October 2021

SGV thought leadership on pressing issues faced by chief executives in today’s economic landscape. Articles are published every Monday in the Economy section of the BusinessWorld newspaper.
25 October 2021 Nixon C. Garais

Why data governance matters

With the rise in regulatory requirements and global industry standards to address the increased business consumption and volume of consumer data caused by the COVID-19 pandemic, companies have placed greater significance on the protection and handling of data. Now perceived as part of the wider challenge of maintaining operational resilience, issues in data quality, security, privacy and the threat of cyber-attacks rank higher on the data agenda of many organizations.However, compliance with data handling policies can no longer be entrusted to Data Protection Officers (DPOs) alone — there needs to be an entire data lifecycle management process that is sustained by more individuals who will be held specifically accountable for both the responsible use and protection of data. This presents organizations with the opportunity to maximize data value through improved data governance, taking advantage of increased data volume to automate and scale data governance processes while ensuring its ethical use.THE NEED FOR DATA GOVERNANCEWhile data governance refers to the exercise of authority, control and shared decision-making over the management of data assets, it should be distinct from the concept of data management. Data management is the practice of ensuring that an organization’s data is accurate, relevant and effective in fulfilling its business objectives. This includes activities to maintain data such as data classification, labeling, and proper handling. Data governance, on the other hand, sets the policies on how an organization manages data, and implements and monitors compliance.Data governance is mandatory for success if an organization wants to maintain a “single source of truth” to its data, enabling it to reduce redundant data, enhance data quality and maximize the value of information. According to the EY article “Three priorities for financial institutions to drive a next-generation governance framework,” organizations must focus on three key areas in governing the use of data.DATA PRIVACYRegulations around data privacy have become increasingly difficult to comply with, given the current data storage and access technologies. In the past, ensuring data privacy only entailed focusing on role-based access controls (RBAC) that restricted sensitive data access. Now, the widespread adoption of the cloud and the introduction of open application programming interfaces introduced new challenges not addressed by traditional controls. This makes it highly difficult for organizations to monitor the legitimate use of personal data, ensure transparency or obtain consent from individuals, and exercise data deletion for a specific individual.Companies must take a structured approach along the entire data lifecycle to achieve compliance. Meeting customer needs and achieving compliance with privacy regulations requires organizations to be transparent in how they store, process, control, and distribute private data. While modern data privacy controls are growing as a trend, these controls are predicated on the exponential growth and diversity in data usage and sourcing. Traditional risk-based approaches that apply retrospective controls will not be sufficient to manage the complexity of data privacy as technologies and use cases become more sophisticated. For companies to ensure proper processing of personal data, they must take a structured approach along the entire data lifecycle similar to the traditional “process and controls” approach, with more forward-looking considerations.CLOUD PLATFORMS AND DATA FABRICSNew technologies using public cloud will offer a competitive advantage if they can automate controls and reduce costs while being able to properly use data. The use of the cloud in particular can be seen as a new challenge for data governance or a simple extension of an existing technology practice. However, organizations must take the opportunity to use modern technologies to actually solve challenges in data governance.A well-formed data governance framework for the cloud will need to consider regulation, visibility, data classification, risk management and change management. Organizations will need to determine the controls required to be compliant across regions, keep abreast of changing global regulations, and provide evidence that the necessary controls are in place. They must also determine how data should be classified, how different classifications should be handled, and how operational risk should be measured and reported. Organizations will need to exercise key controls in moving data while avoiding control gaps and ensuring consistency. These controls must be maintained over time, while the information in the cloud should be automatically tagged to make it useful for enterprise reporting.ARTIFICIAL INTELLIGENCE AND MACHINE LEARNINGInnovation through artificial intelligence (AI) and machine learning (ML) is not just driving business transformation — it also highlights unique risks and challenges regarding the governance of data. Both AI and ML applications are becoming more accessible and powerful as firms increase their access to open-source algorithms, use of big data, and low-cost computing.Organizations need to establish an AI/ML governance framework that addresses the data-related risks of AI/ML ecosystems in aggregate. The framework should use cases where new technologies are applied and include early risk assessments based on an understanding of AI and ML. It should ultimately be automated to balance risk against data value, mapped against clear benefits and business outcomes. As these technologies become more accessible and advanced, in turn becoming integral components of business functions, achieving this level of automation and integration will be imperative for organizations.CLEAR DATA GOVERNANCE POLICIES AS A NEW BUSINESS IMPERATIVEAs companies grow increasingly cognizant of the disruption and risks posed by weak data protection, they need to develop robust data governance frameworks and prioritize improving controls over the ethical use of data. Organizations cannot wait for a cyber-attack or data breach — they must shift to a proactive strategy with enhanced capabilities in areas such as privacy frameworks, data and analytics growth, data traceability and detection, and data security and controls.By strengthening capabilities that approach data in a protective and operationally efficient manner, organizations can enable a data governance framework that supports key business outcomes focused on long-term growth. 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.Nixon C. Garais is a manager of SGV & Co.

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18 October 2021 Julie Christine O. Mateo

Managing workforce wellness

With global instability and the uncertainty pervading our current situation due to the disruption and volatility caused by COVID-19, employees may be struggling with feelings of helplessness, anxiety, and heightened stress. It becomes more important than ever for leaders to provide clarity and guidance, and to be the calm in the storm.As SGV celebrates well-being month this October, the firm acknowledges the additional challenges and responsibilities in managing mental health concerns in our teams. Though current conditions are far from ideal, we can control how we respond as well as how we connect.Something that can also provide clarity and perspective despite the uncertainty is purpose, which we can turn to as a source of focus and motivation. In SGV, our purpose to nurture leaders and enable businesses for a better Philippines gives us the assurance and confidence that our work — developing people and sustaining economic growth — will positively and meaningfully redound to the country and community.Purpose, however, is a collective journey for an organization and one that requires long-term planning and implementation. For organizations who already have a clearly defined purpose, ensuring that it continues to resonate with their people is crucial to sustaining their wellbeing. In terms of concrete, actionable steps in the near-term, the following key considerations can impact how we empathize with colleagues, teams and clients in a purposeful way and help foster a better working environment, remote or otherwise.RECOGNIZING AND ADDRESSING MENTAL HEALTH ISSUESThe pandemic drives to trigger global anxiety and fear, placing our minds in a constant threatened state while we deal with the unknown nature of the future. It becomes imperative to learn about the mental health continuum and normalize conversations about mental health within the team. Leaders have the responsibility of creating a safe space to discuss emotions and create a supportive workplace, but — and this is important — not to offer diagnosis or counselling. These should be given to mental health professionals to address.Moreover, providing support does not mean trying to fix the situation — connect by simply listening to their anxiety and fears and expressing empathy for how team members are feeling. Identify triggers for feelings of anxiety, and discuss how these can be reduced or managed. Help identify the kind of support they would need, and connect them to appropriate resources or suggest talking to a doctor or counsellor to help. Recognizing the importance of this, we in SGV have engaged a professional mental health platform to provide ongoing support to all our people.MANAGING AND SUPPORTING REMOTE TEAMSLeaders have the role of providing clarity and providing the most important task for the team to focus on, especially now that most teams are working remotely. This can be done by connecting regularly to communicate business priorities and keep on track through huddles that discuss incoming activities.Keeping connected through conducting regular check-ins can also determine how teams are handling the stress. Leaders must take note of any changes in behavior from their team members and take action to support them. Taking the time to talk with those who may be struggling and understanding their unique situations can make a difference in helping someone feel less alone. Early intervention can also help address issues before they escalate.In addition, acknowledge and celebrate small and big achievements, and recognize efforts frequently. Committing one activity on the calendar that is non-work related also helps facilitate social connection and balance work and recreation.MAINTAINING WELLBEINGTo provide sustainable support to someone in a team who may be feeling overwhelmed, leaders must first take positive actions to care for their own wellbeing. Aside from connecting regularly and providing a safe space for team members, leaders must familiarize themselves with available wellbeing programs and services aimed at addressing their teams’ physical, emotional and financial wellbeing.Focusing on relationships through short but frequent check-ins can help employees feel appreciated. Personal gestures such as celebrating birthdays, anniversaries and similar milestones creates a reinforced culture of positivity during these turbulent times, helping us focus on the good no matter how big or small.CREATING A HEALTHIER REMOTE WORKPLACEIt is already challenging to balance the demands of multiple engagements, and doing so with the wellbeing needs of a team can be even more daunting. Stress related to work is something everyone experiences — leaders and teams alike — and can even be useful by improving alertness and performance in short bursts. However, prolonged work stress can lead to burnout, which affects all aspects of wellbeing: physical, mental, emotional, social and financial health. Prolonged burnout can lead to real implications to the business such as loss of productivity and turnover, even manifesting into serious health consequences.There are some key principles that leaders can focus on to address the conditions that lead to burnout, and mitigate them to help their team members and themselves. As mentioned previously, it is important for leaders to look after their own wellbeing and promote good practices to their team members. This can be achieved through physical fitness, proper sleep and nutrition as well as finding time to disconnect and valuing contribution over just being busy. Ways to proactively disconnect include spending time on hobbies or creating a shutdown ritual, where employees can adapt their routine of leaving the office in their remote work spaces and even schedule a virtual commute.At the same time, avoid contributing to team member burnout. Set realistic deadlines and try to keep away from requiring work to be performed excessively outside of reasonable work hours as much as possible. Balance the workload of each team member and ensure these are appropriate and shared when necessary. Be clear regarding expectations and provide sufficient task ownership to avoid micromanaging. Be prepared to lend a hand with the completion of work when deadlines loom and team members feel overwhelmed. While this, of course, is easier said than done given the increasing demands on our people, it is still something that leaders will need to proactively manageREFRAMING FOR RESILIENCEManaging the psychological as well as physical safety of work teams is more important than ever, with uncertainty still prevalent. Though the future is outside of our control, leaders can help their teams reframe their responses and build resilience by encouraging a growth mindset and providing a clear vision of the future beyond the pandemic. By taking to heart the power of purpose to address uncertainty and taking steps to manage our own responses and providing the necessary guidance and resources, we can tackle external challenges in a more positive way. 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.Julie Christine O. Mateo is the talent leader and purpose council co-chair of SGV & Co

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11 October 2021 Benjamin N. Villacorte

Paving the path toward decarbonization

The most recent Intergovernmental Panel on Climate Change (IPCC) report delivered facts about widespread, extreme climate change, together with the warning that the rise in temperatures can exceed 1.5°C to 2°C in the next few decades if stakeholders don’t act now. The reminder to place the utmost importance on urgent, large-scale reduction of greenhouse gas emissions came months before the United Nations Climate Change Conference of the Parties (COP26) addresses the issue on a global scale.The IPCC report and the upcoming COP26 emphasize further the need for organizations to prioritize decarbonization. Increased investor and regulatory pressure have pushed organizations to heed prior wake-up calls and respond by broadening their climate disclosures, specifically by adopting the Task Force on Climate-related Financial Disclosures (TCFD) framework. This is reflected in EY’s 2021 Global Climate Risk Disclosure Barometer, which reveals that coverage of the TCFD recommendations has reached an average of 70% for more than 1,100 companies across 42 jurisdictions. However, higher coverage scores continue to be linked to climate-mature markets, highlighting inconsistencies among jurisdictions and a significant gap for low-performing markets to bridge.While TCFD reporting has made progress in the Association of Southeast Asian Nations (ASEAN), the region also logs the lowest score at 19%. In the Philippines, adoption of international reporting frameworks is underway but is still in the nascent stages, mainly driven by the move of the Securities and Exchange Commission (SEC) to require publicly-listed companies (PLCs) to report on their environmental, social, and governance (ESG) impacts through Memorandum Circular (MC) No. 4 Series of 2019. Similarly, the Bangko Sentral ng Pilipinas (BSP) proposed guidelines to encourage banks to integrate sustainability principles and ESG risks into their strategies and operations.Intensifying climate reporting, though, should go beyond compliance and shift to accurately mapping out risks and opportunities so companies can adopt appropriate risk management strategies, metrics, and targets that significantly contribute to the global efforts of mitigating the adverse impact of climate change. Key findings from the EY Barometer discussed below shed light on what areas to focus on.QUALITY TRAILS BEHIND COVERAGE IN TCFD REPORTINGThe EY Barometer evaluated companies based on the number of recommended disclosures made (“coverage”) and the extent or detail of each disclosure (“quality”). Despite the advances in the coverage of TCFD elements, the quality of disclosures of the assessed companies was deemed unimpressive. Overall performance peaked at 42%. Of the almost 50% achieving 100% coverage, only three companies received a score of 100% quality.EY data point to better reporting on governance, targets and metrics, while risks and opportunities may have been relegated to a “tick box” item for now. These results indicate either of two things: that organizations feel more comfortable disclosing more of what they are trying to achieve and less of how they intend to get there, or that there may be a trend for companies looking to set aspirational targets in advance of creating a clear pathway to achieving their goals.Still, it’s worth noting that high performers in disclosure quality with long-standing Climate Disclosure Project (CDP) reporting practices have leveraged the alignment of the CDP questionnaire with some TCFD elements.SCENARIO MODELING CAPABILITY STILL IN ITS EARLY STAGESSectors with the most significant exposure to transition risk scored higher for their disclosures. These include financial services, with banks in the lead. One effective way to assess the risks and seize opportunities related to climate change is through scenario analysis, and it is great to see that many banks have taken the initiative to use it in stress testing their assets, products, and services.Scenario analysis is a critical element of the TCFD framework as it helps institutions evaluate future climate-related events, develop better strategies, and build compelling models, even if at this point, many companies are still struggling to implement it. This challenge prevents them from fully understanding the size and time frame of physical and transition risks. Climate scenarios are also necessary for financial institutions to get a full picture of the impact of their portfolio’s carbon emissions, including value chain activities.TURNING THEORY INTO TANGIBLE, ACTIONABLE STRATEGIESWithout enhancing scenario analysis, it can prove difficult to assess risks and opportunities accurately. In turn, this affects the attainment of goals, development of strategies, and creation of long-term business value.The EY study shows that only 41% of companies have conducted scenario analysis — a number that shows there’s room for improvement. Among the scenarios referenced, Representative Concentration Pathway (RCP) 8.5 was the most common, followed by RCP 2.6. Furthermore, an estimated 60% of these companies have referenced physical or transition risk or both, with 55% mentioning physical risks.As the adverse effects of climate change become more evident, many organizations recognize the importance of preparing for physical risks without waiting for an economy-wide transition. However, not all organizations have the internal capability to create an illustrative path toward net-zero. So what can be done?According to the EY report, companies can start by reporting on risks and opportunities around climate change, and clearly identifying climate-related risks when embedding these in the enterprise risk management system. They need to then assess business transformation levers to respond to climate risks and opportunities. Finally, they must publicly commit to decarbonization and implement strategies to reduce carbon emissions within their business operations and supply chain.ACCELERATING DECARBONIZATION IN THE PHILIPPINESThe EY report shows that while there is some advancement towards TCFD reporting, more comprehensive and concrete action is required to sufficiently address the climate crisis, especially in the case of the ASEAN region and the Philippines in particular, who are playing catch-up to global initiatives.Globally, central banks, exchanges, and other regulators have provided guidance to support more sophisticated sustainability reporting. In the Philippines, stricter requirements can be introduced sooner as the country submitted its Nationally Determined Contribution (NDC) in accordance with the partnership arranged under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. As such, putting off alignment with decarbonization targets can be counterproductive, leaving businesses with disclosures that display their climate change inaction in full public view.The proper time to act is now. Recognizing climate risks and opportunities as material to business growth should be a top priority for organizations. This decision will facilitate the development of holistic decarbonization strategies to address the call for business transformation amidst the looming climate crisis and pave the path to a net-zero world.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.Benjamin N. Villacorte is a partner from the Climate Change and Sustainability Services team of SGV & Co.

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04 October 2021 Aaron C. Escartin

Closing books in the new normal

As the world continues to adjust to the changes wrought by COVID-19, previously small annoyances in closing the books of a company can turn into significant hurdles. While it was sometimes already challenging to close books pre-pandemic, the difficulty of the task is now compounded by new stressors such as strained technology resources, a distributed workforce, and even personal concerns regarding health and finances.This article will discuss some strategies on how CFOs, controllers and their teams can communicate effectively and drive clear priorities during a virtual close. Based on the EY article How to manage your close process virtually, these considerations aim to help companies close books effectively as well as position them for post-pandemic recovery. This will apply whether company operations are manual or are more advanced.ESTABLISHING A STRONGER TEAM DYNAMICEven in the best of times, effective collaboration can be a hurdle in itself. A large, multinational organization may have to deal with thousands of users across multiple geographies who need to be aligned in terms of processes and deliverables. While there may be one or two people who specialize in certain tasks, teams of people should ideally be equipped with vital knowledge to pick up on each other’s work in the event someone is unavailable.Given today’s circumstances, however, establishing new and dynamic technology-empowered team norms becomes even more critical. Teams are encouraged to conduct more meetings and utilize video software for key agendas to establish a more personal connection. The team also needs to look for new methods and solutions that promote closer remote collaboration since e-mails are often quite a limited tool — in fact, there is a constant risk of e-mails being overlooked or for a user to be overwhelmed by the sheer number of e-mails we now receive on a daily basis. In addition, teams should consider reviewing controls that require two-person coordination before the close. Determine whether remote working demands have changed these controls, and ensure they are properly documented to support eventual audits.It will also be vital to communicate with management early regarding how reporting and reviews will be handled. Management reporting recipients need to be briefed before making any changes. As an example, it should be determined how trial balance and preliminary P&L reviews will be conducted remotely to properly manage expectations. A plan has to be in place for report distribution as well as reviews related to the close.UTILIZING EFFECTIVE TEAM SOFTWAREInstead of relying mostly on meetings to understand statuses and involvement in the process, a team can use dashboards and standard reports with read-only access for stakeholders and auditors for visibility. Teaming software allow simultaneous collaboration on the same task or reconciliation, the flexibility of which is especially useful in the current working environment. Features that enable users to attach documentation and access work that has been accomplished in previous periods will allow new or even temporary workers to gain the necessary information from one place, establishing better continuity even if one or two key team members are unable to work.Effective teaming software solutions can also facilitate communications and establish one source of truth. By having one place where all files are consolidated and can be securely transferred, employees will not need to search in multiple sources and save time. An efficient software solution will allow teams to create business rules that can help operationalize high-risk priority accounts with frequency information and due dates. Another function that should be prioritized is the ability to set review levels and frequencies based on criteria defined by the business. Some accounts may have less volatility than others and will not need to be reviewed monthly, while others may be zero-balance accounts that can be certified automatically.An efficient task management solution can handle the documentation, support and sign off of any activity, while the best task management software can set up recurring tasks for certification or tracking.UNDERSTANDING RISKS AND SETTING PRIORITIESAfter establishing clearer ways to team up in the new normal, the next point of focus is identifying the most high-risk items and addressing them. With strained resources and issues in technology, such as maintenance and cybersecurity, arising given our current circumstances, understanding and prioritizing risks accordingly will help keep the focus of the team from fraying or latching onto low-impact concerns. Teams must learn what they can from external and internal auditors as well as how their controls can identify the high-risk items that need to be prioritized.It is recommended to scrutinize how overall activities relate to broader milestones in the close — for example, they can center on closing sub-ledgers and the general ledger. All the dependencies such as entity-level processes that are dependent on local steps will need to be considered. Risks such as reconciliations, journal entries and tasks like controls must have their risks assessed.Teams can also reduce activities by evaluating and enforcing materiality thresholds, with the addition of appointing a point person to monitor the close checklist to serve as a secondary control in ensuring the team does not miss any steps. After reviewing the virtual close plan with auditors and soliciting their input, any extra steps can be determined to further support the audit process.OPTIMIZING TODAY WORK BETTER TOMORROWThough the immediate goal is to close the books, these considerations can pave the way for companies and teams to become more optimized. By learning how to address and manage risks and pain points under the unprecedented challenges to be found in our current environment, teams can develop the necessary agility, resiliency and flexibility to meet future disruptions and better position themselves to grow and thrive in a business world beyond the pandemic. 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.Aaron C. Escartin is a Tax Partner of SGV & Co.

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