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The year 2021 was considered the “year of ESG (environmental, social, and corporate governance) investing.” As Reuters reported last year, independent fund performance data firm Refinitiv Lipper’s study revealed that a record $649 billion was poured into ESG-focused funds worldwide through Nov. 30, 2021, up from the $542 billion and $285 billion that flowed into those funds in 2020 and 2019, respectively. ESG funds account for 10% of worldwide fund assets, the report added.

Such increased interest spurred by the ESG standard can also be seen recently in the Philippines, with the accelerated push for ESG reporting among companies and for sustainable finance initiatives in the financial ecosystem.

In a brief published by SyCip, Salazar, Hernandez, & Gaitmaitan (SyCipLaw), the emergence of ESG investing in the country was traced back to as early as 2016 when the Securities and Exchange Commission (SEC) issued the Code of Corporate Governance for Publicly-Listed Companies (CG-PLC), which adopted an expansive view of corporate purpose, reinforced the idea of stakeholder governance, and introduced sustainability reporting in the governance framework of publicly-listed companies (PLCs).

Notably, the CG-PLC recommends that “the board of directors have a clear and focused policy on the disclosure of non-financial information, with emphasis on the management of economic, environmental, social and governance issues of its business which underpin sustainability.”

A counterpart of CG-PLC for public companies was issued in 2019, containing the same concepts, principles, and recommendations on stakeholder governance and sustainability reporting as those in the CG-PLC.

Furthermore, in February 2019, SEC released Memorandum Circular No. 4, series of 2019, titled “Sustainability Reporting Guidelines for Publicly-Listed Companies,” which specifies the procedure for sustainability reporting in the Philippines. With the issuance of these guidelines, PLCs are now required to submit a sustainability report as part of their annual report each year.

“The Sustainability Reporting Guidelines seek to, among others, help PLCs identify, evaluate and manage their material economic, environmental, and social risks and challenges, and measure and monitor their contribution towards achieving universal targets of sustainability, such as the United Nations Sustainable Development Goals (UN SDGs), and national policies and programs,” SyCip Law’s brief noted.

One year after SEC’s guidelines on ESG reporting were enforced, SyCip Gorres Velayo & Co. (SGV & Co.) reviewed how PLCs responded to SEC’s requirement to publish sustainability reports.

The firm’s study, titled “Beyond the Bottom Line: Sustainability Reporting in the Philippines,” found that 64% out of the 73 PLCs that submitted sustainability reports for the financial year ending December 31, 2019 used the reporting template provided by the SEC to ensure compliance on the first year. Of these PLCs, 40% released stand-alone sustainability reports, while 30% disclosed sustainability information as part of their annual reports.

The study also found that 77% of the sustainability disclosures were focused on UN SDGs, while 45 PLCs used the SDGs to inform about their sustainability strategy, materiality assessment process and/or material sustainability issues.

Discussing these findings, Benjamin N. Villacorte, a partner at SGV & Co., and Yna Altea D. Antipala, a senior associate of the firm’s Climate Change and Sustainability Services team, observed that while the first year of ESG reporting focused more on compliance, such efforts still met the objective of creating awareness and inclusion of sustainability on the board and management agenda.

“In addition, PLCs can improve their reporting on topics such as waste management to address pressing global concerns; resource management, specifically of materials and water, since unhampered consumption is not sustainable; and the protection and rehabilitation of biodiversity and ecosystems affected by operations to minimize negative environmental impact,” Mr. Villacorte and Ms. Antipala wrote in a BusinessWorld column last year.

They also noted that PLCs can further improve on addressing social issues, “particularly privacy and data security, after the pandemic rapidly shifted professional communications into the digital space.”

Also, the Anti-Corruption & Governance Center of the Center for International Private Enterprise (CIPE) stated that the SEC’s initiatives in “establishing a market-wide culture of sustainability” by mandating ESG disclosures is “admirably forward-looking.”

“They have not only helped the Philippines prepare for impending ESG requirements in the EU and US; they have also helped them adapt quickly to growing due diligence demands in global supply chains,”  CIPE wrote on its website.

ESG standards have also begun influencing sustainable financing, starting from as early as 2018 and 2019, when the SEC promulgated guidelines on the issuance in the Philippines of green, social and sustainability bonds under the ASEAN Green Bond Standards, the ASEAN Social Bond Standards, and the ASEAN Sustainability Bond Standards.

Then, in 2020, the Bangko Sentral ng Pilipinas issued Circular No. 1085, more known as the Sustainable Finance Framework, which requires banks to embed sustainability principles, including those covering environmental and social risk areas, in their corporate governance framework, risk management systems, and strategic objectives consistent with their size, risk profile, and complexity of operations. After the launch of this framework, banks such as BDO Unibank, Inc. and Rizal Commercial Banking Corp. started offering sustainability bonds.

More recently, in February of this year, the SEC, along with the ASEAN Capital Markets Forum, is planning to develop Sustainable and Responsible Fund Standards (SRFS), which aim “to provide disclosure and reporting requirements that can be consistently applied by fund managers” in the jurisdiction of the Association of Southeast Asian Nations.

As BusinessWorld reported the same month, the ASEAN SRFS would make investment funds provide disclosures on ESG initiatives, sustainable and responsible investment objectives, and sustainability investment strategies. The standards to be developed will also require disclosure of the processes in place to ensure ESG compliance. — Adrian Paul B. Conoza