Published in Business World, December 18, 1997

Two local banks are set to join over 100 banks worldwide in an effort to protect their bottom lines from loans that turn sour when used to fund projects found negligent in environmental risk management.

State-owned Development Bank of the Philippines (DBP) and Land Bank of the Philippines (Landbank) are set to sign the United Nations Environmental Protection (UNEP) statement which endorses the principles of sustainable development, according to the United States-Asian Environmental Partnership (USAEP).

Other local financial institutions planning to follow suit include the Philippine National Bank, Far East Bank and Trust Company, Philippine Banking Corp., and Equitable Banking Corp.

With the signing of the statement, environmentalists in the Philippines can count on these institutions to promote environmental due diligence in banking, USAEP officer Lisa Lumbao recently told Business World.

Under the due diligence, banks assess the potential risk the projects pose to the environment.

This early, both the DBP and the Landbank, have already set up environmental units, trained a number of their staff, and revised the format of their loan application forms to include whether the projects up for funding observe environmental laws and regulations.

Although this is expected to gain the institutions positive media mileage in the country where being environmentally friendly has become an effective public relations tool, "the benefit may be more than that," Ms. Lumbao said in a phone interview.

A top executive of one of the banks represented in a recent USAEP training cited the case of a company given a loan for a project that was later shut down by the local government because it was emitting pollution. The executive said the company "probably could not pay back the loan" after the environmental damage.

In helping promote sustainable development in Asia, the UN program considers the banking community a strategic entry point because "banking hold the purse strings" for financing, Ms. Lumbao said.

She said the program target DBP and Landbank because "it will be like hitting a lot of other banks who loan funds" from the state institutions. "We’ll be affecting other banks as well," she added.

Compared with institutions in Asian countries where the program was also initiated, the DBP and the Landbank have shown "very strong commitment and are very advanced in taking positive action," Ms. Lumbao said.

There are now a total of 104 signatories from different countries that have already signed the UNEP statement. The pact commits signatories to improving environmental management and adopting the best industry practices in such areas as credit risk management, energy, environmental impact assessment and implementation of the precautionary principle in financing.

Last December 4, senior executives and experts from 80 Asian financial institutions met in Singapore for a two-day UNEP Roundtable on Finance and the Environment.