Going Green: Sustainable Business Practices for a Sustainable Future
By: Atty. Ma. Katrina Rafaelle M. Ortiz
In today’s evolving business environment, the pursuit of profit remains as an important objective for businesses and other economies. However, there are recent shifts in stakeholder priorities which indicates that profit alone is no longer the primary concern. Key stakeholders like investors, customers, and employees now emphasize the need for sustainable practices that safeguard our collective future, one of which is the need for an Environmental, Social, and Governance (ESG) criteria that will lay the foundation for a more sustainable business and economic growth.
The Philippine Securities and Exchange Commission (SEC), along with the Philippine Central Bank, and the Insurance Commission (IC) recently promulgated the Guidelines on the Philippine Sustainable Finance Taxonomy (the “STFG Guidelines”), which aims to channel and amplify economic endeavors that promote goals in relation to sustainability, like the reduction of greenhouse gas emissions and bolstering climate resilience and promoting transparency and reliability on all regulated entities.
The salient points of the STFG Guidelines include conducting self-assessments on what activity qualifies as environmentally and socially sustainable. Further, the STFG Guidelines encourage the assessment of the Environmental Objectives of these activities by considering the following factors of (1) Activity and strategic alignment, (2) Investors/financial institutions’ priority, and (3) Government and industry guidance. These activities should be assessed to determine whether there are activities that would harm other Environmental Objectives by utilizing the general guiding questions for “Do No Significant Harm” under the circulars. Lastly, if an activity poses a harm to other Environmental Objectives, it should be remedied within the required defined period, or if an activity can still be aligned with the objectives of the STFG Guidelines, using the “Remedial Measures to Transition” provided for under the rules.
Notably, the enactment of the STFG Guidelines is only recommendatory and does not impose any mandatory compliance obligations to regulated entities. However, regulated entities are expected to understand and be familiar with the STFG Guidelines and are encouraged to take into consideration its provisions and required standards.
The development of ESG regulatory framework in other jurisdictions is rapidly evolving, but not without encountering several challenges in relation to its enforcement and implementation. For instance, the EU Corporate Sustainability Reporting Directive (CSRD), which was enacted in January of 2023 and mandates the reporting of disclosure of several compliance obligations, including corporations’ carbon emissions and the provision of sustainability impact of their supply chain, was met with challenges among firms, including, but not limited to, setting budgets for implementation, external collaboration stakeholders, like suppliers, and internal collaboration and alignment across business functions.[1]
As compared to other jurisdictions, the Philippine framework for ESG and sustainability is relatively early, as can be gleaned from the limited application of laws, rules, and regulations. Considering that the current rules in the Philippines only mandate publicly listed companies to provide sustainability reports pursuant to SEC Memorandum Circular No. 4, Series of 2019, other regulated entities are not compelled to enact sustainable business practices, as there are little to no incentives provided for under the law. Consequently, profit-driven companies have limited commercial motivations and consideration in integrating sustainable business practices within their internal policies.
Despite the foregoing, Philippine entities should consider adopting the STFG Guidelines for several important reasons. First, although entities are not yet mandated under the law to adopt ESG practices, the eventual enactment of ESG laws, rules, and regulations by the government is inevitable. By implementing these guidelines, entities can gain a valuable head start, allowing them ample time to study and understand the impact of ESG policies on their internal systems and practices. Second, the growing demand from key stakeholders for more sustainable business practices is an essential consideration. Evaluating and adapting business partnerships to meet these stakeholder needs can enhance long-term value creation and strengthen relationships among key stakeholders. Lastly, integrating more cost-efficient and sustainable policies can significantly improve profit margins. By optimizing resources and adopting more sustainable practices, businesses can achieve greater financial efficiency while contributing positively to environmental and social goals.
In a country where natural calamities are widespread, and where businesses suffer financial losses because of these calamities, entities should see and evaluate the value and importance of adopting ESG Policies, as these commitments will not only benefit the environment but also contribute positively to corporations.
[1] Verdantix Global Corporate Survey 2023: ESG & Sustainability Budgets
Ma. Katrina Rafaelle M. Ortiz is a Junior Associate at Gorriceta Africa Cauton & Saavedra. She is a member of the Corporate, Technology Media & Telecommunications, Corporate Rehabilitation and Insolvency, ESG, and Energy & Public Utility Departments of the Firm. Katrina’s practice includes handling mergers and acquisitions, corporate planning and restructuring, handling regulatory and compliance obligations, and conducting legal due diligence. She also assists clients in complying with legal and regulatory requirements for their specific industries and activities.
