It’s been almost a month since the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) concluded. In November 2022, stakeholders from the public and private sectors around the world gathered to delineate the next steps and help ensure that the existing goals to tackle the climate crisis are met.
At the end of the summit, held in the coastal Egyptian city of Sharm el-Sheikh, parties instituted a landmark deal that would establish and operationalize new funding arrangements for developing countries, including the Philippines. Droughts, rising seas, typhoons, and more affect the communities in these places. The dedicated fund was pegged to provide assistance to those ruined by loss and damage caused by the worst impacts of climate change.
While the Philippines stands to benefit from this move, we may have to wait for some time for the details of how this decision will be implemented. The rate at which global temperatures are rising makes climate change not only an environmental issue but also an economic and social concern. We need all the help we can get to reduce greenhouse gas emissions through bolstered technology, finance, and capacity building.
BUSINESSES AND DECARBONIZATION
Within five years, the average global temperature could pass the target limit of 1.5 degrees Celsius set in the Paris Agreement if our collective will to prevent it slackens. COP27 reaffirmed its members’ commitment to avoid this, but countries, businesses, and civil society must collaborate to ascertain a tangible outcome.
In particular, private sector organizations are well-positioned to be a force for good on the path to sustainability. In the Philippines, while the government leads COP27 efforts, companies can work hand-in-hand to ensure financial and human resources are channeled toward aligning with global decarbonization targets.
Alignment and financing are significant factors in adaptation, which is on the country’s agenda alongside securing financial support from developed nations. Matching current targets and goals is crucial in cutting emissions drastically; exceeding them can have opposite effects we might not be prepared to handle. Funding must also flow in support of building climate resilience. Underfinancing adaptation poses more risk and focusing on mitigation strategies could be more costly.
With their influence and levers for change, businesses and institutional investors can tackle the big sustainability challenges by:
• Becoming leaders in the decarbonization journey and going beyond what’s legally required (more on this later), such as reducing pollution and other environmental impacts for businesses and supporting green initiatives for investors;
• Engaging key decision-makers and clients across many areas like climate security, decarbonization, food security, sustainable finance, and gender equality to increase collaboration and facilitate collective action; and
• Fostering innovation that drives change.
Climate change innovation and investment can be further strengthened by the government’s formation of local policies and guidance and the promotion of partnerships with the private sector.
What’s noteworthy is that more and more companies worldwide are disclosing climate-related financial information: a way for them to communicate with stakeholders, including investors and potential investors.
The fourth EY Global Climate Risk Disclosure Barometer reveals that corporate reports scored 84% — climbing from 70% — for their coverage of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. In terms of the quality of disclosures, the average score was 44%, just slightly higher than last year’s 42%. Both figures are up, but there’s clearly a gap between coverage and quality that must be addressed to enable businesses to deliver meaningful disclosures around the challenges they face.
Philippine companies should work twice or even thrice as hard to accelerate their efforts. They must improve their disclosures by following the TFCD and increasing the quality of their reports at the same time. And to truly deepen their reporting, it is imperative to address the global climate problem by materializing concrete actions. They would need to re-strategize or embed decarbonization efforts in their corporate policies and long-term plans.
This commitment will soon become more than just an option for publicly listed companies (PLCs). In 2019, the Securities and Exchange Commission (SEC) released a memorandum that required PLCs to report on the management of their economic, environmental, social, and governance (EESG) impacts in a “comply or explain” approach. It means PLCs can attach their sustainability reporting template to their Annual Report and provide explanations for items they have no data on — all within the first three years upon implementation. That three-year window is closing as the SEC plans to make sustainability reporting mandatory for all PLCs by 2023.
To complement the SEC’s efforts in mainstreaming EESG disclosures among PLCs, the Philippine Financial and Sustainability Reporting Standards Council (FSRSC) recently approved the formation of the Philippine Sustainability Reporting Committee (PSRC). The PSRC, composed of members from accounting firms, regulatory agencies, academic institutions, and industry associations, will provide technical assistance to the FSRSC on the adoption and issuance of sustainability reporting guidelines and standards in the Philippines. To achieve this, the PSRC will leverage the guidelines from the International Sustainability Standards Board, which are expected to be released in 2023.
ENERGY INDUSTRY TO TAKE THE LEAD
Improving climate disclosures for greater transparency and accountability is just one facet of the journey. Companies must develop roadmaps with short-term, medium-term, and long-term goals and design concrete steps to achieve them.
Those with the most significant exposure to risk can and should lead the way in managing it. There are two things to focus on: 1) how they adapt their own assets to changing climate conditions and 2) how they handle resources, such as water, to ensure efficiency and avoid harming the resiliency of other industries.
In this light, the energy industry has much to gain and to lose. Eliminating greenhouse emissions is the first hurdle to meet, which ties in closely with limiting dependence on fossil fuels. Shifting to renewable energy sources should continue to grow to balance how the sector generates the capacity needed to power our post-industrial world.
Meanwhile, innovation and investments in the agriculture, food, and forest products sector should also be directed toward activities that enhance adaptability. On-farm emissions usually come from livestock, soil management, and practices like rice cultivation and crop fertilization. Changing the way we farm — making it greenhouse gas-efficient — involves the use of technologies that can be scaled across regions and production systems.
We cannot talk about significant climate action without dealing with the plastic crisis. With 400 million tons of plastic waste produced every year, the sector will continue to rely on fossil fuels (from which the chemicals used in creating plastic are sourced). Funding the shift to plastic substitutes is vital, but just as valuable and urgent is the need to push policies to stop the illegal traffic in plastic waste.
COMMITMENT INTO TANGIBLE ACTION
The climate crisis requires everyone’s concerted effort. It’s an all-hands-on-deck type of situation. We need solutions that aggressively tackle the climate problem. Businesses should begin to feel the urgency of investing time, resources, and leadership efforts into long-term, sustainable performance, which includes funding relevant technology like data and analytics for developing early warning systems; and pursuing innovation in areas like agriculture, applied materials, and biofuels. It is also their duty to provide more sustainable choices to consumers.
Our corporate report scorecards show there are still gaps in the communication between companies and stakeholders. Through improved ESG disclosures, businesses can be more transparent and earn long-term investors’ trust. This setting and meeting of expectations can help both sides assess performance and address risks and opportunities that translate to investment and innovation. Such actions would translate to a greater impact than just pure commitments.
The race is on to find climate-related solutions that can scale rapidly. Businesses and investors should see it as an investment with a payoff that is worth so much more in the long run: the lives that will be saved and the survival of this planet.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Benjamin N. Villacorte is a Partner from the Climate Change and Sustainability Services team of SGV & Co.