February 2023 Articles - Suits the C-Suite | SGV & Co. | EY

27 February 2023

Lisa Marie T. Escaler

Deepening the strategic value of the CHRO (Second Part)

Second of two partsChief Human Resources Officers (CHROs) have always been crucial to the success of an organization. However, as a result of current events, they may now be just as valuable to CEOs as the Chief Financial Officer (CFO). As such, it is imperative to deepen their strategic value.In order to better understand why the connection between the board and the CHRO is becoming more crucial, insights from EY thought leaders and clients were gathered to fuel strategies to improve the board and CHRO dynamic along with the ways of working. Instead of merely reducing potential risks, organizations can find opportunities in current, unheard-of labor trends to gain a competitive advantage.The first part of this article discussed challenges in talent, perception gaps identified with employees, and considerations for boards to make. This second part will discuss three strategies that boards and CHROs can implement to help each other succeed: strengthening and enabling the CHRO role, re-examining the risk framework to support the talent agenda, and supporting CHROs in developing a human-centric strategy and employee value proposition.STRENGTHEN, SUPPORT, AND ENABLE THE CHRO ROLEOrganizational culture, which includes purpose, well-being, and social inclusion, has emerged as a critical factor in motivating present employees and attracting potential hires. Therefore, choosing who oversees this crucial sector is the first step for the board and the executive team.Once roles are defined, the board should challenge the CHRO (or an equivalent role) on matters that are now within their purview. These include corporate activism and reputational talent risks. Boards must also communicate the significant financial value of having a strong employer brand to investors and other external stakeholders to support the CHRO role.In addition, boards should inquire about whether the HR team has the right qualifications, experience, and support of top management. The CHRO should be subject to the same accountability standards as the other C-Suite members. The CHRO is responsible for engaging the board in important discussions about important issues that include the external market environment and an internal perspective that covers determining what talent the organization has, how to retain key personnel, understanding critical current and future skills, and how to address gaps in talent.They should also draw attention to and thoroughly evaluate the significant developments that have an impact on the firm, and they should exhort the board to adopt fresh and unusual perspectives. In order to accomplish this, the CHRO needs early access to the board so they can establish and show their credibility, trust, and transparency. They will then be able to present innovative, game-changing ideas with assurance when the time is right.And last, the board and the CHRO should keep putting first-class oversight of executive remuneration and C-suite succession planning at the top of their list of priorities. When properly implemented, the former ensures that rewards correspond to the cultural practices the organization wants to promote. Additionally, debates in boardrooms are showcasing the latter more prominently than ever due to evolving talent dynamics.RE-EXAMINE THE RISK FRAMEWORK TO SUPPORT THE TALENT AGENDATalent is frequently at the top of risk agendas for organizations worldwide. However, because risk profiles vary by industry, organization size, and various other criteria, each organization handles its talent differently. In order to determine what is best for them, boards should consult with their respective CEOs and CHROs. These conversations do not have to wait until board meetings; they can take place during routine check-ins with other board members.To avoid the temptation to micromanage, the board should discuss and decide what role it should play in supervising talent concerns as well as determine the best governance structure to support the CHRO. The board will also have to think about how to include the voice of the employees in the governance structure. They must pay attention to what employees want, even if not all requests can be granted.Executive learning is also a key area. Historically, board members tended to have extensive backgrounds in more traditional fields such as law and finance. However, the board will need to supplement these skills with new perspectives in light of new risks and difficulties. By ensuring that the board has access to and is learning from industry best practices, the CHRO can support these initiatives, helping the organization become more performance-driven and purpose-led as a result.SUPPORT CHROS IN DEVELOPING A HUMAN-CENTRIC STRATEGY AND EMPLOYEE VALUE PROPOSITIONIn order to balance the demands of the people strategy and the business strategy, as well as to create and sustain the culture of the organization, boards must narrow their focus on their people, and look more closely into what the employees need from their organization as well as what the organization needs from them.These discussions must be incorporated into the broader strategic talent plan to attract, nurture, and retain the talent required to carry out the organization strategy. The board can help the CHRO carry out this strategy by ensuring that each individual feels heard, appreciated, and supported.Board members do not need to know the specifics of employee insights, but they should be made aware of any potential risks, opportunities, and impact. They can then ensure that the organizational employee value proposition, culture, and overarching strategy all take into account the needs of various employee groups while allowing for customization where appropriate. Culture is a particularly significant factor as well; research shares that businesses which thoroughly understand and reflect their cultures outperform their competitors by a factor of three, while those with serious cultural problems falter or even fail.Boards should ensure that the cultures of their particular organization are in sync with their talent and retention strategies as they assume increased responsibility in managing this vital area. In exchange, the CHRO must thoroughly assess the organization’s employee value proposition with the board and assist in filling in any knowledge gaps.All of these discussions should be supplemented by an effective use of data. It will be easier to engage the board and win their support if they are presented with clear, succinct, and well-researched recommendations.COLLABORATING TO NAVIGATE THE TALENT LANDSCAPEThe constant disruption in recent years has only exacerbated the war for talent, requiring the CHRO role to be even more strategic as people-related risks rise to the top board agendas across the globe. In order to overcome challenges in talent, CHROs and boards must collaborate to enhance the CHRO role, supporting as well as challenging each other to navigate the talent landscape and remain competitive.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services Workforce Advisory (PAS WFA) leader of SGV & Co.

20 February 2023

Lisa Marie T. Escaler

Deepening the strategic value of the CHRO (First Part)

First of two partsOrganizations have been undergoing wave after wave of transformation since disruption is now a modern-day constant, and managing talent plays a key role to overcoming every obstacle that organizations encounter. The war for talent continues to heat up in today’s uncertain business landscape.In order to support and counsel the CEO on their transformation and growth strategy, Chief Human Resources Officers (CHROs) and their equivalents have had to go well beyond traditional human resources territory. However, in order to recruit, keep, and utilize the best talent now and in the future, organizations must acknowledge that talented workers have a significant amount of negotiating power.The CHRO is responsible for all things related to people in an organization, including the development and implementation of a people management strategy. This includes how to attract, onboard, engage, develop, reward, and retain the talent necessary for the organization to succeed. It also includes succession for C-Suites, change management, executive compensation, and diversity, equity and inclusion (DE&I) initiatives.In the current talent landscape, the role expands further to include purpose, culture, and well-being, which are all increasingly important factors for employees. More recently, these factors include access to more flexibility in ways of working as well as development opportunities.Boards must manage the talent agenda in a way that takes the current dynamic into account. This means ensuring that the CHRO role is elevated from business function to strategic collaborator, and that talent management continues to be a primary business focus. Additionally, it entails helping the CHRO listen to employees and influence the company to develop a human-centered culture and a more tailored employee experience.In order to better understand why the connection between the board and the CHRO is becoming more crucial, insights from EY thought leaders and clients were gathered to further uncover the strategic value of the CHRO role. These insights fueled strategies to improve the board and CHRO dynamic along with the ways of working. Instead of merely reducing potential risk, organizations can find opportunities in current, unheard-of labor trends to gain a competitive advantage.CHALLENGES IN TALENTThe responsibility of the board is to ensure that management provides the organization with the key talent it needs to execute its strategy. However, in recent years, a depleting talent pool and rising employee demands have made this difficult. The pandemic and its economic repercussions compounded the issue by creating a shift in what employees value in both their professional and personal lives — and the situation is still evolving.Talent challenges are being exacerbated by a constantly evolving environment. Just three years ago, flexible working was a differentiator or a means of achieving a competitive edge. Now, according to the EY 2022 Work Reimagined Survey, as much as 90% of the respondents said they would think about quitting their current position if flexible working was not an option. Flexibility also has different meanings, as younger individuals might prefer to work from the office more as a result of rising heating and cooling expenditures. However, those who drive or commute to work are more inclined to prefer the reverse to save money on fuel and time.A recent EY survey of graduates and interns looked into what will keep younger generations engaged and motivated due to their tendency to shift employment more frequently. Since flexibility is becoming more and more synonymous with mobility for these groups, governments all around the world need to develop policies that can compete with the attractiveness of traveling abroad for work. This reality is particularly true for the Philippines with our sizable overseas worker population.Meanwhile, since the COVID-19 pandemic started, a sizable number of the population over the age of 50 have quit working in some advanced economies. Organizations have to assess the effects of this shift while monitoring market conditions and, where necessary, think about strategies to entice this group back.Organizations are being forced to react quickly in the short term as a result of this ongoing disruption. One way is by assessing how the cost-of-living crisis is affecting employees and developing assistance strategies. However, focusing on the short term may also keep CHROs and their boards from thinking strategically. The organization must be able to assess the talent it currently has, the talent it will require in the future, and the best way to bridge the talent gap.PERCEPTION GAPS WITH EMPLOYEESBoards and their CHROs must make decisions about how to carry out commitments related to the talent agenda while navigating a rapidly shifting, occasionally contradictory reality. While they are better positioned to do so now than before the pandemic, the EY 2022 Work Reimagined Survey found that employers and employees are not always on the same page when it comes to employee engagement.For instance, when asked why they would change professions, employees most frequently cited career advancement and an increase in overall salary. On the other hand, employers say that learning, skills development, and well-being are some of the key elements to ensuring their employees can thrive. Additionally, there is a “loyalty disconnect” where employers think younger generations are less dependable. However, younger workers claim that they merely have different loyalties and values. Younger workers, for instance, place a higher priority on mental health, the mission of an organization, and its ethical standards than they do on management structures or the actual work.Organizations must act fast to close these perception gaps while maximizing the abilities of each and every worker. Putting humans at the center needs to be a strategic focus for the board and the CHRO to better understand what employees across all demographics want.CONSIDERATIONS FOR BOARDSBoards will need to ask themselves how they enhance both formal and informal talent governance to support and reflect the strategic relevance of the CHRO role. By collaborating with the CHRO, they can make sure the company stays on top of talent issues and can deal with the constantly shifting attitudes of its employees.The management group and the larger employee organization will have to determine how they uphold the culture and values of the company, as well as the systems in place to quantify this. Boards will also have to determine if the company has the necessary expertise and abilities, particularly those for future leadership, to execute its business plan.Lastly, board members must ask themselves what role they see themselves playing in developing a sustainable workforce and advancing the talent agenda. This can range from retraining the workforce and gauging the employee experience to boosting staff retention and integrating hybrid working styles into organizational culture.The second part of this article will discuss three strategies for boards and CHROs to help each other succeed: strengthening and enabling the CHRO role, re-examining the risk framework to support the talent agenda, and supporting CHROs in developing a human-centric strategy and employee value proposition.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services Workforce Advisory (PAS WFA) leader of SGV & Co.

13 February 2023

Benjamin N. Villacorte and Erica Nicole D. Gomez

Understanding the implications of the EPR Law (Second Part)

Second of two partsThe circular economy concept has been given more and more attention through the years and has now materialized in the Philippines through the Extended Producer Responsibility (EPR) Act of 2022 and its Implementing Rules and Regulations (IRR). In fact, the Philippines is one of the few countries around the globe with active regulations or national programs on the circular economy, counting itself among Scotland, Canada, South Africa, China, Japan, Singapore, and the European Union.Because of the huge potential of the Act to accelerate the transition of the Philippines to a more circular economy, all companies, not just obliged enterprises, can play a critical role in this ambition.In the first part of this article, we discussed six recovery programs, six reduction strategies and additional steps that obliged enterprises can undertake as part of their EPR programs. In this second part, we discuss EPR registration, EPR implementation, and keeping confidence through third-party assurance.FROM EPR REGISTRATION TO EPR IMPLEMENTATIONThe EPR registration with the National Ecology Center due on Feb. 13 is just the prelude to a long-term transformation process for plastic waste management. Mobilizing large enterprises in an action-oriented approach would lead to greater positive impact, which can also influence the micro, small and medium enterprises (MSMEs). MSMEs may voluntarily comply with the law by introducing small-scale EPR programs, but the real challenge lies in implementation.Since both reduction and recovery methods are required to fully comply with the law, investment in technology, innovation, facilities and product development are needed. Partnerships with local governments and the informal waste sector are also highly encouraged to ensure the engagement of key stakeholders in EPR programs. Because the EPR requirements set forth in the law may be demanding for some, authorizing a Producer Responsibility Organization (PRO) can serve as a viable additional platform for EPR program implementation.Obliged enterprises are required to have a system in place to account for their plastic footprint and engage an independent third-party auditor to certify the veracity of their reported plastic footprint, recovery and EPR program compliance using uniform standards established under the law. In this case, it would be advantageous to set up an internal auditing system as early as now to avoid delays and setbacks in the future. This will also allow obliged enterprises to thoroughly review the strategies and schemes that best suit their company.KEEPING CONFIDENCE THROUGH THIRD-PARTY ASSURANCEThe initial waste footprint to be submitted in time for the EPR registration can be self-declared by the obliged enterprises. However, after the first-year implementation of their EPR programs, obliged enterprises would need to report their compliance and recovery targets achievement, assured by third-party audit.While the submission of an EPR Law Compliance Audit Report (ECAR) is required for the government to monitor and evaluate the compliance of the obliged enterprises with their respective EPR programs, having third-party assurance provides transparency and confidence to businesses and their stakeholders that their efforts are contributing to a greater purpose.The first ECAR submission is still in July 2024 covering the EPR programs implemented in 2023, and the following should be covered in the report:• Footprint declaration for the volume of the obliged enterprise’s plastic packaging brought into the market during the period covered;• Recovery or plastic packaging waste diversion based on third-party audited diversion or credits;• Determination of the equivalent plastic packaging waste footprint reduction resulting from other EPR programs;• Confirmation of confidential information declared by the obliged enterprise.ADVANCING CIRCULARITY IN BUSINESSESEmbedding circular economy strategies in a company’s overall strategy and shifting to a circular model from a linear model can benefit the entire company and positively impact its operations, growth, and legal compliance. A circular economy is a type of economic structure that aims to reduce waste and unending resource usage. It represents a fundamental change in how stakeholders manage the use of goods and resources at their core. The goal is to maintain resources and their value in the loop rather than the present take-make-waste cycle, and to reimagine future business models suitable to creating a more sustainable society.In advancing circularity, companies can reassess their product designs and material options, and target to reduce waste generation in their whole operations cycle. Businesses that utilize durable, renewable, and recyclable materials can lessen its reliance on scarce and expensive resources as well as reduce their susceptibility to supply chain disruptions. Companies can also employ more sustainable procurement.Essentially, deciding to go with the more sustainable choice in applicable aspects of operations can make a huge impact and take the company a step closer to circularity. Additionally, shifting to a circular economy creates new jobs and revenue sources within the process of looping materials back into the system, including sorting, collecting, refurbishing, and remanufacturing, which is uncommon in the linear economy and opens businesses to new ways to drive growth.BEYOND COMPLIANCE: TAKING STEPS TOWARDS A CIRCULAR ECONOMYTaking into consideration the target timeline in the EPR, companies should now be ready for their plans and strategies on the implementation of their EPR programs for 2023. The first submission of the ECAR will cover the 2023 EPR programs. Obliged enterprises or PROs are required to establish and implement accounting, data recording, and auditing systems for their respective EPR Programs.The implementation of effective EPR programs goes beyond compliance — it also benefits companies through cost and tax reduction, energy savings, and favorable investor and consumer perception of their brands.The EPR Act of 2022 is an opportunity for businesses to contribute to tackling the growing volume of plastic waste in the country, preventing the loss of valuable resources and reducing environmental degradation. Since the IRR has been published, businesses must now step up and act to monitor and evaluate their plastic waste generation. By beginning to build partnerships and strategies for EPR program implementation, they can take a significant step towards a circular economy. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Benjamin N. Villacorte is a partner and Erica Nicole D. Gomez is a senior associate from the Climate Change and Sustainability Services team of SGV & Co.

06 February 2023

Benjamin N. Villacorte and Erica Nicole D. Gomez

Understanding the implications of the EPR Law (First Part)

First of two partsWith the signing of Republic Act No. 11898, also known as the Extended Producer Responsibility (EPR) Act of 2022, obliged enterprises are now engaged in establishing their own EPR programs to meet the deadline for EPR registration on Feb. 13.The Philippines is considered one of the top plastic polluters globally. A 2019 study by the Global Alliance for Incinerator Alternatives shared that Filipinos use a material amount of plastic packaging. Moreover, the National Solid Waste Management Status Report revealed that recyclables make up almost 30% of waste in the Philippines, comprising mostly of plastics and paper. Meanwhile, a WWF Philippines’ study showed that only around 9% of post-industrial and post-consumer plastics are recycled. This is relatively low compared to other countries, but with the Act now being implemented, there is this greater anticipation that the country will see a significant increase in its overall recycling rate. Although the Act only covers plastic packaging in the early years of its implementation, the coverage will be gradually expanded to encompass other materials as well. The Implementing Rules and Regulations (IRR) for the law were issued in January. The IRR provides detailed implementation requirements for the obliged enterprises, waste diverters and verification bodies, among others. Having established the need to implement an EPR program, obliged enterprises should explore what steps to take moving forward to comply.In the first part of this article, we discuss six recovery programs, six reduction strategies and additional steps that obliged enterprises can do as part of their EPR programs.EPR MECHANISMS: WHAT OBLIGED ENTERPRISES SHOULD PREPARE FORAs the country moves towards a more circular economy, obliged enterprises have been given the responsibility of managing their products throughout their lifecycles, starting with plastic packaging covered in the Act, with potential expansion of coverage in the future. By the February EPR registration deadline, obliged enterprises are required to submit their EPR programs with both recovery methods to effectively prevent the leakage of waste into the environment, and strategies to reduce non-environmentally preferable packaging products. The law specifies the recovery targets that obliged enterprises need to meet, beginning with a 20% recovery rate by the end of 2023 until 80% by the end of 2028 and every year thereafter. To do this, the IRR presents six recovery programs that obliged enterprises can do as part of their EPR programs:1. Waste recovery schemes through redemption, buy-back and offsetting with the goal of achieving high retrievability, high recyclability and resource recovery of packaging waste;2. Diversion of recovered waste with the intention of diverting packaging waste into value chains or other value-adding useful products;3. Transportation of recovered waste to proper diversion or disposal sites, ensuring proper tracking for traceability and transparency;4. Involvement in waste clean-up in coastal and public areas, with close coordination with local government and communities;5. Investment in establishing commercial or industrial waste diversion or disposal facilities, backed by a business case or pre-feasibility study to justify the insufficiency of existing facilities in the country; and6. Partnerships with local governments, communities and informal waste sectors for waste recovery-related purposes, ensuring the adequate and proper involvement of key stakeholders in the EPR program implementation.On top of the recovery methods, the Act also requires obliged enterprises to adopt measures to reduce non-environmentally preferable packaging products. While the law does not specify reduction targets unlike for recovery, it still provides six reduction strategies:1. Replacing single-use packaging with reusable ones aimed at improving the packaging’s reusability, recyclability and retrievability;2. Including recycled content or recycled materials in packaging, considering the amount of material effectively recycled and the efficiency of the recycling process including energy used;3. Deploying refilling systems for retailers, basing on the amount of single-use containers avoided as a result of the availability of refilling system;4. Establishing a viable reduction rates plan focused on upstream reduction of used material during the manufacturing of packaging;5. Preparing an information and education campaign during the first year and updating annually; and6. Ensuring appropriate labeling of packaging to facilitate recovery, reuse, recycling and proper disposal, following relevant standards and eco-label processes.TAKING ONE STEP AT A TIMESince the EPR programs are relatively new to most businesses, obliged enterprises may opt to implement their own EPR programs or decide to work with others, i.e., other obliged enterprises or Producer Responsibility Organizations (PROs). A PRO refers to an organization that is either formed or authorized by obliged enterprises with the function of supporting them in the formulation, registration, implementation and audit of their EPR programs.To advance the compliance of obliged enterprises with the provisions of the law, the IRR defines certain incentives. These include tax incentives, consideration of EPR expenses as necessary expenses deductive from gross income, and tax and duty exemptions of donations, legacies, and gifts. However, the law also penalizes non-compliance with fines ranging from P5 to P20 million, with an automatic suspension of a business permit for the third offense.Registering EPR programs with the National Ecology Center (NEC), which works under the oversight function of the National Solid Waste Management Commission, by February is the first official deadline under the law. The NEC is responsible for maintaining an EPR Registry containing all registered EPR programs, and will provide technical expertise, information, training and networking services for the implementation of the law. Registration is imperative for obliged enterprises and failure to do so is the first possible offense.With only a few days left before the deadline, obliged enterprises should also consider that the timely submission of their EPR programs would demonstrate their ability to really implement and operationalize these programs in the long-term. Considering that programs are expected to scale-up and be reported regularly moving forward, obliged enterprises must begin to, if they have not yet, incorporate their EPR programs and targets into their corporate strategies and annual plans.MOVING TOWARDS CIRCULARITYA shift in mindset and action is necessary in accomplishing a more sustainable way of doing business. Companies should start thinking of long-term strategies for implementing their EPR programs in order to reach the target recovery rate of 80% by 2028 onwards. More than compliance and incentives from this Act, the implementation of these EPR programs will also reflect upon the values of the company, as well as its shareholders and stakeholders.The transition to a more circular economy in the Philippines still has a long way to go, but the Act serves as a catalyst to encourage collaborative efforts from the government, companies, communities, and informal sectors to make conscious decisions in reducing the generation of plastic wastes in the country.In the second part of this article, we discuss EPR registration, EPR implementation, and keeping confidence through third-party assurance. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Benjamin N. Villacorte is a partner and Erica Nicole D. Gomez is a senior associate from the Climate Change and Sustainability Services team of SGV & Co.

February 2023

Deepening the strategic value of the CHRO (Second Part)

Deepening the strategic value of the CHRO (First Part)

Understanding the implications of the EPR Law (Second Part)

Understanding the implications of the EPR Law (First Part)

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