The Securities and Exchange Commission (SEC) Philippines is at the forefront of the progressive move to embed sustainability reporting in the Philippines. To further increase awareness among Philippine publicly listed companies (PLCs) on sustainability reporting, the SEC released the Sustainability Reporting Guidelines for PLCs (SR Guidelines) through SEC Memorandum Circular No. 4, Series of 2019, on February 15, 2019. The Sustainability Report focuses on the Economic, Environmental and Social (EES) impact, risks and opportunities of PLCs and is required to be attached to Annual Reports to be submitted by PLCs. The memorandum circular took effect on March 8, 2019.
The SR Guidelines provide a Sustainability Reporting Framework for PLCs that builds upon four globally accepted frameworks: (1) the Global Reporting Initiative’s (GRI) Sustainability Reporting Standards;
(2) the International Integrated Reporting Council’s (IIRC) Integrated Reporting (IR) Framework; (3) the Sustainability Accounting Standards Board’s (SASB) Sustainability Accounting Standards; and (4) the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD). Although the SEC Philippines provided for a sustainability reporting template (Annex A of the SR Guidelines) to assist compliance, it must be emphasized that PLCs are free to adopt any internationally accepted sustainability reporting framework.
The SR Guidelines are intended to measure the covered companies’ contributions toward achieving universal sustainability targets like the United Nations Sustainable Development Goals (UN SDGs), as well as national policies and programs like the AmBisyon Natin 2040.
SUSTAINABILITY REPORTING IN THE PHILIPPINES AND IN ASIA
It may be recalled that sustainability reporting is defined as an organization’s practice of publicly reporting its significant economic, environmental and/ or social impacts, in accordance with globally accepted standards. Sustainability reporting enables an organization to measure and monitor its contributions towards achieving universal targets of sustainability.
The growing focus on sustainability has a corresponding increase in demand for companies to provide greater disclosure and transparency not only on financial matters but on non-financial and sustainability issues as well. Greater attention is now given to how businesses impact the economy, environment and society, and the way corporations respond to sustainability challenges. This is where sustainability reporting comes in.
The increasing awareness of sustainability has also resulted in sustainability reporting becoming a common practice for companies globally. The Global Reporting Index reports that more than 90% of the largest companies in the world publish a sustainability report. In the region, six out of 10 ASEAN member countries now have SR Guidelines, particularly Indonesia, Malaysia, Singapore, Thailand, Vietnam, and the Philippines.
One of the salient points of the SR Guidelines for PLCs in the Philippines is the adoption of the “comply or explain” approach to sustainability reporting. The comply or explain approach combines voluntary compliance with mandatory disclosure, and allows PLCs to provide an explanation for items which they have no available data on or for their non-compliance if any. This approach was adopted to give PLCs ample time to determine material impacts, collect data thereon, and transition.
The SEC also recognizes that there is no “one size fits all” approach to sustainability reporting, hence the introduction of the materiality principle. This principle determines which topics are relevant and material that make it effectively imperative for PLCs to include them in the sustainability report.
The topics can be determined after a PLC conducts a materiality assessment of its operations, risks and impacts. In particular, topics can be considered material if it reflects an organization’s EES impacts; have a substantive influence on the assessments and decisions of stakeholders; or have a substantive effect on the organization’s ability to create value over the short, medium and long term.
In the Asia Pacific region, the comply or explain approach is being used in Australia, Hong Kong, Japan, Philippines, and Thailand as of 2022, as discussed at the 11th ASEAN Audit Regulators Group Annual Meeting. On the other hand, some countries adopt a mandatory approach to sustainability, namely, Indonesia, Malaysia, New Zealand, and Singapore albeit with varying modalities. For example, Indonesia OJK requires PLCs and banks to publish an annual sustainability report. Malaysia Bursa requires PLCs to publish an annual sustainability report with prescribed sustainability matters and indicators. New Zealand became the world’s first country to pass a law that mandates climate disclosures by PLCs, large financial institutions and investment schemes. Singapore SGX requires PLCs to adopt climate reporting on a “comply and explain” basis and mandatory reporting for high-risk industries from FY 2023 onwards.
The SR Guidelines recognize that sustainability reporting is a journey and that PLCs would be at different levels in this journey; while some may already be advanced, most are just at the beginning. In this way, the SR Guidelines are intended to be an introductory tool for companies who are just starting their respective journeys.
Since the SEC Philippines wants the SR Guidelines to be an introductory tool, the intention is to make disclosure as easy as possible for the PLCs. As such, the SEC Philippines provided a Reporting Template attached as Annex A to the SR Guidelines, which PLCs may use to disclose their EES impacts, risks and opportunities, as well as the PLCs’ contributions to the UN SDGs. The compliance rate of SR submissions in the Philippines is at 90.77% for the covered year 2019 (246 out of 274 PLCs, with three exempt from compliance), and at 95.93% for the covered year 2020 (259 out of 280 PLCs, with 10 exempt from compliance).
Once there is clear evidence that Philippine corporations have already embedded sustainability reporting in their business practices, the SEC Philippines intends to cover more types of corporations and adopt a stricter, more comprehensive approach to sustainability reporting.
In the long run, the SR Guidelines will serve as an effective tool to encourage everyone to adopt sustainable business practices and attract Environmental, Social, and Governance (ESG) investors in the country. The SEC recognizes, however, that the responsibility for creating a sustainable environment is ultimately a basic obligation that precedes any kind of law or regulation. It is an obligation that has as its main goal the preservation of nature and consequently, of mankind.
INTERNATIONAL SR RECOGNITIONS
With the issuance of the SR Guidelines, the SEC was recognized by the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) Honours Award 2019 for the Philippines from the United Nations Conference on Trade and Development (UNCTAD). The awarding ceremony was held on October 30, 2019, in Geneva, Switzerland.
Launched in 2018, the ISAR Honours seeks to support efforts on enhancing the quality and comparability of companies reporting on sustainability issues and on the 2030 Agenda for Sustainable Development and its usefulness for monitoring the implementation of the SDGs.
As further recognition of the SEC Philippines’ advocacy on sustainability reporting, it was hailed as one of the Circle of Excellence Awardees for the Best Sustainability Company of the Year in the 12th Asia CEO Awards held on October 12, 2021. In addition, the SEC Philippines was the recipient of the Global Good Governance (3G) Advocacy and Commitment to Corporate Governance Award 2021 held on May 25, 2021. This award was again given to the SEC Philippines in the follo year, alongside the 3G Transparency Award 20 during an awarding ceremony on May 18, 2021 in Dubai, United Arab Emirates.
The SEC Philippines has continuously advocated for transparency in the country by eliminating red tape and other opportunities for graft and corruption, as well as in strengthening the constitutionally protected right of people to information. This has led to several recognitions at the local front.
From 2019 to 2020, the Commission was recognized by the Philippines’ Presidential Communications Operations Office as one of the top-performing agencies in the implementation of the Freedom of Information (FOI) program. Under the FOI program, Filipinos can request any information about government policies, transactions and operations, subject to recognized constitutional and statutory limitations such as those relating to national security.
The SEC Philippines has also received the highest audit mark from the Philippines’ Commission on Audit for four (4) consecutive years or from 2018 to 2021, proof of the Commission’s efficient and judicious use of public funds amid the financial challenges brought by the COVID-19 pandemic.
An agency is given an unqualified or unmodified opinion when auditors conclude that the financial statements as a whole are free from material misstatements, which could arise from either error or fraud, according to the International Standards of Supreme Audit Institutions. Further, in March 2022, the SEC Philippines maintained its ISO 9001:2015 Certification for its quality management system covering all core services across its
main and extension offices.
The ISO 9001:2015 Certification is an attestation to the Commission’s adherence to world-class standards in the provision of regulatory services over the corporate sector, the capital market participants, and Philippines, as well as the protection of the investing public.
The Commission first obtained ISO 9001:2015 Certification in 2018 for its quality management system covering initially the registration of partnerships and corporations doing business in the Philippines, and the licensing of the capital market institutions and professionals. The SEC then secured a re-certification for ISO 9001:2015 in 2020, where it successfully expanded the scope of its ISO-certified quality management system to cover 122 document procedures from the initial 59.