Jose Florante Pamfilo and Catherina “Kate” Fernandez of SyCip Salazar Hernandez & Gatmaitan give a brief overview of CSR and ESG in the Philippines and look at how ESG has grown in popularity in recent years.
Both CSR and ESG are concerned with corporations having a positive impact on society. However, CSR is traditionally focused on corporate philanthropy and how a corporation spends its money, while ESG relates to the core business practices of the company and how it makes its money. In addition, ESG provides a more quantitative measure of sustainability.
How did ESG Come About in the Local Setting?
In 2016, the Philippines Securities and Exchange Commission (SEC), released the Code of Corporate Governance for Publicly Listed Companies (CGPLC). This SEC issuance is very significant in that it adopted an expansive view of corporate purpose and reinforced the idea that a corporation has a wider constituency than its shareholders. Under the CGPLC, a company should be socially responsible in all of its dealings with the communities where it operates and ensure that its interactions serve its environment and stakeholders in a positive and progressive manner that is fully supportive of its comprehensive and balanced development.
This goes against the conventional view that the purpose of a corporation is to pursue profit using every available legal means and that a corporation contributes to society simply by complying with law and regulations and by paying taxes. That is not to say that corporations should disregard shareholder value; rather, focus is shifted to the organisation’s long-term success and creating sustainable value for its shareholders as well as its stakeholders.
“Multiple studies have shown the positive relationship between high performance on relevant ESG issues and superior financial performance.”
The CGPLC introduced a new sustainability reporting requirement for PLCs in the Philippines. This requires PLCs to have a clear and focused policy on the disclosure of non-financial information, with emphasis on the management of economic, environmental, social and governance aspects of their business, which underpin sustainability.
This sustainability reporting was not mandatory for all PLCs until 2019. Now they are required to submit a sustainability report together, with their annual report, on an apply-or-explain basis, failing which penalties may apply.
The SEC has announced the intention to expand the sustainability reporting requirement to other types of companies, although it is not yet certain when this will be put in place.
Non-PLCs can prepare and gear up for this new requirement by remembering, for example:
“A company should reassess its vision, mission and strategy in light of sustainability, after which it must put in place an effective organisational structure to monitor progress is attaining its sustainability objectives.”
Areas for Development
While the Philippines has adopted laws and regulations to address climate change, one of the key gaps in the country’s law and policy in this regard is the absence of a carbon pricing instrument – a mechanism that puts a price on carbon emissions, to disincentivise the burning of fossil fuels and incentivise the use of less carbon-intensive alternatives, through a carbon tax or emissions trading system. It will be interesting to see how the country’s law and policy makers address this in the near future.
“One overarching topic dominating the sustainability conversation in the next few years is climate change and the transition to a low-carbon economy.”
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