SEC Commissioner McJill Bryant Fernandez —Photo from SEC FB page
The impact, viability, and transparency of a company’s environmental, social, and governance (ESG) programs have become crucial considerations for investors, especially after the US financial crisis that crippled economies across the world in 2004.
That economic squeeze—one of the worst in the world since the Great Depression—was an impetus for the Securities and Exchange Commission (SEC) to issue its Sustainability Reporting Guidelines for Publicly Listed Companies in 2019.
Before the guidelines were issued, the SEC said only 22 percent of companies listed on the local bourse reported on their sustainability initiatives, as well as other aspects of ESG, a framework that measures a company’s commitment to long-term sustainability.
But much has changed since then, with 95 percent of the companies listed on the Philippine Stock Exchange now reporting on their ESG initiatives, SEC Commissioner McJill Bryant Fernandez told the Inquirer.
These are mostly the market’s big names—companies under SM Investments Corp., the country’s largest company in terms of market capitalization, or Ayala Corp., the oldest conglomerate in the Philippines, which have the resources to review their initiatives.
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SEC data obtained by the Inquirer showed that 11 publicly listed companies did not submit their 2023 sustainability reports. Six of these are in the financial and insurance sector; two in the arts, entertainment, and recreation sector; two others in the manufacturing industry; and one in the transportation and storage sector.
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In terms of asset size, 10 are large, while only one is medium, based on their available financial statements.
Fernandez recognizes that not all firms currently have the capacity to assess and compile their ESG-related programs.
“If you look at our memorandum circular in 2019, it’s on a ‘comply-or-explain’ approach,” he said. “If they do not have the capacity yet, then they can provide explanations.”
This means noncompliant firms will not be penalized, because the guidelines do not provide penalties for the non-inclusion of sustainability-related programs in the annual reports companies submit to regulators.
SE Asia benchmarking
Still, the SEC has been working double time to promote sustainability reporting through its Small and Medium Industries and Large Enterprises Embracing Sustainability roadshow. The program aims to “further push the commission’s sustainability agenda and promote sustainability reporting” among and beyond publicly listed companies.
“We’d want them to incorporate sustainability practices in their operations,” said Fernandez.
The SEC is on the path toward making sustainability reporting mandatory, although this will be done in a phased manner to allow more time for smaller companies to build the capacity to comply. The SEC and the Philippine Stock Exchange are currently benchmarking with peers across Southeast Asia to determine which tiering approach would be most appropriate and effective to use in the Philippines.
Fernandez cited the case of Malaysia, which looks at the asset size of listed companies to determine which firms will be required to regularly submit sustainability reports.
For now, Fernandez said they are formulating revised sustainability reporting guidelines to take into consideration the International Sustainability Standards Board’s (ISSB) new rules on sustainability-related disclosures in capital markets across the globe.
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This “comprehensive global baseline” is a set of disclosure requirements that will allow companies to properly communicate to investors their sustainability-related risks and opportunities while accurately reporting on their initiatives, according to the ISSB.
