Firstly, a quick definition, sustainability reporting is the process by which companies disclose their material economic, environmental and social impacts. Usually this is done in accordance with a few globally accepted standards (such as GRI, SASB, TCFD etc.). This allows companies to measure, understand and communicate their EESG (economic, environmental, social, and governance) impacts.
In the Philippines, sustainability reporting is a relatively new practice. Despite the global trend toward increased sustainability impact disclosure, publicly listed companies (PLCs) in the Philippines had low compliance rates when it came to publishing sustainability reports. A 2017 KPMG survey found that only 22% of the PLCs published sustainability reports, a stark contrast to 93% of the world’s largest 250 companies and 75% of the top 100 companies in 49 countries that report on sustainability.
Realizing the importance of sustainability reporting and the need to get Philippine companies closer to global norms, SEC Philippines took decisive action in 2019. They introduced sustainability reporting guidelines for PLCs, intending to promote greater disclosure and transparency on non-financial and sustainability issues.
These guidelines by the SEC have had a significant positive impact on sustainability reporting rates among PLCs in the Philippines. Since the introduction of the SEC’s guidelines, there has been a huge turnaround. In 2019, a year after the introduction of the guidelines, the compliance rate climbed to 90.4%.
The journey of sustainability reporting in the Philippines is taking a significant leap forward in 2023. The SEC has announced that starting from 2023, sustainability reporting will become mandatory for all publicly listed companies (PLCs) in the Philippines. This means that in addition to their annual reports, these companies will also need to submit their sustainability reports to the SEC.
This decision marks a significant step forward in the country's approach to corporate sustainability, aligning the Philippines with other countries where sustainability reporting is already mandatory, such as Thailand, Singapore, Malaysia, and Indonesia. This mandatory approach to sustainability reporting is expected to further enhance the transparency and accountability of PLCs in the Philippines.
A key feature of the SEC's approach to sustainability reporting is the "comply or explain" principle. This principle gives PLCs enough time to determine what is considered significant and collect data (if they are going to determine the material impact) or provide explanations (if they do not have data). In other words, rather than imposing a one-size-fits-all rule, the SEC allows companies the flexibility to either comply with the sustainability reporting guidelines or explain publicly why they cannot or do not do it. It's more of a disclosure regime than a set of strict rules.
The "comply or explain" approach is significant as it acknowledges the diverse nature of businesses and their different capacities to adhere to sustainability reporting requirements. By allowing companies the flexibility to explain their circumstances, it ensures that the move towards mandatory sustainability reporting is not overly burdensome, particularly for smaller companies that may not have the same resources as larger corporations. This approach eases the transition towards mandatory sustainability reporting and facilitates higher compliance rates among PLCs in the Philippines.
As part of the new sustainability reporting requirements, the SEC has provided a sustainability reporting template for PLCs. This template is intended to guide companies in their sustainability reporting efforts, helping them to identify significant environmental, economic, social, and governance (EESG) impacts and to understand the type of information they need to collect and disclose. The sustainability reporting template provides a clear and consistent format for PLCs to follow, ensuring that their sustainability reports are comprehensive and aligned with globally accepted standards.
One of the key aspects of the new sustainability reporting requirements is that the sustainability report must be attached to the company's annual report. This is a significant requirement as it elevates the importance of sustainability reporting to the same level as financial reporting. It signals to all stakeholders— investors, employees, customers, or the wider community—that the company's EESG impacts are as essential as its financial performance. By including the sustainability report as part of the annual report, the SEC is driving home the message that sustainability is not an optional extra, but a core part of corporate responsibility and transparency.
Companies should be aware that there are penalties for non-compliance with the new requirements. If PLCs fail to attach the sustainability report to their annual report, they will be subjected to the penalties that the SEC has set out for incomplete annual reports. This underscores the seriousness of the new sustainability reporting requirements and the importance the SEC places on companies disclosing their EESG impacts.
As of now, the emphasis has been primarily on publicly listed companies (PLCs) when it comes to sustainability reporting in the Philippines. However, the SEC has plans to broaden the scope of sustainability reporting. The goal is to introduce the same requirement to all types of corporations, not just PLCs.
While the timeline for this expansion of sustainability reporting is not explicit, the intention is clear. The SEC wants to take a gradual approach, first introducing the requirement beyond PLCs on a "comply or explain" basis. Eventually, much later on, the SEC aims to adopt a mandatory approach to sustainability reporting for all types of corporations, bringing the entire Philippine corporate sector into alignment with global sustainability reporting standards.
In conclusion, sustainability reporting is not just a trend, it's the future of business. With the increasing emphasis on transparency and accountability, it's likely that more and more companies, in the Philippines and around the world, will embrace sustainability reporting in the years to come.
At Keslio, we are deeply passionate about sustainability, equipping us with the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios. To learn more about how Keslio can assist your organization on its sustainability journey, please don't hesitate to get in touch with us.
