2021 Articles - Suits the C-Suite | SGV & Co. | EY

27 December 2021

Cecille S. Visto

The digitalization of corporate compliance (Second Part)

Second of two partsThe first part of this article talked about the digital transformation and technology modernization roadmap of the Securities and Exchange Commission (SEC), which included the launch of various digitalization projects aimed at promoting ease of doing business and efficiently delivering government services amid the pandemic and in preparation for the transition to the so-called new normal economy.Aside from company registration discussed in the first part, there are other already rolled-out initiatives and soon-to-be-launched systems on contactless applications and compliance.ONLINE REPORTS SUBMISSIONOn March 15, the SEC launched the Online Submission Tool (OST) that allows companies to submit certain reports online in lieu of its physical lodging. The OST has since been renamed the Electronic Filing and Submission System (eFAST), which permits companies to digitally submit their Audited Financial Statements (AFS), General Information Sheet, Sworn Statement for Foundations, and General Form for Financial Statements, among other reportorial requirements.Corporate filings under eFAST are optional in 2021 but will be made mandatory in 2022 according to the SEC. When eFAST was launched this year, it also experienced some birth pains, such as system errors, downtime, and other online bugs that have affected its optimal use. Because of these, the SEC continued to accept manual filings by registrants who have encountered errors or have not yet applied for its use.We should note that an application to use eFAST needs, among others, the approval of the board of directors. Lodging is also online and the company may designate a primary filer and alternate filers who can access the system. However, there can only be one assigned filer at any given time although designation may be changed at need.With online filing, electronic signatures may be affixed on the documents, like the Independent Auditor’s Report and the Statement of Management Responsibility (SMR) required to be signed by the Chairman, Chief Executive Officer, and Chief Finance Officer, or their equivalent, and attached to the AFS. However, there are exceptions. For instance, the SMR of public or listed corporation must be signed under oath. A Notary Public will still require wet signatures on documents for notarization.The SEC also clarified that although e-signatures may be used, corporations must keep originally signed documents in their files for presentation to the Commission, if required.Previously, the SEC adopted the AFS filing schedule depending on the last digit of a company’s SEC registration number as a means of managing the deluge of filers on the deadline. This system is now supplemented by the eFAST, which helps to further manage any health risks that may arise from congestion at the Commission’s main or satellite offices. The online filing system also significantly reduces use of paper and other resources, including the administrative cost of physically filing the documents with the SEC.While the eFAST system is still undergoing continuous improvement, the SEC envisions that eventually all types of corporate filings can be accepted by the system.APPLICATIONS AND REQUESTSAll types of applications can now be filed online through electronic mail. There are designated email addresses depending on the type of application lodged with different SEC offices, such as corporate reorganization, quasi-reorganization, and equity restructuring with the Financial Analysis and Audit Division; amendment of the Articles of Incorporation or By-Laws to include increase or decrease in the authorized capital stock with the Company Registration and Monitoring Department; and registration of securities with the Securities Registration Division. The Corporate and Partnership Registration Division also accepts petitions for revocation of corporate licenses and other complaints.Requests for monitoring clearances may likewise be requested via email. Given the expected volume of requests, the SEC typically replies within a few days or, based on recent requests, more than a week at the latest. All forms to be accomplished are emailed and clear instructions, including the payment process, are provided.The filing itself is convenient but for certain types of applications, the processing time is still largely dependent on the handling SEC officer assigned to act on the submissions. Since the SEC continues to adopt alternative work arrangements, registrants have to rely on emails from assigned processors on the results of their review, including any request for additional documents. Due to the various restrictions imposed over the past months, securing appointments to follow up pending applications continues to be a challenge for registrants. This no-contact policy, coupled with the workload of SEC reviewers, may contribute to possible delays in the approval of applications and requests.COMPLIANCE REQUIREMENTSThe SEC has also adopted stricter monitoring of corporations, its stockholders, and officers to ensure compliance with Republic Act 9160 or the Anti-Money Laundering Act, as amended. It has likewise done so through the use of technology.In March 2021, the SEC required the online submission of the Beneficial Ownership Declaration (BOTD) Form, which is a mode of disclosure by nominee directors, officers, or shareholders. Under the new transparency rules laid down in Memorandum Circular No. 1, Series of 2021, these nominees must report to the SEC their principals, or the persons for whom they hold the nominal shares.The Commission has imposed penalties for any late disclosure. Interestingly, while tech-savvy stockholders found the procedure of filling up and uploading the forms and the supporting documents relatively easy to follow, foreign shareholders noted the use of only one email platform, Google Mail, to comply with the reportorial requirement.PAYMENTSAs payment for applications and penalties is a necessary part of their transactions, the Commission also introduced the Electronic System for Payments to SEC (ePAYSEC) to facilitate the settlement of registration charges, penalties, and other transaction fees. The platform allows the use of debit and credit cards, digital wallets, and other cashless payment options.While traditional payment facilities are still available, such as payment through the SEC cashier or through Landbank of the Philippines (LANDBANK), more corporations now prefer these more convenient and arguably smarter contactless settlement options.Still, proof of payment must be provided the SEC, which will trigger the processing and release of the requested documents. Similar to the eFAST system, the payment system is undergoing continuous enhancement with some enhancements already rolled out or scheduled for deployment soon.While it is certainly encouraging to see the strides the SEC has made in the digital transformation in these vital functions, it is also interesting to note that there are numerous other enhancements rolled out or scheduled for deployment soon.Among these are a central database and processing software for all the data the SEC will receive from monitored entities. In addition, an accreditation registry system for external auditors and auditing firms will soon be in place. The SEC also wants to establish an integrated complaints management system to keep its registered entities in check. New SEC units have likewise been created, including the PhilFintech Innovation Office to support financial technology innovations while strengthening consumer protection.Alan Brown in his book, Digitalizing Government: Understanding and Implementing the New Digital Business Model, could not have put it more succinctly when he said: “Digital transformation therefore requires redesign and re-engineering on every level — people, process, technology and governance.”The SEC is certainly moving in the right direction. 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 EY or SGV & Co.Cecille S. Visto is a Tax Senior Director and Senior Lead Manager of the Entity Compliance and Governance Services of SGV & Co.

20 December 2021

Cecille S. Visto

The digitalization of corporate compliance (First Part)

First of two partsThe COVID-19 pandemic has pushed government agencies to kick-start, if not step up, their digitalization programs to deliver essential services while managing health risks.For the Securities and Exchange Commission (SEC), the mandate to digitalize and adopt technology in the ways we work came with the effectivity of the Revised Corporation Code (RCC) in early 2019.The RCC replaced the almost 40-year-old Batas Pambansa 68 or the old Corporation Code. Even with the rise of digital technology at the turn of the century, it has taken nearly 20 years for the conduct of meetings through remote communication, the submission of corporate documents bearing digital signatures, and filing forms and documents through electronic mail or through a dedicated online portal to become part of the mainstream corporate compliance process.The RCC paved the way but it was COVID-19 which truly accelerated digital transformation. From the incorporation of new entities and filing of applications such as the increase in the authorized capital stock to cashless payment systems and the launch of the Online Submission Tool, the SEC has taken great strides in not just promoting the ease of doing business but also efficiently providing government services, consistent with Republic Act 11032.The SEC has gone on record to emphasize its commitment to staying the course on its digital transformation and technology modernization roadmap, with the end goal of being able to serve its stakeholders from the safety of their homes and workplaces. As the gateway to doing business in the Philippines, the SEC has said that it must continuously innovate and leverage information and communications technology (ICT) to remain “service-focused and interoperable.”This article focuses on the five ways in which the SEC has harnessed the power of technology in the areas of company registration; online reports submission; lodging of applications and requests; compliance requirements; and payments — all of which are targeted to minimize personal interactions while the virus remains a threat.Even early into the implementation of these projects, it is evident that these innovations have improved regulatory efficiency and voluntary corporate compliance of registrants. Stakeholders have the opportunity to focus on their companies’ operations more than complying with tedious requirements.COMPANY REGISTRATIONThe SEC launched the eSPARC or the Electronic Simplified Processing of Application for Registration of Company on April 19, replacing the Company Registration System (CRS), the old online platform. As of last published official count, the SEC has processed nearly 27,000 virtual business registration applications.Before the pandemic, the SEC had tested the waters of web-based registration and licensing with the CRS. While the system eliminated the cumbersome procedure of manually filling up forms, the incorporation process could still not proceed without the submission of the hard copies of documents for review of SEC examiners.With eSPARC, the incorporation process is now fully automated and needs no intervention from SEC processors at any stage, from the name verification on the proposed corporate name to the issuance of the digital Certificate of Incorporation. Those who have tried the system have found that its use significantly enhances the company registration experience.eSPARC was initially available only for the registration of One Person Corporations but this has since been expanded to include all types of domestic corporation regardless of the number of incorporators. Applications for partnerships and foreign corporations may now also be lodged using eSPARC. A subsystem, the One day Submission and E-registration of Companies (OneSEC), even allows for the registration of domestic stock corporations in as little as one day.In his latest report to the Department of Finance, SEC chairman Emilio Benito Aquino said the fastest time recorded for eSPARC processing after the payment of the registration fee is one minute and 14 seconds, while the longest time was two hours and 37 minutes.eSPARC is fairly easy to navigate provided all information and documents are complete. Many of the fields are pre-filled and the required information need only to be supplied. Among the issues that a registrant may encounter and could delay the process include failure to reserve a preferred name that is not distinguishable from a name already reserved or registered under Sec. 17 of the RCC. Under this scenario, the applicant has the option to either appeal the name rejection or apply for a different name.Another possible cause of delay, particularly in the issuance of the final certificate, is the submission of documents, which vary depending on the company type and the review of the SEC processor.However, if all the requirements lodged online are deemed in order, the SEC can issue the digital incorporation certificate, with the original to be released upon the additional presentation of the proof of payment of the assessed registration fees and the submission of originally signed, authenticated, or notarized hard copies of the documentary requirements, as applicable. The submission may be done any time within one year from the date stated in the Interim Certificate of Incorporation.Nevertheless, registrants must remain mindful of the documentation requirements. For instance, although the RCC has removed the subscribed and paid-up capital minimums under Sec. 13 of the old Corporation Code, capitalization requirements under special laws, such as the $200,000 minimum paid-in capital for foreign corporations under the Foreign Investments Act, as amended, must still be complied with. As such, there must be proof of inward remittance of the required capital by the foreign investor.Consistent with its goal of easing doing business, the SEC also accepts registration of locally-executed Articles of Incorporation (AoI) that are accompanied by a Certificate of Authentication signed by all incorporators. The AoI and the Certificate of Authentication need not be notarized; however, documents executed outside the Philippines must still be consularized or contain the Apostille Certification to be recognized by government agencies including the SEC.In the second part of this article, we will discuss the other digital transformation projects of the SEC that are positively impacting compliance and the processing of applications of registered corporations. 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 EY or SGV & Co.Cecille S. Visto is a Tax Senior Director and Senior Lead Manager of the Entity Compliance and Governance Services of SGV & Co.

13 December 2021

Faith Mariel N. Reoyan

Why insurers must adapt to meet the changing Philippine landscape under COVID-19 (Second Part)

(Second of two parts)Consumer insurance behavior and preferences are evolving due to changes wrought by the pandemic on the psychological, emotional and economic levels. While the long-term impact of COVID-19 remains tough to predict, insurers must seize the opportunity to transform and reimagine their products and services to meet changing consumer behavior and preferences that will enable sustainable growth opportunities in the new normal.The EY 2021 Global Insurance Consumer Survey reveals relevant insights about the impact of the pandemic as well as its anticipated changes to consumer insurance preferences and buying behavior. To accomplish this, consumers throughout various diverse countries in developed and emerging countries were surveyed between May and August 2021 to gather insights about the consumer insurance landscape. Moreover, the survey also highlighted how insurers can adapt in aligning solutions to cater to changing needs, helping consumers by providing a “safety net” that protects against future financial risk and uncertainty, and enabling digital channels to meet consumer demands while maintaining social distance for safety.In the first part of this article, we discussed the details of insurance consumer behavior and preferences based on financial impact, as well as consumer concerns and product preferences. The most and least impacted segments both reveal unique needs that compel insurers to adjust their products, solutions, and distribution channels to be flexible and easy to understand.In this second part, we discuss the increased shift to digital channels, and the increased prioritization of insurers with corporate social responsibility commitments.THE INCREASED SHIFT TO DIGITAL CHANNELSWith the strict and constantly changing quarantine and lockdown guidelines implemented by the Government and fears of exposure to the virus when stepping outside the home, a majority of consumer activities have shifted online. There has been an increase in consumers who similarly moved online to connect with their agents — from a low 25% before the pandemic to as high as 57% ever since the pandemic started.One key insight here is that insurance companies have the opportunity to re-examine and adjust their digital distribution and communication offerings to address these shifting consumer preferences. Taking their business to the digital space becomes a much more viable path to move forward even beyond the pandemic. This also provides a compelling opportunity for the insurance sector to devise new ways to re-engage relationships with customers through proactive communication and education regarding their products and services.However, despite an increase in online interactions, there was still some reluctance when it came to exchanging personal data. As much as 60% of the most impacted respondents stated a willingness to share personalized communication in exchange for help in meeting their savings goals while only 50% of those in the least impacted segment were willing to share similar personalized communication.These findings point towards an opportunity for insurers to consider investing in training agents to interact effectively with their customers in online spaces. This situation also provides a similar opportunity to ensure the implementation of enhanced cybersecurity protocols, data privacy policies, and the like.PRIORITIZING INSURERS WITH CSR COMMITMENTSThe survey makes it clear that both the most impacted and least impacted segments highly prefer insurance companies with CSR commitments. Of the overall respondents, 46% stated their awareness of how their insurance providers participate in CSR matters. Meanwhile, as much as 58% of the respondents use company websites to understand an insurance company’s commitment to CSR efforts.Both segments indicated that a company’s commitment to CSR initiatives, such as labor practices, income inequality and gender income inequality are important metrics that influence their purchase decision.Over 40% of the respondents from both the most impacted and least impacted groups let a brand’s CSR reputation influence their purchase decision, while an average of 37% from both groups have even chosen one brand over another based on its CSR footprint. The considerable impact of CSR commitments on the purchase decision of consumers must be considered in the insurer’s strategic customer-centric response.PAVING THE PATH FORWARD FOR INSURERSThe pandemic relates to the very objective of insurance: protecting everyone against uncertainty and unforeseen circumstances. Insurers must capitalize on the heightened awareness of the necessity of insurance caused by pandemic, as this challenging environment provides a great chance for insurers to relate more effectively to customers in managing financial risks and navigating uncertainty. Though consumer needs and preferences are evolving in the context of this pandemic, they are unlikely to revert to pre-pandemic demands.Insurers can pave the way to provide customer-centric products and solutions that would align with emerging consumer behavior and preferences. One of the ways to accomplish this is by delivering insurance products through channels that reflect the switch to digital. To remain competitive, insurers must also participate in CSR initiatives, continue to educate consumers on the value of their products and ensure that consumers can clearly comprehend their policies.While the long-term impact of the COVID-19 pandemic remains difficult to predict, insurers who can transform and reimagine their products and services to meet changing consumer behavior and preferences are more likely to find new opportunities for post-pandemic growth. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Faith Mariel N. Reoyan is a Senior Manager from the Consulting Service line of SGV & Co.

06 December 2021

Faith Mariel N. Reoyan

Why insurers must adapt to meet the changing Philippine landscape under COVID-19 (First Part)

(First of two parts) While the coronavirus disease 2019 (COVID-19) pandemic has financially impacted some parts of business and society in the Philippines more than others, consumers were also affected on psychological, emotional and economic levels. As a result, consumer insurance behaviors and preferences are evolving. This presents insurers with a unique opportunity to adapt their products and distribution models, provide value and support consumers against uncertainty and risks during this unprecedented time.The EY 2021 Global Insurance Consumer Survey reveals relevant insights about the impact and anticipated changes to consumer insurance preferences and buying behavior brought about by COVID-19, as well as how insurers could adapt. EY surveyed consumers in various countries in Africa (South Africa), Asia-Pacific (Philippines, Japan), and North America (Canada, US) between May and August 2021. The objective was to gather insights about how the COVID-19 pandemic impacted the lives of consumers and their evolving insurance needs.In connection to an increased desire for greater financial security, the survey shows that the pandemic brought about a significant interest in obtaining life insurance. The insurance industry can seize this chance to help consumers manage this challenging environment and support their financial well-being. The insurer’s role entails aligning solutions to cater to changing needs, helping consumers by providing a “safety net” protecting against future financial risk and uncertainty, and enabling digital channels to meet consumer demands. Insurers must devise ways to help customers understand better their products and the value they provide to remain relevant moving forward.CONSUMER BEHAVIOR, PREFERENCES BY FINANCIAL IMPACTConsumers across all countries express notably high concern about the effects of the pandemic. However, a sizable difference in scale of the financial impact from the pandemic is reported between the most impacted segment and the least impacted segment. Each segment reveals unique needs that necessitate insurers to adjust their products, solutions, and distribution channels to be flexible and easy to understand.Comparing the results of the financial impact survey conducted in emerging countries like the Philippines and South Africa against the developed countries like Japan, the US, and Canada, we can infer that consumers in emerging markets experienced more severe financial consequences. These include job loss, reduction in work schedules and the need to dip into savings. Nearly half of the emerging markets respondents — 46% at most — experienced these consequences to a great degree compared to 26% or less who felt the same in the developed markets.In the Philippines, the most financially impacted segment is typically younger (under 44 years old), with annual household incomes lower than P249,000 and with less than P1,200,000 in investible assets. They are more likely to serve in occupations where it is less feasible to work remotely. PHILIPPINE CONSUMER CONCERNSIn determining what both segments considered important to them during the pandemic, a key insight from the survey revealed that 88% of the most impacted segment in the Philippines were mostly concerned about losing income from their jobs, while 87% were most concerned about losing a loved one earlier than expected.These concerns, together with the need to dip into savings to support themselves and reduced employment hours, grew significantly over the course of the pandemic. This paved the way for consumers to become increasingly aware of their financial well-being, especially regarding the importance of insurance products. This is especially true among the most impacted segment, shown by a rise of 67% and 66% for health and life products, respectively.Given the financial difficulties they have experienced, those in the most impacted segment are focused on reducing their exposure to similar financial risks in the future. As much as 77% of the most impacted claimed their intent to save more is a result of the pandemic. Emergency plans are also considered top of mind, with over 54% planning to develop their own.PHILIPPINE CONSUMER PRODUCT PREFERENCESThose in the most impacted segment are also more interested in insuring themselves against evolving future risk and express greater interest in purchasing insurance online. Products that appeal the most to this group focus on pandemic-specific solutions that covers hospitalization expense protection or an add-on feature for life insurance that allows access to funds in case of an emergency. Income disruption protection is also mentioned, such as a three-month salary cover, a product that can pay credit card bills and the continuity to fund a college education savings plan in case of job loss caused by the pandemic.These are unmet needs brought about by the pandemic situation that provides insurers room for innovation. They include products that can adjust their prices in exchange for sharing personal data, and a request for usage-based motor policies based on a subscription fee with a premium based on the number of miles driven. The appetite to purchase this kind of protection is especially relevant to the current situation, making it urgent for insurers to launch targeted and value adding customer-centric solutions.In the second part of this article, we discuss the increased shift to digital channels, and the increased prioritization of insurers with corporate social responsibility commitments. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Faith Mariel N. Reoyan is a Senior Manager from the Consulting Service line of SGV & Co.

29 November 2021

Benjamin N. Villacorte and Yna Altea D. Antipala

Timely and necessary convergence in ESG reporting

In the last decade, standards and frameworks used to report material environmental, social and governance (ESG) topics have become quite crowded, leading to an alphabet soup of sustainability reporting standards. In fact, there are an estimated 600 ESG reporting standards globally, leading to a call for standard-setters to improve the global consistency and comparability of sustainability disclosures that stakeholders — most especially investors — rely on.Given the International Financial Reporting Standards (IFRS) Foundation’s experience in setting global accounting standards, there had been calls for the Foundation to play a role on harmonizing the multiple global sustainability reporting standards and frameworks. The Foundation responded by amending the constitution of the Foundation in April to accommodate the formation and operation of a sustainability standards setting board. On Nov. 3, during the Finance Day of the 2021 United Nations Climate Change Conference (COP26) in Glasgow, Scotland, UK, the IFRS Foundation formally announced the establishment of the International Sustainability Standards Board (ISSB).The ISSB’s main mandate is to develop sustainability reporting standards that will provide a high-quality, comprehensive baseline of ESG information that will meet the needs of investors and capital markets. While remaining independent, the ISSB will work alongside the IFRS Foundation’s International Accounting Standards Board (IASB), which sets accounting standards that are mandatory for most listed entities in over 140 jurisdictions, including the Philippines, to ensure that the standards developed by both boards will complement each other.BUILDING ON EXISTING SUSTAINABILITY REPORTING FRAMEWORKS AND GUIDANCETo give the ISSB a running start, the IFRS Foundation has set up a Technical Readiness Working Group (TRWG) composed of representatives from the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Framework (VRF) which houses the International <IR> Framework and the Sustainability Accounting Standards Board (SASB) Sustainability Accounting Standards, the Climate Disclosure Standards Board (CDSB), the World Economic Forum (WEF), and the International Accounting Standards Board (IASB). They announced at the same Glasgow event that the technical expertise, content, staff and other resources of the VRF and the CDSB will be consolidated under the IFRS Foundation.The TRWG has two objectives: to accelerate convergence in global sustainability reporting standards focused on enterprise value; and, to undertake technical preparation for the ISSB under the governance of the Foundation. The International Organization of Securities Commissions (IOSCO) and its Technical Expert Group of securities regulators support the work of the TRWG, with the IOSCO stating that it will provide independent oversight of the standard-setting activity in its role as chair of the Foundation’s Monitoring Board and will perform an in-depth technical assessment of the draft sustainability reporting standards.THE IFRS SUSTAINABILITY DISCLOSURE STANDARDSISSB’s sustainability reporting standards will be named the IFRS Sustainability Disclosure Standards. These standards will build upon the prototypes developed by the TRWG, which focus on climate-related disclosures and general disclosures on other material ESG matters that affect enterprise value. The climate prototype is built on the TCFD recommendations, which require entities to provide information on climate-related risks and opportunities, climate-related governance, strategy and risk management, and metrics and targets in relation to climate-related risks and opportunities. Meanwhile, the general disclosures prototype will require entities claiming compliance with ISSB standards to disclose all material sustainability-related information.It is expected that the ISSB will release its first set of draft standards for public consultation in the first quarter of 2022, with the goal to release the standards and have these ready for use by the second half of 2022. Per the IFRS Foundation, the application of the IFRS Sustainability Disclosure Standards is not linked to the application of IFRS accounting standards, so an entity applying IFRS accounting standards for financial reporting purposes is not required to also apply the ISSB standards and vice versa.However, the Foundation has clarified that only local jurisdictions can determine if it will be mandatory for entities to report on sustainability and climate-related matters using the IFRS Sustainability Disclosure Standards. It remains to be seen if the Philippine regulatory authorities will adopt ISSB’s sustainability reporting standards, similar to how we adopted the IASB financial reporting standards.WHAT COMPANIES SHOULD DO NEXTAs the pressure from investors and other stakeholders for consistent and reliable sustainability reporting increases, we anticipate that local jurisdictions will soon require disclosures in line with sustainability reporting standards and the relevant external assurance. This also raises the question of whether an appropriate governance structure needs to be put in place to provide oversight on the implementation of sustainability initiatives and the subsequent sustainability reporting process. Perhaps boards can consider whether a committee, separate from the audit committee, should be formed to take charge of the sustainability report assurance and ensuring the effectiveness of the company’s internal quality control and risk management for non-financial disclosures.While reporting using the IFRS Sustainability Disclosure Standards is not yet mandatory, local entities can start building on their capabilities to report on sustainability and climate-related matters using voluntary sustainability reporting frameworks and guidance, as applicable, and adopt the following measures.They can establish executive management-level oversight and accountability of sustainability and the sustainability reporting process. It will be important to align ESG initiatives and sustainability reporting efforts to support corporate strategies, as well as provide training and educational courses to employees as sustainability reporting cuts across corporate functions. Companies will also need to assess and incorporate ESG and sustainability reporting risks in the enterprise risk management framework. Moreover, they need to articulate the company’s long-term value creation story in the sustainability report.The IFRS Foundation’s formation of the ISSB and the development of the IFRS Sustainability Disclosures Standard have shown that sustainability reporting will be a mainstay of the annual corporate reporting cycle. It is no longer a compliance program, as investors and capital markets increasingly rely on ESG disclosures to enable more informed decision-making.As the global sustainability reporting standards evolve, so too should an organization’s understanding, management, and reporting of the material ESG matters that impact their long-term enterprise value creation. 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 Yna Altea D. Antipala is a manager from the Climate Change and Sustainability Services team of SGV & Co.

22 November 2021

Olivier Gergele, Maria Kathrina S. Macaisa-Peña, Fabrice Imparato, and Shaurya Ahuja

How to win Asia-Pacific consumers in the new era (Second Part)

(Second of two parts)Although consumer behaviors were already shifting before the COVID-19 pandemic impacted economies and societies, some of the changes were accelerated by the disruption. This meant consumer companies needed to understand what drives consumer lifestyles by redefining how to best serve consumers, looking at the business through a non-traditional lens and anticipating disruptors.In the first part of this article, we discussed the five dominant behavioral shifts as identified in the EY Future Consumer Index, which surveyed more than 5,500 respondents across six Asia-Pacific countries (China, India, Indonesia, Japan, Australia and New Zealand) from among 20 countries in total. However, these facts seem consistent from the survey — that consumers are prioritizing pricing in their purchasing criteria as they place high concern over their finances, and that they prioritize their health and safety in considering wellness products and digital experiences that do not require them to leave their homes. These behaviors can be traced to the early stages of the pandemic, where consumers worried for the health of their families, the ability to purchase their basic needs, and the loss of freedoms previously taken for granted.Although individual consumer behaviors are likely to be volatile, companies can anticipate their needs in the areas of value, health, sustainability, experiences and the omnichannel. In our own market, we are likewise already seeing rapidly shifting consumer behaviors driven by the pandemic. We have seen the rise of social media retailers, particularly in the sectors of food and beverages. Large, e-retailing platforms have branched out to encompass basic necessities, groceries, insurance products and have even donation channels, and consumers have shifted bargain-hunting behaviors online with monthly online sales and price-offs having become the norm.Clearly, addressing these shifting consumer expectations will require consumer companies to take a hard look across their organization — from the strategy, business model and operations to talent and capabilities. In order to remain competitive and serve the customers of the future, leaders of consumer companies should consider three key actions that have never been as important in the current landscape. These actions will provide the agility required for companies to adapt rapidly to customer expectations as they continue to evolve.REDEFINE HOW TO BEST SERVE THE CONSUMERThe survey revealed that Asia-Pacific consumers are increasingly open to sharing their personal life data. More than ever, consumer companies have a unique opportunity and strong impetus to enhance their capability to make the right — and trusted — use of such data. Technology like advanced analytics and artificial intelligence can help improve their listening abilities and profile consumers more intelligently to proactively anticipate where, when and what they buy. The ability to adapt products and services with speed and agility can make a critical difference in how well companies can keep consumers connected to the brand. For example, the prolonged lockdown dramatically affected the purchase of personal care products. As the quarantine restriction eases and mobility increases, we are likely to see a resurgence in personal pampering. Businesses in this sector that can find new ways to connect and serve their customers may find rich new opportunities for growth.LOOK AT THE BUSINESS THROUGH A NON-TRADITIONAL LENSTo many consumer companies, serving consumers in a different way, such as embarking on direct-to-consumer strategies or developing a compelling consumer community platform, may not be profitable in the short term or make sense in isolation. Similarly, sustainability-related programs are often seen as a cost and associated with negative ROI. However, many of these programs can create strategic value for the company as a whole, whether in terms of enhancing brand image and awareness, generating data that can be further monetized or driving employees’ commitment, making the business more resilient against disruption. Consumer companies must therefore adopt a strategy that encompasses a broader view of value as well as a focus on profitable growth.ANTICIPATE POTENTIAL DISRUPTORSConsumer companies need to be increasingly forward-looking and investing time and effort to anticipate potential disruptions that could upend their established business models. In recent years, the blurring of sector boundaries has seen powerful digital ecosystems emerging, enabling players — both new and incumbent — to complement one another to offer interconnected products and services in one integrated experience. Take, for example, how food and beverage or financial services companies are disrupted by the technology and mobility sectors, giving rise to super apps that consumers are familiar with today. Locally, we have seen how some companies have evolved, such as ride-sharing apps that now offer food, retail, on-demand purchase assistance, and even bill payment functions. Consumer companies must act now to define and implement a successful digital ecosystems strategy and step up innovation to compete in the short and longer term — or risk being left behind.WINNING THE FUTURE CUSTOMERAs the COVID-19 pandemic continues its unpredictable course, each of the above actions will enable consumer companies to respond nimbly to the future consumer’s continuum of preferences and attributes. There is no single consumer persona and therefore no one-size-fits-all strategy. This makes developing and executing the right one for every company all the more urgent and important to ensure that they win the customers of the future. 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.Olivier Gergele is the EY ASEAN Consumer Products & Retail leader, Maria Kathrina S. Macaisa-Peña is a business consulting partner and the Consumer Products and Retail Sector leader of SGV & Co., and Fabrice Imparato and Shaurya Ahuja are EY-Parthenon partners.

15 November 2021

Olivier Gergele, Maria Kathrina S. Macaisa-Peña, Fabrice Imparato, and Shaurya Ahuja

How to win Asia-Pacific consumers in the new era (First Part)

(First of two parts)Before the COVID-19 pandemic unleashed its unprecedented impact on economies and societies, consumer behaviors were already shifting. Digitalization was reimagining how consumers live, work, play and consume, evidenced by the rapid rise of e-commerce in the Asia-Pacific region.In a survey conducted by VISA (VISA Consumer Payments Attitude Study) mid-year, about 93% of Filipinos increased their shopping activity on websites and mobile apps. In fact, up to one in two Filipinos shopped online during stricter lockdown protocols. Businesses and consumers alike anticipate monthly promotions of online retail platforms and explore shopping via social media platforms such as Facebook and Instagram.The pandemic accelerated some of these changes that were underway, leading consumers to reprioritize what they value. Arguably, it is no longer just about what they buy but also how they want to live their lives. That means consumer companies need to understand what is driving consumer lifestyles and ultimately, use these insights to make bolder plans to get ahead of change.To be fair, many consumer companies did pivot to cater to shifting consumer demand during the last 18 months of the pandemic. However, the consumers that companies adapted to serve during the pandemic may not be the same consumers who will make them profitable in the future. That said, certain pandemic-induced traits may persist. For example, companies that offered the supply and price stability needed by consumers early in the pandemic are more likely to be rewarded with consumer stickiness than those that chose to pass on the higher costs to consumers.Many consumers, particularly in the Asia-Pacific region, appear to be turning into COVID-19 anxiety “long haulers,” as indicated by real-time global consumer sentiment tracked by the EY Future Consumer Index which surveyed more than 5,500 respondents across six Asia-Pacific countries — China, India, Indonesia, Japan, Australia and New Zealand — from among 20 countries in total. Of the Asia-Pacific consumers surveyed in the May 2021 edition, 85% express concerns over health. With regard to pandemic-related caution in their spending behavior, 44% say they are purchasing only essentials and about two-thirds say they are thinking more carefully about how they spend money. This is consistent with the results of the study published by Kantar (Kantar Purchase Confidence Study in July 2020) where roughly 79% of consumers expressed worry about their financial situation and the importance of health and immunity benefits of fast-moving consumer goods (FMCG) products.FIVE DOMINANT BEHAVIORAL SHIFTSWhile individual consumer behaviors are likely to be volatile in the foreseeable future, companies can proactively accommodate their needs in five key areas: value, health, sustainability, experiences and omnichannel.VALUEConsumers, being concerned about finances, are invariably increasingly price-sensitive. Of the respondents in the consumer index report, 56% of consumers see price as a more important purchasing criteria than before, while 44% are purchasing only essentials. Less than half at 42% will buy more store-brand household staples moving forward.Consumer companies need to review their overall portfolios and value chains to consider if they can offer consumers quality, low-cost alternatives, as well as compete effectively with store brands and private labels. At the same time, retailers need to reassess their private label strategy. Short-term brand conversion during the pandemic could likely lead to longer-term brand loyalty — but only if private labels continue to drive product range and innovation, marketing outreach and quality. HEALTHThe pandemic has re-emphasized the importance of health, fitness and wellness. Understandably, as much as 85% of consumers are concerned about their family’s health. Meanwhile, 48% are spending more on healthy or “good for me” products, and 36% are willing to pay a premium for products promoting health and wellness.Asia-Pacific consumers are concerned with protecting their health and that of their family. Consumers are actively shopping for health products that will make them safer and healthier at home. Catering to this “in-home” hygiene market, including cleaning, nutrition, fitness and even beauty products may require more ingenuity in exploring healthier formulations, reshaping product portfolios and R&D investments.SUSTAINABILITYIt is not enough to just offer a product at the right price point: the behavior of a company is as important as what it sells. An overwhelming 82% of Asia-Pacific consumers say that companies must be transparent about their environmental impact and 28% are willing to pay a premium for more sustainable goods and services. Almost half at 48% also say that local sourcing has become more important.If consumer companies can proactively demonstrate accountability and transparency over their environmental impact, they will be able to gain consumer trust and encourage higher spending. To do so, companies should look into re-engineering their production, logistics and supply chains as well as recognizing the third-party risks that can erode credibility.EXPERIENCESPent-up demand for unique experiences, especially among younger consumers, will create opportunities for consumer companies to provide new offerings that fit a range of budgets. The EY Future Consumer Index revealed that 64% of Asia-Pacific consumers are willing to share personal data for a tailored online experience. Meanwhile, 45% will be less inclined to take part in experiences outside their homes, and 43% will actually spend more on experiences. The question is whether companies can switch flexibly between on-trade (or on-site) and off-trade (or bring home) as pandemic restrictions vary.Forward-thinking companies are offering consumers a mix of both digital and physical experiences: digital experiences that can be accessed safely at home, paired with unique in-store experiences that are worth exploring. Adapting to this new trend may require an operating model reset for some Asia-Pacific companies, strategically reallocating resources and restructuring the organization for greater agility.OMNICHANNELMany consumers who moved online out of necessity will largely sustain their online behaviors, although the extent of digital engagement may shift. The interaction between online and offline will be more important than before. For instance, 54% of consumers in the Asia-Pacific region are doing their grocery shopping both online and in person, while 47% even say that the availability of delivery is a more important priority when shopping. On the other hand, 41% are visiting stores less frequently.Consumers want digital engagement to be just as reliable as going to the store. An integrated channel strategy, supported by agile supply chains and logistics, is needed to deliver a consistent and enjoyable experience across online and offline channels. With the right data strategy, the data captured from online interaction and consumption will also yield valuable insights for business planning and delivering superior, bespoke experiences.In the second part of this article, we discuss the three key actions that leaders of consumer companies should consider in order to address these aforementioned shifting consumer expectations. 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.Olivier Gergele is the EY ASEAN Consumer Products & Retail leader, Maria Kathrina S. Macaisa-Peña is a business consulting partner and the Consumer Products and Retail Sector leader of SGV & Co., and Fabrice Imparato and Shaurya Ahuja are EY-Parthenon partners.

08 November 2021

Leonardo J. Matignas

Building a future-fit board (Second Part)

(Second of two parts)Businesses continue to explore new ways of working, further spurred on by the pandemic and supported by technology. However, to maintain momentum, boards will need to reimagine their roles to ensure they remain relevant, adaptive and responsive to the needs of this transformative age. Future-fit boards are diverse by nature, inclusive, transparent, and responsive, with the ability to navigate the unexpected and innovate in their oversight of human capital to drive long-term value.As discussed in an EY article, Setting the pace or keeping up — is your board future-fit?, there are six key areas of action boards must consider for future fitness. In the first part of this two-part article, we discussed how boards will need to revitalize board composition and dynamics, gather insights from fresh perspectives, and increase focus on the long term. In this second part, we discuss how boards must align and communicate purpose with action, align and monitor culture, and enhance risk and compliance oversight.ALIGN AND COMMUNICATE PURPOSE WITH ACTIONBased on an EY survey, 80% of CEOs around the world agree that public opinion will become as important to companies as their investors in the next five to 10 years. At the same time, surveys also indicate that 76% of the general global population feels that companies are capable of increasing profits and improving the social and economic conditions of the communities where they operate at the same time.It is interesting to note what global CEO respondents identified as the most significant factors constraining them from being more involved in solving global challenges: board attitudes, composition, skills and leadership. In fact, these factors topped the list for more than half of the CEOs in the survey, surpassing regulation, investors and compensation. This suggests that if it were not for board direction, these CEOs felt they would be more vocal in addressing social issues. This is where future-fit boards can push the idea of their organizations’ purpose, a reason for being and operating that goes beyond making profit, as an essential part of strategy.By articulating purpose with clarity, companies provide their people an achievable vision that they can contribute to, but this purpose must clearly state who the organization aims to benefit apart from its shareholders, as well as how it will do so. Although purpose alone does not replace strategy, it declares the “why” and intensifies the will behind it. It is also important to impart a clear, mutual understanding of the division of roles for external communications as well as plans for appropriate responses in the event of a crisis. Such crises can range from fraud, cyber-attacks, or environmental destruction. The increased scrutiny from 24-hour news cycles and how easily information can now spread dictates that integrity, clarity and timely responses are imperative for future-fit boards.However, clarity of purpose is not enough. Future-fit boards need to recognize that companies will fail if they do not align their communicated purpose with action, which is especially relevant to maintaining trust with stakeholders. An EY global survey of CEOs found that a key gap standing in the way of transformation is the “say-do” gap, where action does not match intention. This indicates that, in addition to clearly stating its purpose, an organization’s leadership needs to show their customers and people that they “walk the walk” and not just “talk the talk.” By their actions they can demonstrate their will to follow through on their stated purpose, thus inspiring the buy-in and earning the trust of their stakeholders. Therefore, the future-fit board needs to ensure that purpose both informs strategy and permeates all aspects of operations.Boards will need to ask themselves how accurately the public understands what their business does, and how their organization contributes to both the economy and society. They have to assess whether they are constraining management from contributing to solutions for global challenges, and whether they are engaging with stakeholders, such as employees, on the most important and pressing issues. In addition, boards must determine their readiness and ability to respond to a crisis, and the assurance that they can stand by their purpose and values.ALIGN AND MONITOR CULTURECulture is a strategic asset, and in the war for talent, culture is a key intangible asset that needs to be protected. Emerging technologies are changing the workplace and impacting culture as well. Both investors and regulators have an interest in how companies leverage talent culture and strategy to enhance viability and accelerate long-term success. How the culture of a company is aligned with long-term strategy can change over time, especially in this transformative age, where strategies must adapt to face new challenges.Future-fit boards will need to align their long-term strategy with a clear vision of their corporate culture and empower management to embed said culture throughout the company. Monitoring the alignment of culture with strategy and the impact of culture on corporate engagement needs to be conducted using non-traditional metrics, such as employee review sites, turnover rates, exit interview data, training effectiveness, incentive schemes and social media impact. Future-fit boards should encourage management use of big data as well, understanding what behaviors drive performance even when performance is high.It takes resources and time to drive any cultural shifts. Boards therefore need to ask themselves how effectively they can oversee shifts in culture to build a future-focused workforce that has the skills and resolve to face future challenges. They will need to assess how creative they are in their use of data to build culture, and how clearly they communicate this culture to drive strategy.ENHANCE RISK AND COMPLIANCE OVERSIGHTFuture-fit boards need to focus on the evolving world of reporting, monitoring and compliance technologies — and the cultural and investment shifts required to enable them. Boards need to employ a pragmatic approach to horizon scanning, gathering external insights and deploying monitoring mechanisms. They also need a broader perspective about indirect and emerging risks and consider deploying automation to monitor such risks and benchmark them against Key Risk Indicator (KRI) tolerance thresholds.One necessary shift will be to develop new competencies for finance, compliance, and risk professionals, boards and audit committees. As an example, making use of technologies and new sources of data will require strong knowledge of legal frameworks for external data hosting, external and internal data protection risks, and audit procedures across different platforms.Boards must ask themselves if they are combining smart technology with rich data to power their compliance and risk oversight, and determine what new competencies and skills are necessary at the board and management levels to maximize their data analytics tools. Moreover, they need to treat data as a strategic asset, and ensure that data governance risks are encompassed in board-level risk assessments.SETTING THE PACE FOR A FUTURE-PROOF BOARDBoards can seize the future by reshaping their performance and reinventing themselves, aligning values and culture as necessary and re-energizing their risk and compliance mechanisms. By gathering external perspectives, embracing diversity and shedding light on risks and opportunities, they can enhance their decision-making and gain deeper insights to generate long-term value. 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.Leonardo J. Matignas is a business consulting partner of SGV & Co. and the EY ASEAN risk management leader.

01 November 2021

Leonardo J. Matignas

Building a future-fit board (First Part)

(First of two parts) Accelerated by the pandemic and enabled by technology, businesses continue to explore new ways of working and business models outside of traditional capabilities. But to maintain momentum, boards will need to reimagine their roles to ensure they remain relevant, adaptive and responsive to the needs of this transformative age. The current pace makes it imperative for boards to continuously evolve and embrace transformation. Environmental, technological and geopolitical changes require them to guide their companies to better seize opportunities arising from disruption, manage risks and optimize for future performance.Boards can become future-fit by employing a forward-thinking mindset, and being proactive in collecting perspectives which can impact the business. They must be outward-looking and lead in balancing long-term interests, as well as expand their view of risk with technology-enabled compliance, mitigation and monitoring. Future-fit boards are diverse by nature, inclusive, transparent, and responsive. They are capable of navigating the provocative and unexpected and are innovative in their oversight of culture and human capital to drive value.As discussed in an EY article, Setting the pace or keeping up — is your board future-fit?, there are six key areas of action boards must consider in order for them to achieve future fitness. In the first part of this two-part article, we will look at how boards will need to revitalize board composition and dynamics, gather insights from fresh perspectives, and increase focus on the long-term.REVITALIZE BOARD COMPOSITION AND DYNAMICSTo gain insight into what the boardroom of the future will look like, boards must consider their current composition in the context of long-term strategy coupled with the need for reinvention, adaptation, and challenge. They will also need to determine who will be necessary in the boardroom to optimize performance, not just for now, but also for years to come. By maintaining a diverse set of backgrounds, experience and cognitive styles, boards can plan for and ensure a balance that will be maintained even as new directors come and go.However, even with a diverse, well-balanced board, it is still possible to disregard otherwise valuable input and underutilize assets. Future-fit boards can counter this by actively valuing diverse inputs, and by recognizing the importance of different opinions and disruptive ideas. They should also recognize the value of an age-diverse group, leveraging experience while valuing new directors, particularly with the rapid disruptions happening in the world today. Future-fit boards must be open to developing new knowledge and competencies — training and re-training its members as a whole rather than just relying on the expertise of a single director with the relevant skills.To determine whether a board is future-fit in its dynamics, it must ask itself if it seeks and encourages unexpected and disruptive ideas, and if it can reach outside of traditional methods to analyze business challenges and issues from every angle. By keeping open to reinvention and transformation, boardrooms can discover new dimensions for long-term growth.GATHER INSIGHTS FROM FRESH PERSPECTIVESSimply gaining a different view on matters, such as understanding employee well-being or the quality of customer experience, is not enough to truly gather varied and quality perspectives with the breadth of insight needed in today’s environment. Future-fit boards must proactively gather new perspectives at a broad and strategic level, seeking input from more stakeholders such as investors, industry peers and others.Future-fit boards need to be able to ask the right questions regarding strategic priorities, direction, and emerging risks. This also means they have to determine the right internal and external stakeholders to ask. They will need to review the kinds of information they receive and assess whether there are new data points they must find. This in turn can help facilitate dialogue that fosters trust and maximizes access to markets, talent, and customers.Boards must also be strategic in their analysis of feedback and various forms of external data. While it is possible to be overwhelmed by large volumes of information and face challenges in sorting through that information to determine what is relevant, future-fit boards must take the initiative and determine what data and information is necessary before developing their knowledge on the right issues.Finally, boards will also need to ensure they maximize the use of external data, stakeholder perspectives, and the relevant expertise to educate themselves on new areas of risks and gain further opportunities to hold the right conversations.INCREASE FOCUS ON THE LONG-TERMWith uncertainty and disruption continuing to prevail in the current landscape, it is easy to understand why some boards narrow their views toward short-term survival. Based on another EY survey, over 40% of global board members believe that investors would prefer to focus on long-term decision-making and investments that will enhance the future prospects of the business even if this reduces short-term financial performance. Since there are no universally applied or disclosed metrics on value generated from customer loyalty, trust, human capital, innovation and culture, it can be challenging to communicate with investors consistently. However, future-fit boards must be focused on articulating long-term strategies clearly, determining what investments they make to sustain and protect the value drivers underpinning the business.Boards also need to be cognizant of what “long-term” may look like. We are now in a time when business models are rapidly evolving, and traditional markets and industries are transforming and converging to create new models. Consider, for example, how fluidly enterprises are diversifying their services and offerings today — ride-hailing apps have added shopping and food-delivery features, telecommunications companies are venturing into banking and remittances, and online shopping platforms have become venues for insurance and financial products. Future-fit boards have to remain focused on transformation and create a culture of agile adaptation that reimagines what their business could become, using information from megatrends and stakeholder intelligence to boldly redefine and reinvent their own future.In the next part of this article, we will discuss how boards must align and communicate purpose with action, align and monitor culture, and enhance risk and compliance oversight. 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.Leonardo J. Matignas is a business consulting partner of SGV & Co. and the EY ASEAN risk management leader.

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.

2021