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Regulations / Understanding ESG / Treasury & Capital Markets
Philippines takes softly-softly approach to ESG
Lack of forcing mechanism blamed for slow adoption of sustainability standards
Patricia Chiu 3 May 2023

The Philippines is lagging behind its Southeast Asian peers when it comes to the adoption of environmental, social and governance (ESG) principles, experts say, and a key reason could be the lack of a “forcing mechanism” to push listed companies to follow internationally recognized sustainability standards.

“We’re behind. It’s very uneven across the corporates, and while some are ahead of their ESG metrics mainly benchmarked against the other groups in more developed markets, others opt not to put anything in,” says Jacqui de Jesus, head of research at Maybank Philippines.

The disparity in ESG reporting data could be due to the fact that for the past three years, while Philippine regulators have been exhorting corporations to integrate ESG into their operations, they have not been strict with requiring specific data points. 

“We’re monitoring the data inputs on a year-to-year basis and there has been improvement, slowly, but the forcing mechanism hasn’t been there in the last three years,” De Jesus says, noting that the current “comply or explain” model means disclosures are a little slower. 

Annual report

“Comply or explain” is a regulatory approach in corporate governance and financial supervision that sets out a code, which listed companies may either comply with, or if they do not agree, explain publicly their reasons. The model is distinct from the regulatory approach that sets out binding laws that all must follow.

As of 2019, the Securities and Exchange Commission of the Philippines set out its “comply or explain model”, in addition to its Code of Corporate Governance which was released in 2016. The regulator also requires publicly listed companies to submit an annual sustainability report. 

However, the quality of ESG data still varies from company to company since there are still no publicly disclosed auditing metrics for the types of data to be reported by the listed companies.

“I would say that quality can still be improved, so it’s really going to be a huge task. From the perspective of the auditing process, they will have to invest in bringing in experts from abroad,” De Jesus says.

That could all change in the next two to three years as the trend for local companies is moving towards seeking expert advice on ESG compliance.

“The key trend we noticed is that starting 2022, they’ve been in active contact with the likes of MSCI and Sustainalytics, among others. There’s a real effort in moving towards that structure,” she says. 

Dedicated teams

Also, since last year, more conglomerates have been dedicating more resources to setting up dedicated teams within their groups to align their ESG standards across all their subsidiaries, as well as with regional standards. 

“But it’s not going to be fast,” De Jesus says, although she doesn’t see an ESG index being established in the country in the near future. 

“The fact that we’re only now requiring actual data to be presented means that in terms of having an ESG index or a sustainability index for the market, we’re a long way to go from that, but we’re moving in that direction,” she adds. 

In the medium term, Philippine companies are likely to focus their energies on baselining and data gathering in an effort to catch up with their Asean peers. 

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