i.e. community quarantine, social distancing
etc.) with significant consequences impacting people, public health, infrastructure, other
assets or the economy.

a. Sustainable CMSME Areas/Industries:

> Women entrepreneur based project financing;

> Rural-based business enterprise financing;
> Start-up business enterprise financing;
> Cluster-based project financing;
> Herbal cosmetic manufacturing;
> Local ingredients-based milk processing;
> Handicrafts manufacturing;
> Ayurvedic/Homeopathic manufacturing;
> Horticulture processing;
 3. SRF (Socially Responsible Financing) – financing activities that supports actions mitigating or
addressing a specific social issue and/or seeking to achieve positive social outcomes especially but
not exclusively for a target population. SRF categories include but are not limited to: access to
essential services, affordable housing, food security and socio-economic advancement and
empowerment.

a. Sustainable Socially Responsible projects:

> NGO-initiated projects for capacity building, employment generation including self-employment;
> Financing of green or agro-products thru online/e-business platform;
> Financing construction of orphanages, rehabilitation centers, convalescent homes;

B. Identification of Other Financed Linked to Sustainabililty

1. Working Capital – financing inputs to production (labor, raw materials, cash capital) under the
following green products/initiatives/projects will be considered as sustainable linked finance.

a. Renewable Energy Sectors:

1) Subsector – Solar Energy
 Solar Photovoltaic (PV) Assembly/Manufacturing;
 Solar Photovoltaic (PV) Power Plant;
 Solar Cooker Assembly/Manufacturing Plant;
 Solar Water Heater Assembly/Manufacturing Plant;
 Solar Air Heater & Cooling System Assembly/Manufacturing Plant;

2) Subsector – Bio Gas

 Large-size biogas digester & fermentation plants;

3) Subsector – Wind Power

 Large-size wind-turbine plants;

4) Subsector – Hydro Power

 Hydro-power plants (Pico, micro, mini);

5) Subsector – Geothermal
 Direct emissions < 100g CO2/kWh);

6) Subsector – Tranmission/Distribution & Smart Grid

 Connecting renewable energy production unit to the general network;
 Improving networks in terms of demand-size management and energy efficiency;d

b. Sector - Energy & Resource Efficiency:

 Auto sensor power switch assembly;
 Energy efficient Cook Stove assembly;
 LED Bulb/Tube Manufacturing/Assembly;
 Heating, Ventilation and Airconditioning Systems (HVAC);
 High Efficiency Motors (HEMS);
 Should be compliant with IFC EDGE (International Finance Corporation Excellence in
Design for Greater Efficiency) standards;
 c. Sector - Alternative Energy:
 Processed oil/Bio-crude oil/Bio Fuel Manufacturing plant;

d. Sector – Solid Waste Management:

 Compost production from City/Municipal waste plant;
 Waste management and recycling;

e. Sector – Sustainable Water & Wastewater Management:

 Wastewater treatment – production/treatment of water;
 Integrated Water Management – water efficiency systems;
 Sustainable Urban Drainage Systems – mains rehabilitation, leakage prevention;

f. Sector – Recycling and Manufacturing of Recyclable Goods:

 PET Bottle Recycling Plant;
 Plastic Waste (PVC, PP, LDPE, HDPE, PS) Recycling Plant;
 Paper Recycling Plant;
 Recyclable Bag Manufacturing Plant;
 Recyclable Poly Propylene Thread & Bag Manufacturing Plant;
 Battery (Solar/LED Acid/Lithium Ion) Recycling Plant;

g. Sector – Environment Friendly :

 Compressed Block-Brick;
 Foam Concrete Brick;
 Auto-Green Bricks;
 Autoclaved Aerated Concrete (AAC) Bricks;
 Recyclable Poly Propylene Thread & Bag Manufacturing Plant;
 Environment Friendly Brick Kiln Industry (Hybrid Hoffman/Tunnel Kiln);

h. Sector – Green/Environment Friendly Buildings:

 Green industry established or being established under green building rating system
certified by appropriate authority (LEED / EDGE / BERDE);
 Financing or refinancing of development, acquisition, construction, renovation or
otherwise completed residential, public, commercial and industrial properties that have
or will receive (i) design stage certification, (ii) post-construction certification, and/or
(iii) in-use certification in any of the mentioned building certification schemes at the
defined threshold level or better;

i. Financing against Work Order related to Liquid/Solid Waste Management/Disposal Project by

National Govt./LGU;

2. Priority Green Products for Trading Sector – lending to the following Green product trading sectors
shall be considered as Sustainable linked finance.

a. Renewable Energy Sectors:

1) Subsector – Solar Energy
 Solar Panel/Solar Home System;
 Solar Pico Grid;
 Solar Nano Grid;
 Solar Micro Grid;
 Solar Mini Grid;
  Net Metering Rooftop Solar System;
 Solar Irrigation Pumping System;
 Solar Photovoltaic (PV);
 Solar Cooker;
 Solar Water Heater;
 Solar Air Heater & Cooling System;

b. Sector Energy & Resource Efficiency:

 Waste Heat Recovery System Unit;
 Auto Sensor Power Switch;
 Energy Efficient Cook Stove;
 LED Bulb/Tube;

c. Sector-Alternative Energy:
 Pyrolosis processed oil/Bio-crude oil/Bio-fuel

3. Priority Eco-friendly Products for Trading Sector – eco-materials usually contain materials recycled
or gathered from natural resources which are easy to replace and minimally damaging to harvest.
Eco-friendly products contribute to green living or practices that help conserve resources like water,
and also prevent air/water/land contamination:

 Jute-made products; e.g. crafts, shopping, packaging bag;

 Cane-made products; e.g. crafts, furniture;
 Biodegradable waste bag;
 Reusable grocery bag;
 Solar Lantern;
 Biodegradable garden pot;
 Compostable cutlery;
 Compostable plates;
 Portable Solar Charging Station;
 Stainless Steel, Bamboo, Thermal Water Bottle;
 Rechargeable Batteries;
 Reusable Coffee filters;
 Solar Powered Phone Charger;
 Wool footwear & runners;
 Compostable baby diapers;
 Recycled floor mats;
 Reusable Coffee cups;
 Natural stain remover & cleaner;

Prepared/Editor:* Freddie M. Ramos Reviewed: Marjorie Theresa Ann Espino Approved By: Marita Socorro D. Gayares
Ma. Cristina F. Asis Jose Teodoro K. Limcaoco
Risk Management Committee
Executive Committee