When Typhoon Mangkhut slammed into the Philippines in September 2018, the deadly storm ripped roofs off buildings, uprooted trees, scattered debris across roads, and flooded fields of crops. Landslides buried homes and over 120 people died. Across the nation, an estimated 5.7 million people were affected by the storm, which caused $626.8 million in damages.
Unfortunately, this disaster was not an isolated event. The Philippines is vulnerable to natural calamities and the impacts of climate change—on average, this accounts for more than 1,000 lives lost every year, with typhoons accounting for more than 70 percent of the fatalities and 60 percent of the total damages. The country is also highly exposed to geologic hazards including earthquakes and volcanic eruptions.
That’s why finding new avenues for green financing—or financing of investments that provide environmental benefits—is critical. Two years ago, BDO Unibank, Inc., the largest bank in the country, took a decisive step forward by issuing its first green bond. IFC was the sole investor in the bond, our first green bond investment in a financial institution in the East Asia Pacific region.
BDO’s issuance of the green bond, which IFC helped structure following the Green Bond Principles, marked the culmination of a seven-year advisory engagement on sustainable energy finance. It also paved the way so that other issuers and investors could access financing through the bond, says Eunjoo Park-Minc, Chief Advisor, BDO Unibank: “While we were aware of new market opportunities, we find ways to maximize them.”
The bond raised $150 million, funds that will be used exclusively to finance climate-smart projects including renewable energy, green buildings, and energy-efficient equipment, while establishing a foundation for other financial institutions to issue their own green bonds. Following BDO’s issuance, the regulator (the national Securities and Exchange Commission) issued green bond standards that follow the Green Bond Principles of the ASEAN (Association of Southeast Asian Nations) Capital Markets Forum.
The green bond proceeds have been used for seven power projects with a total generating capacity of 95 megawatts. These renewable energy projects—four biomass (53 MW), two mini-hydro (27 MW), and one wind (15 MW)—are expected to reduce carbon dioxide emissions by more than 270,000 tons per year—equivalent to taking 57,800 passenger vehicles off the road and growing nearly 7 million trees for 10 years.
One of the projects benefitting from the green bond is the Isabela Biomass Energy Corporation (IBEC), which built a 20-MW rice husk-fired power plant. BDO’s financial support led to the project’s fast completion, and boosted the number of jobs in the local economy. In addition, the power plant attracted businesses looking for reliable electricity supply for operations, and offered an alternative solution to managing agriculture waste. This project will lead to significant greenhouse emissions avoidance—more than 83,000 tons of carbon dioxide emissions per year.
BDO’s green bond proceeds also funded a mini hydro power plant, Sunwest Water and Electric Company, the first hydro facility in the Bicol region. The company is now developing the second phase of a new facility that is likely to generate an additional 9.4 MW. The plant is expected to displace nearly 18,000 tons of carbon dioxide emissions per year.
Changing an Institutional Mindset
Achieving these milestones required BDO to adapt to a new institutional mindset. BDO instituted several changes internally that made a critical difference in the bond’s success—especially in establishing training for accounts officers to factor in the environmental, social, and governance impacts of projects and businesses. The bank is now encouraging clients to do business in a more sustainable manner, and issued its first Sustainability Report in April 2019.
Now that BDO’s approach has been proven, “There is greater institutional awareness and appreciation of green finance across the bank’s lending activities. It has also made other banks aware that they can be part of this,” says Walter Wassmer, Head of BDO Unibank’s Institutional Banking Group.
Sustainability has become important to how the bank conducts business, says Wassmer. “There is no choice,” he acknowledges. “We really need to push hard for the alternative that is finally better for everybody.”
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Published in June 2019