Suits the C-Suite

24 June 2024

Roderick M. Vega

Instilling integrity into the corporate DNA

The current climate of persistent macroeconomic, geopolitical, and market volatility, coupled with stringent regulatory scrutiny, continue to put the moral compass of organizations to the test. These global conditions underscore the critical importance of the values businesses uphold, particularly trust and integrity. Trust serves as a significant competitive advantage, particularly when market unpredictability challenges business resilience. Without trust from employees, customers, suppliers, and investors, an organization’s future viability is jeopardized. At the same time, companies rooted in integrity ensure long-term sustainability by adhering to ethical practices, which reinforce their brand and operational stability. A lack of integrity erodes trust, leading to significant operational and strategic challenges. The interplay between these two raises a critical question: "How can trust endure without integrity?" This query forms the crux of the EY Global Integrity Report 2024, which surveyed over 5,400 respondents across 53 countries and territories. On the upside, 49% of global respondents believe that compliance with their organization's standards of integrity has improved over the past two years, marking a seven percent increase from the EY Global Integrity Report 2022. However, 38% of global respondents acknowledge a willingness to engage in unethical behavior to advance their career or remuneration. This pervasive mindset creates substantial risks that could lead to various adverse impacts within an organization. The cost of low corporate integrity is high. Specifically, corporate violations in the United States and the United Kingdom incurred penalties totaling US$1 trillion, as a result of half a million infractions between 2010 and 2023. This article explores actionable insights from the EY Global Integrity Report 2024 and identifies human-centered approaches that leaders can use to build an integrity-first culture within their organizations. The current state of integrity Despite improved perceptions of organizational standards of integrity, companies continue to grapple with significant incidents and violations. The EY report highlights that 20% of companies acknowledge experiencing major integrity breaches, such as fraud, data privacy or security incidents, or regulatory compliance violations, within the past two years. Notably, among those reporting significant integrity incidents, over two-thirds indicate the involvement of third parties. An analysis of over 500,000 corporate violations from 2010 to 2023 reveals that certain financial and employment violations, including accounting deficiencies, AML deficiencies, tax violations, labor standards, workplace safety, and consumer privacy issues, have become 2 to 10 times more frequent since 2010. Conversely, there has been a notable decline in violations related to employee compensation, public safety, banking, and environmental issues. However, progress remains limited in addressing anti-competitive behavior, discrimination, and whistleblower retaliation. Employees’ approach toward integrity Although a majority of employees (58%) take a principled approach to integrity, there remains a substantial proportion (42%) who may compromise these standards under certain conditions. In this dichotomy, the report shows that potentially compromised employees have a more negative view of their organization’s compliance environment. They are nearly three times more likely to say that unethical conduct is ignored within their teams, and more than five times more likely to say that unethical conduct is ignored within their organization’s supply or distribution chain. Leaders' integrity dilemma An unethical mindset towards career or pay is predominant in the upper echelons of organizations, with 67% of board members admitting they would consider unethical actions for their own benefit compared to only 25% of employees. Moreover, 47% of board members and 40% of senior management have observed actions within the past two years that could damage their organization’s reputation if made public, yet no internal response was taken. This lack of action highlights a critical gap in ethical oversight and accountability. What breeds misconduct The survey identifies several root causes of integrity incidents globally, including failure of financial processes and controls (27%), lack of internal resources to manage compliance and integrity activities (27%), employees not understanding policy and requirements (26%), and lack of appropriate tone from senior leadership (25%). Equally significant, 45% of global respondents who reported integrity incidents attribute them to poor leadership tone or management pressure. This issue is compounded by the apparent reluctance among leaders to address misconduct. Such factors contribute to an environment conducive to misconduct, emphasizing the need for robust controls, resources, and leadership commitment to foster a culture of integrity. High cost of low integrity Misconduct is an unpleasant reality, surfacing even within the most ethical organizations. Corporate infractions come at a high cost—not just in resources spent on internal investigations and remediation but also in fines and penalties paid to government regulators. For instance, recent research indicates that corporate fraud shaves approximately 1.6% off a company’s equity value each year. In monetary terms, that equates to US$830 billion in 2021 alone. But the costs extend beyond the financial. A top-down, all talk, no walk mentality erodes trust both within the organization and in the public eye, placing the company's reputation and financial health in jeopardy. Building an integrity-first culture Embracing the following integrity-first approaches — which put the right programs in place to drive behavior to create a strong culture and a strong belief in their commitment to integrity — can help organizations keep pace with evolving regulations and increasing societal expectations: Lead from the top. Integrity can’t be built or sustained with all talk and no action. Organizations need to focus on preventing and addressing misconduct by starting from the top. Moreover, leaders need to listen and practice what they preach to instill integrity further down the line. Words alone won’t inspire integrity; it demands actionable leadership. Design and implement a structure to execute strategy. To prevent unethical actions from the top down, organizations must implement robust governance structures within their integrity programs and strategies. Breaking down silos is also crucial to encourage a 'speak-up' culture against any misconduct. Strengthen a culture of integrity across the organization. Organizations must recognize that integrity is a collaborative endeavor, not merely a stand-alone function. Embedding compliance directly into operations—from new business development to vendor payments—transforms corporate policies into actionable workflows. Boost awareness, training and communication. The report indicates that fewer than 47 percent of management teams frequently communicate to their employees the importance of behaving with integrity. Making the rationale behind policies crystal clear fosters a resilient organization capable of thriving in both good and bad times. Create a virtuous circle of integrity. In times of rapid change and difficult market conditions, maintaining, let alone enhancing, corporate integrity can seem daunting. But it is precisely in these challenging times that integrity must not only be preserved but also prioritized. Roderick M. Vega is the Forensic and Integrity Services Leader of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

18 June 2024

Christiane Joymiel C. Say-Mendoza and Joseph Ian M. Canlas

Responsible AI: Transforming risk management in the Philippines

As the digital age continues to evolve, artificial intelligence (AI) is rapidly becoming a cornerstone of innovation and efficiency. In 2021, the Philippines launched the National Artificial Intelligence Roadmap, which prioritizes inclusive, resilient, and sustainable development. Furthermore, the country’s President believes that AI can uplift the lives of the nation’s citizens, drive enterprise productivity, and increase the Philippine economy’s competitiveness. According to a recent study from IBM’s Institute for Business Value, three out of four CEOs think that organizations with the most advanced generative AI (GenAI) are at an advantage, with nearly half already utilizing GenAI to guide their strategic decisions. As organizations expand their AI adoption, it is imperative that they adhere to Responsible AI practices, which promote the ethical, transparent, and beneficial use of the technology. AI adoption in the Philippines The country’s AI adoption is evident across multiple sectors, each harnessing its capabilities to enhance operations and manage risks. Financial institutions. Some local universal banks are leveraging on AI for risk assessment, fraud detection, and customer service, utilizing solutions provided by tech giants such as Microsoft. Healthcare. Some healthcare platforms are leveraging AI for medical data analysis, improving patient care, and expanding telehealth services. Telecommunications. Local telecom companies employ AI for network optimization, customer service enhancement, and predictive maintenance. E-commerce/Retail. Online marketplaces and retailers utilize AI-driven recommendations and predictive analytics to refine customer experiences and operational efficiency. AI's impact on risk management AI is revolutionizing risk management by offering enhanced data analysis, predictive capabilities, real-time risk assessments, and advanced cybersecurity measures. These technologies enable businesses to identify and respond to risks with unprecedented speed and accuracy. However, the integration of AI into risk management is not without its challenges. Concerns around data privacy, algorithmic bias and fairness, transparency, and regulatory compliance must be addressed to ensure the responsible use of AI. Data privacy and security. AI systems rely on data. There's a risk that sensitive customer or business information could be exposed, particularly if appropriate cybersecurity measures are not in place. Algorithmic bias and fairness. AI systems are only as good as the data they're trained on. If the data is inaccurate, incomplete, or biased, it can lead to unreliable or discriminatory decisions. Lack of transparency. Complex AI models may lack transparency, making it challenging for stakeholders to understand how decisions are made. If the reason behind a decision by AI can't be explained, it can lead to legal and ethical implications. Regulatory compliance. The legal environment for AI is complex, fluid, and still developing. Companies can face risks relating to non-compliance with data protection regulations and other industry-specific laws. Navigating AI risks with responsible practices Responsible AI covers transparency, fairness, accountability, ethical use, privacy protection, reliability, safety, sustainability, inclusivity, and governance. To integrate Responsible AI into risk management, companies can adopt the following best practices: Ethical framework development. Create a comprehensive ethical framework that aligns with regulatory standards and industry-specific best practices. Data governance and privacy protection. Implement data governance practices to ensure data privacy and transparency in AI models. Transparency and explainability. Make AI outputs understandable and provide justifications for AI-generated decisions. Bias detection and mitigation. Conduct thorough bias assessments to identify and mitigate biases in AI models. Human-AI collaboration. Augment human expertise with AI, promoting collaboration through accessible interfaces like visualizations and interactive dashboards. Examples of Responsible AI in action Banks. Major local banks are incorporating AI in risk management, with a focus on fraud detection. Responsible AI usage involves stringent data protections and privacy measures. Telecommunications. Local providers use AI to manage infrastructure risks and predict outages. Ensuring responsible AI usage means preventing wrongful service denials. E-commerce. Some platforms employ AI for product recommendations, with a responsibility to avoid discriminatory biases. Health Tech. Certain local companies use AI for disease diagnosis, requiring the protection of sensitive health information. The trajectory of Responsible AI in the Philippines The future of Responsible AI in the Philippines includes broader AI adoption across sectors, enhanced regulations, and workforce upskilling, among others. With the Philippines set to propose the creation of a Southeast Asian AI regulatory framework to the ASEAN in 2026, Responsible AI could become a standard in business operations. As AI becomes more pervasive in the country’s business landscape, its impact on society will be profound, shaping the future of work, influencing broader socio-economic development, and driving positive change. It is therefore imperative for organizations to embrace Responsible AI principles in risk management and collaborate with stakeholders to navigate the opportunities and challenges presented by local AI-driven innovations. Christiane Joymiel C. Say-Mendoza and Joseph Ian M. Canlas are Business Consulting Partners of SGV & Co. 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.

10 June 2024

Maria Kathrina S. Macaisa-Peña

Leveraging GenAI to transform the finance function

The evolution of artificial intelligence (AI) has been remarkable, beginning with the conceptualization of neural networks in 1943 and progressing to the birth of machine learning (ML) in 1959 and the advent of deep learning in 2006. This trajectory led to the era of Generative AI (GenAI), which emerged around 2017. GenAI refers to the subset of AI that focuses on creating new content, from text to images, by learning from vast datasets. This leap forward enables machines to not only interpret data, but also to generate original outputs that can mimic human creativity and reasoning. As the technology becomes more sophisticated, consumers are increasingly integrating large language models (LLMs), an application of GenAI, into their daily lives. From asking virtual assistants for weather updates to receiving personalized recommendations, the comfort and confidence in using such technology are on the rise. This adoption signifies a shift in the public's perception of AI, viewing it as a reliable and integral part of modern living. Part of this shift can be seen in how GenAI is revolutionizing strategic business thinking, enabling businesses to unlock new revenue sources, achieve productivity gains, and innovate existing business models, ultimately leading to value creation. In particular, firms and departments dealing with finance and accounting can leverage GenAI to enhance data entry and reconciliation, enrich forecasting and analysis, and fortify risk management. GenAI applications in the finance function The finance function is pivotal in supporting optimized enterprise decisioning – and rethinking enterprise structures through the lens of GenAI is key to unlocking a spectrum of new possibilities for value creation. Knowledge management and decision support in particular are among the most potent use cases for scaled AI capabilities. GenAI can enhance an organization's data value by asking better questions, optimizing multi-variable choices, and enabling actions at scale. In addition, GenAI can write code on demand to extract information from data sources, create reports with appropriate data visualization, and provide persona-based analysis. It also enables conversations with virtual agents for a deeper understanding of results. In monthly financial reporting cycles, analysts would traditionally spend hours writing code to extract data from various sources, compiling it into spreadsheets, and then painstakingly creating visualizations. GenAI allows them to input their requirements, after which the AI writes the necessary code on demand, pulling information from databases, cloud storage, and even real-time market feeds. The data is not just tabulated – it's transformed into compelling visual reports that highlight key financial metrics and trends. Moreover, GenAI can provide persona-based analysis, tailoring insights to the specific needs of each stakeholder. The CFO receives a high-level overview emphasizing strategic implications, while line managers get detailed breakdowns relevant to their departments. Content creation, a repetitive and complex task, has also been redefined by GenAI. Finance teams can leverage GenAI to assist in generating various analytical documents. Variance reports, budgets, and forecasts are produced with a level of detail and accuracy that was previously unattainable. GenAI sifts through historical data, identifies anomalies, and presents findings in a clear, concise manner. Moreover, GenAI can extend its capabilities to responding to common queries from colleagues or clients. Instead of drafting individual responses, finance professionals can rely on GenAI to provide accurate and contextually relevant answers, freeing up their time for more strategic tasks. GenAI has become an essential collaborator in meetings and project planning as well. It helps document discussions, distilling them into actionable items and comprehensive plans. Last but not the least, perhaps the most transformative application of GenAI within the finance function is in forecasting. A GenAI model can take in vast amounts of historical financial data and current market trends to predict future performance with remarkable accuracy. It identifies patterns that might elude even the most experienced analysts and uses natural language processing to incorporate insights from news articles and external data sources. This ability allows organizations to anticipate market movements and adjust their strategies proactively. Whether in terms of revenue, expenses, profit, or cash flow, forecasts can provide more than just numbers — they can become strategic tools that inform decision-making at the highest levels. Realizing GenAI advantages To fully realize the advantages of GenAI in finance and accounting, companies need to enhance their finance and accounting functions with innovation intelligence, invest in infrastructure and develop talent in AI while putting proper governance and controls in place. Amidst the possibilities and efficiencies that AI can create for the finance function, blind optimism and hype around this disruptive technology can have a counterproductive impact on a business that is unaware of its risks. To avoid this, companies can take the “innovation intelligence” approach through implementing planning, education and an agile test and learn strategy. Another critical determinant of an organization’s success will be how they enhance their comprehension of and refine their data infrastructure. Companies should have a tech stack with a solid foundation and support from experts to ensure their legacy data and technologies are unimpeachable before adding any GenAI applications on top of existing systems. Based on the EY 2023 Financial Services GenAI Survey, 44% of leaders identify access to skilled resources as a barrier to GenAI implementation. Part of the solution is to deploy upskilling programs that can equip the current workforce with the necessary skills in an increasingly AI-centric world. The human role of AI implementation is just as important as technology infrastructure. The GenAI imperative in the finance function Incorporating GenAI into finance is not just an option – it has become an imperative for long-term value creation. However, while it brings significant gains, it is also crucial to be mindful of potential risks. While aligning GenAI across the organization will be essential to unlock greater value, organizations must consider how GenAI can be used not only to transform the finance function, but also to redefine the future of business decision-making. Maria Kathrina S. Macaisa-Peña is a Business Consulting Partner and the PH Finance Fields of Play Leader of SGV & Co. 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.

03 June 2024

Jan Ray G. Manlapaz and Mary Andrea T. Bacani

Building efficient and resilient supply chains with GenAI

In the wake of the global pandemic, businesses remained focused on advancing their artificial intelligence (AI) supply chain pilot projects into fully functioning applications. Companies are turning more to AI for demand planning and procurement within their supply chains, and are also investigating its potential for streamlining processes and enhancing efficiency in final-stage delivery. However, the rapid emergence of Generative AI (GenAI), brought to prominence by ChatGPT, has dramatically shifted perceptions about the capabilities of AI. GenAI is adept at producing new content that includes images, text, audio, or video, drawing from its training data. This technology isn’t new, but recent developments have streamlined its use and enhanced its practical value. As funding flows into this technology, leaders are swiftly assessing how it affects their operations and business structures, aiming to capitalize on its benefits. For those who diligently and strategically engage with innovation while maintaining an awareness of its limits — rather than impulsively chasing trends — GenAI can serve as a dynamic collaborative partner and a force multiplier in fortifying supply chains.What might have once been considered fictional is now part of serious conversations. AI applications are already being put into practice in real-world scenarios throughout the entire supply chain. These are made possible by GenAI's capabilities to organize and sort information based on visual or textual inputs, rapidly assess and adjust strategies, plans, and the distribution of resources in response to live data, produce various types of content on-demand, leading to quicker reaction times, summarize vast amounts of data while highlighting essential insights and patterns, and quickly help retrieve relevant information and deliver immediate responses, whether through voice or text.While it does have its limitations, GenAI provides a multiplier in what technology and humans can achieve together in building efficient and resilient supply chains, whether in planning, sourcing, making or moving. PlanningGenAI streamlines engagement across technology-driven planning activities. Modern GenAI applications are also capable of proposing multiple strategies in case of unforeseen complications. The area of risk management stands out as particularly promising, especially in anticipating risks that supply chain planners might not have previously contemplated. Numerous organizations are leveraging AI to sift through extensive historical sales data, market movements, and other factors to construct real-time models of demand. In addition, GenAI enables the formulation of ideal inventory quantities, manufacturing timetables, and distribution strategies to efficiently satisfy consumer needs.AI can assist in orchestrating production and timetabling by taking into account elements such as changes in customer orders, production capacity, resource availability, and the priority of orders. Similar to its capabilities in forecasting demand, GenAI can devise production plans, scheduling sequences, and efficiently allocate resources to reduce bottlenecks and optimize production efficiency. Currently, AI can be utilized to scrutinize historical data, market dynamics, climatic trends, and geopolitical occurrences, among other information sources, to pinpoint potential risks within the supply chain. Rather than relying on preset dashboards, for instance, GenAI can be prompted to generate on-the-spot risk evaluations, simulate various scenarios, and craft strategies for risk mitigation to aid planners in proactively overseeing and lessening risks.SourcingBeyond negotiating, GenAI offers a chance to enhance supplier engagement and oversight, providing guidance on subsequent actions. These useful tools can quickly pull information from extensive contracts, potentially helping prepare for discussions about contract renewals. In managing suppliers, companies can utilize natural language processing to derive insights from supplier communications and various data points. It can support the supervision and analysis of supplier interactions, pinpoint potential problems, and foster stronger supplier partnerships.Moreover, GenAI can assist in the process of choosing suppliers by evaluating a broad spectrum of supplier data and producing insights. By considering aspects such as supplier performance, capabilities, pricing, and risk assessments, GenAI algorithms can offer suggestions or rankings to support well-informed decision-making. MakingGenAI is revolutionizing the supply chain by significantly accelerating the journey from concept to commercialization, even when it involves new materials. Organizations are educating algorithms on their proprietary data and then employing AI to uncover methods to enhance productivity and efficiency. Predictive maintenance is yet another area where GenAI can pinpoint which machinery or production lines are at risk of malfunctioning and when, thereby enhancing overall equipment effectiveness (OEE) — a critical metric in manufacturing.In product design, GenAI can rapidly generate and assess numerous design alternatives based on set criteria, drastically accelerating the innovation cycle. This approach can be applied to a wide range of design challenges, from engineering new components for industrial machinery to creating consumer goods that are more efficient, robust, or visually attractive. Informed by data from factory machinery, GenAI models can also devise new maintenance strategies that align with predicted failure times of equipment. This enables manufacturers to fine-tune their maintenance timetables to intervene only when necessary, minimizing operational interruptions and expenses while also prolonging machinery lifespans.In addition, GenAI can be used to unearth new materials and refine existing ones. By analyzing extensive data on material characteristics and experimenting with various combinations, it can recommend new materials with specific desired traits or enhance the properties of current materials. This innovation could lead to the development of materials that are more efficient, sustainable, or durable for manufacturing purposes.MovingAlthough GenAI application in the field of logistics isn't new, the generative aspect introduces new levels of adaptability. For example, it can be used for route optimization for reduced fuel usage, the prioritization of specific shipments, or integration of various factors into an accessible platform. GenAI can optimize global trade by assessing a wide range of factors, such as tariffs, customs rules, trade agreements, and shipping expenses, to propose the most effective and economical routes and strategies. This helps businesses to maneuver through intricate global trade networks, ensuring compliance while cutting costs. Additionally, GenAI can improve the design of logistics networks by considering elements such as warehouse locations, transportation links, and demand patterns to generate efficient configurations. This results in shorter delivery times, decreased expenses, and heightened service quality.One of the significant challenges in logistics is real-time routing, which GenAI can address by constantly refining and enhancing delivery or collection routes in response to evolving conditions such as traffic, weather, and delivery priorities. This leads to heightened efficiency, lower fuel usage, and greater customer satisfaction.Realizing value with GenAIGenAI is a potent instrument with its own set of constraints, but it should not be mistaken for a strategy in itself. Organizations must focus on the business benefits and establish a roadmap, guided by the following steps:Focus on domain-wide transformation. Identify use cases with significant potential, aiming to create an integrated ecosystem that complements traditional business practices and unlocks new opportunities.Coordinate and collaborate. Discuss the broader implications of using GenAI and pinpoint the competencies needed across various departments, extending beyond just the technical roles.Maintain an open mindset while being mindful of risks. Launch exploratory pilot projects to gain insights, secure early successes, and work towards a model that can be expanded and adopted on a larger scale.Utilizing AI in supply chain management can help organizations become more resilient and sustainable while transforming cost structures. With recent developments that make AI easier to use and more effective in realizing value, organizations must evaluate how its advances can impact their sectors. Jan Ray G. Manlapaz is a Consulting Partner and Mary Andrea T. Bacani is a Supply Chain and Operations (SCO) Senior Manager of SGV & Co. 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.

27 May 2024

Randall C. Antonio

How GenAI can accelerate business transformations

Given the fast-paced nature of digital evolution, businesses are increasingly turning to innovative technologies to stay ahead of the curve. Generative Artificial Intelligence (GenAI), which refers to AI algorithms that generate outputs based on existing data, has emerged as a transformative force that can revolutionize operations like product development, customer engagement, and software programming. However, integrating this technology into business processes requires strategic planning and careful execution. The EY 2023 Work Reimagined Survey shows that 84% of employers are expecting to implement GenAI within a year. Additionally, 33% of employees and employers see potential benefits for productivity and new ways of working. GenAI’s transformative capabilities are expected to augment human work and increase efficiency, which will have long-term effects on the global business landscape.The technology can transform business processes and unlock new levels of creativity and efficiency. To help ensure the success of GenAI implementation, this article will share five key strategies to effectively harness the power of GenAI in business transformation.Anchor everything to the enterprise strategyBegin by clearly defining business objectives and assessing how GenAI fits into the organization’s broader strategy. Identify specific areas where implementing an AI solution can drive value, such as streamlining operations, enhancing creativity, or personalizing customer experiences. By aligning AI initiatives with strategic goals, businesses can ensure that resources are allocated efficiently and that AI investments deliver measurable, tangible returns. Prepare quality data The success of GenAI will depend on the quality and diversity of data used to train models. It encompasses algorithms that leverage upon neural networks to generate new data that resembles the patterns found in the inputs it has been trained on. Access to relevant and high-quality data is therefore crucial for training and validation. Organizations must invest in data collection, cleansing, and augmentation processes to ensure that AI systems are trained with accurate and representative datasets. Additionally, diverse training data will be imperative to capture a wide range of scenarios and edge cases. This can improve the robustness of AI models, help mitigate biases, and ensure fair outcomes. Collaborate with the right teams The effective implementation of GenAI requires collaboration among multidisciplinary teams, highlighting the need for partnerships between AI specialists, data scientists, domain experts, and business stakeholders. Involve a cross-functional team in the decision-making process, blending technical expertise with business acumen and ethical considerations, to create a balanced and forward-thinking AI strategy.By fostering a collaborative ecosystem, organizations can leverage diverse perspectives and domain knowledge to develop AI solutions that address real-world challenges. Cross-functional teams should work together iteratively, from ideation to deployment, to ensure that AI solutions are aligned with business needs and user requirements. Apply responsible AI Ethical and responsible AI practices are paramount in today's data-driven world. Prioritize transparency, fairness, and accountability throughout the AI lifecycle. Implement measures to mitigate biases, ensure data privacy, and establish mechanisms for explaining AI-generated outputs. Bias in particular often manifests in ways that harm certain parts of the population. When the data that is used to train a model does not accurately reflect the group it is intended to serve, it can create imbalances in the model's outcomes. For example, imbalances could stem from a lack of diversity in the types of data collected. However, there are other types of imbalances that may compromise the precision of the GenAI model without negatively affecting a particular group. Although preventing such imbalances entirely is challenging, the development team must investigate potential sources of imbalance and seek ways to reduce it. By embedding ethical considerations into AI development processes, businesses can build trust with stakeholders and mitigate potential AI-deployment risks. Learn, adapt, and improve continuously AI implementation is a journey, not a destination. Embrace a culture of continuous learning and adaptation, where feedback loops drive incremental improvements. Monitor the performance of AI systems in real-world environments and gather insights from user interactions. Furthermore, use this feedback to refine AI models, optimize algorithms, and adapt strategies according to evolving business dynamics. Learning and growing from the project should be treated as an essential component of an AI endeavor, instead of a last-minute consideration. Foster an environment of ongoing education, prompting those involved to thoughtfully evaluate all triumphs and challenges. By staying agile and responsive, organizations can harness the full potential of GenAI to drive innovation and secure a competitive advantage. Transforming in the long-termWhile previous technological advancements mostly focused on automation, GenAI can also assist with complex cognitive functions like predictive analytics, machine learning, and natural language processing. Also, its use-cases encompass a diverse range of industries, occupations, and tasks. For example, the case study Generative AI at Work showed that customer service agents could resolve 13.8% more customer inquiries per hour with the help of GenAI tools.The successful implementation of GenAI requires a holistic approach that encompasses strategic alignment, data excellence, collaborative engagement, ethical considerations, and continuous learning. By adopting these key strategies, businesses can unlock new opportunities, drive operational efficiencies, and stay ahead in today's digital economy. Through concrete, actionable steps, GenAI can boost efficiency and innovation, reshaping today’s ways of working. Randall C. Antonio is an AI Technology Consulting Principal of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

20 May 2024

Aaron C. Escartin

The evolving role of financial controllers

The financial controller role has transformed dramatically, with emerging technologies and advanced data analytics, along with the growing importance of environmental, social, and governance (ESG) considerations, introducing a fresh perspective to company planning. The traditional duties of financial controllers, which used to focus on historical financial reporting and regulatory compliance, now demand a broader range of skills and responsibilities.Their responsibilities have broadened beyond basic bookkeeping – they are now expected to adopt a proactive and visionary mindset, taking on the role of strategic business overseers. Modern controllers must be well-versed in a variety of competencies; they must excel in accounting and be capable of managing data, participating in strategic corporate conversations, and acting as reliable counselors. Their role has progressed into one that focuses on directing and ensuring the achievement of value, positioning them at the core of financial strategy.The increasing need for real-time and predictive financial reporting has been a major catalyst for this shift, with the role now including elements of financial planning and analysis (FP&A). Though controllers used to focus on internal transactional duties, technological advancements and evolving business expectations are pushing the role to become more extroverted.Incorporating ESG factors into fiscal planningAs ESG factors gain prominence in corporate planning and risk evaluation, it is essential for controllers to weave them into the fabric of financial forecasting and disclosure practices. This integration should be in harmony with the company's sustainability objectives and effectively communicated to all stakeholders.Some organizations are now appointing ESG-specific controllers, positioning the controllership role at the vanguard of this pivotal strategic initiative. With the growing need for verified ESG reporting, controllers are well-placed to spearhead this domain within their companies. This marks a considerable shift from previous times when compliance with statutory or similar regulatory reporting might not have been at the forefront of many corporate controller agendas.Familiarity with non-financial reporting standards, such as those set by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), is becoming indispensable. These standards provide a blueprint for evaluating and disclosing sustainability efforts, tasks that now fall under the purview of financial controllers.In a globally intertwined business environment, the challenge lies in ensuring adherence to a variety of regulations across different markets while keeping financial management practices consistent with both international benchmarks and local mandates. Controllers are expected to perform thorough due diligence and maintain a comprehensive international outlook to protect the company's cross-border activities.The controllership should embrace a "glocal" (globally local) operational framework, capitalizing on centralization to enhance value while also ensuring that compliance, resilience, and risk management are supported at the local level. This new model for controllers aims to strike a balance between shared services and business partnership roles, with compliance functions remaining centralized. To adapt effectively, controllers must integrate strategies that utilize technology and data to streamline and standardize processes, all while upholding a local presence that supports compliance and risk oversight.In the era of digital finance, the sheer amount and velocity of financial data add unprecedented complexity to the task of ensuring precision in financial reporting. Controllers have the critical responsibility of guaranteeing that financial statements are free of material misstatements and reflect a true and just representation of the company's financial status. The rapid evolution of technology and regulatory frameworks demand financial controllers to dedicate themselves to continuous learning, enabling them to anticipate trends and challenges by adapting their knowledge and practices to stay relevant and efficient.Expanding the financial controller roleThe expanding role of the financial controller now encompasses a more prominent role in strategic decision-making processes, including steering investment approaches, navigating risks, and pinpointing growth opportunities. They are emerging as pivotal figures in formulating business strategies, charged with navigating their companies through market volatility with a decisive grip on fiscal instruments.Moreover, they must master sophisticated financial software platforms that not only simplify financial processes but also unlock the potential for detailed data analysis. Controllers must become fluent in the language of technology, providing a nuanced perspective on the financial well-being of the company, and facilitating predictive insights. They should approach their role with an open mind and curiosity, ready to embrace new tools, functionalities, and technologies. At the same time, they must exercise discernment to choose technologies that are appropriate for their organization and specific circumstances.Controllers must cultivate a dual expertise: a deep grasp of financial principles coupled with skills in data analytics. With these capabilities, they can translate intricate data into clear insights, formulate corporate strategies, spur innovation, and promote ethical leadership. By nurturing sustainable business operations and maintaining the integrity of financial disclosures, controllers establish themselves as vital consultants within their organizations, equipped to manage the intricacies of today's business landscape.From traditional bookkeepers, financial controllers can become "value articulators" – guardians of value delivery who evaluate the financial outcomes of investments. Today's controllers transcend transactional duties, embracing data and technology with a forward-looking mindset crucial for steering sound decisions, ensuring regulatory adherence, and propelling the organization towards resilience and expansion. Preparing for the future of controllershipTo navigate the evolving landscape of controllership and prepare for its future, financial controllers must proactively refine their expertise and adapt to new challenges. A commitment to continuous professional development is essential, with a focus on acquiring knowledge in data analytics and mastering advanced financial software platforms. Controllers should immerse themselves in the latest fintech innovations, selecting tools that align with their company's specific needs. This discernment will ensure they remain competitive, leveraging automation and predictive analytics to drive business success.Additionally, understanding and integrating ESG principles into financial strategies is becoming increasingly important. Controllers should become well-versed in non-financial reporting frameworks, enabling them to align financial strategies with sustainability goals and communicate these efforts effectively to stakeholders.In our interconnected global economy, maintaining awareness of international regulations is paramount as well. Controllers must develop strategies that ensure compliance across various markets while harmonizing financial management practices, safeguarding company operations across borders. Cybersecurity vigilance is another critical area. Financial controllers must prioritize financial data security, implementing robust data governance measures and staying informed about the latest cybersecurity best practices to protect the company's financial information and reputation.Finally, controllers should actively engage in strategic business discussions and investment decisions. By doing so, they position themselves as chief value officers and vital business partners, contributing significantly to the company's strategic direction and value creation. This strategic business involvement ensures that controllers are not just number crunchers – but key players in shaping the future of their organizations. Aaron C. Escartin is a Global Compliance and Reporting (GCR) Tax Partner of SGV & Co.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.

13 May 2024

Bonar A. Laureto

Climate resilience: Innovations in Philippine businesses

Due to escalating climate challenges, Philippine businesses must redefine resilience by navigating risks and capitalizing on emerging opportunities. The previous article explored the foundational principles of climate resilience, emphasizing the imperative for Philippine businesses to adapt and thrive amid climate threats. The discussion highlighted how understanding and managing both physical and transition risks are crucial, alongside strategic shifts towards sustainability that bolster growth and help secure a competitive advantage. This article explores how leading companies are leveraging their proactive strategies to improve their market position and drive long-term value, as shared by these companies at the recently held SGV Knowledge Institute event entitled Climate Convergence: Actions Toward a Resilient Future. Energy Development Corporation (EDC): Proactive risk managementEDC's risk management strategies, born from firsthand experiences with climate-related disasters, illustrate the importance of preparedness and adaptive operations. Their structured approach not only safeguards against immediate risks but also builds a foundation for resilience, showcasing how businesses can thrive amid environmental uncertainties.When Super Typhoon Yolanda hit EDC's geothermal power plants in Leyte, it took them four months to restore generation capacity. In response, the company invested over ₱350 million in resilience measures to typhoon-proof its Leyte plants. Concurrently, EDC reinforced its dedication to climate change mitigation by committing never to build, develop, or invest in coal-fired power plants. In addition, EDC launched the Net Zero Carbon Alliance framework that aims to help its partners achieve carbon neutrality. JG Summit Holdings, Inc.: Systematic climate hazard mitigationJG Summit Holdings, Inc.’s strategy to assess and enhance resilience against projected climate hazards showcases their approach to safeguarding assets. Specifically, they initiated a pragmatic strategy to progressively enhance resilience across its portfolio. The conglomerate has also launched initiatives to integrate climate risk intelligence into its strategic businesses processes. Using a data-driven approach, it leverages the latest climate science and granular Philippine-specific data to thoroughly assess its facilities' exposure to climate hazards. Concurrently, the conglomerate conducts vulnerability assessments on select business-critical facilities to evaluate their ability to withstand extreme weather events, shaping retrofitting strategies, refining maintenance protocols and emergency response plans, and establishing necessary backups and redundancies applicable across their portfolio. Central to these efforts is capability building, with significant investments in training risk managers to interpret and utilize climate data at scale. SteelAsia Manufacturing Corp. (SteelAsia): Pioneering green steel productionSteelAsia’s journey toward a net-zero future by 2050 demonstrates a transformative approach to decarbonization and managing transition risks. By integrating advanced technologies and prioritizing the use of recycled materials, SteelAsia is reducing its carbon footprint and aligning itself with global demands for sustainable building materials. These solutions include using recycled scrap steel and electric arc furnace (EAF) technology powered by renewable energy, allowing SteelAsia to reduce its emissions intensity (ton of CO2 produced per ton of steel) by 87% compared to the industry-standard Blast Furnace-Basic Oxygen Furnace method. By adopting the cleanest technologies and learning from global advancements, SteelAsia has emerged as a global leader in green steel production, achieving one of the lowest emission rates in a traditionally hard-to-abate sector. In addition to direct emissions reductions, avoiding the cycle of exporting scrap only to import finished products enables SteelAsia to significantly cut emissions along the entire supply chain and deliver steel to its customers more quickly and efficiently. Compared to global competitors, SteelAsia offers dual benefits: their locally produced green steel reduces customers’ embodied emissions and ensures shorter wait times.Nickel Asia Corporation (NAC): Reimagining mining with sustainabilityNAC is actively enhancing its environmental protocols by adopting sustainable mining practices, such as obtaining Science Based Targets initiative (SBTi) certification and implementing comprehensive emission management strategies. These initiatives demonstrate NAC’s commitment to reducing its ecological footprint while maintaining profitability, setting a benchmark for sustainable practices in the mining sector.They tackled one of mining’s main emissions source — fuel used in operations and mineral transport — by investing in low-emission technologies like hybrid excavators that improve fuel efficiency and cut fuel costs. These efforts will have reduced an estimated 35,000 tCO2e in Scope 1 and 2 emissions by 2025, merging sustainability with operational efficiency.BDO Unibank, Inc.: Leading with sustainable financeThrough its Sustainable Finance Framework, BDO supports projects that offer environmental and social benefits, aligning investment with sustainable growth. This proactive approach addresses the financial aspects of climate resilience and emphasizes the financial sector’s role in fostering a sustainable future. Since 2010, its Sustainable Finance Desk under the Institutional Banking Group has financed projects that pursue energy efficiency, pollution prevention and control, and sustainable management of natural resources and land use.In particular, BDO has directed a significant portion of its business lending — 34% — toward environmental and social projects. Its ASEAN sustainability bond program, the largest of its kind in the Philippines, raised PHP52.7 billion for 39 projects encompassing renewable energy, roads & basic infrastructure, affordable housing, food security, and other green and social initiatives. Additionally, BDO has issued USD150 million worth of green bonds that finance seven renewable energy projects across wind, biomass, and hydro. More recently, BDO introduced a USD100 million blue bond program, the first of its kind in the country, dedicated to financing projects that enhance bulk water supply and improve wastewater management.SGV & Co. (SGV): Walking the talkSGV is at the forefront of managing its climate risks and spearheading solutions that empower its clients to enhance their management of climate risks and opportunities. The firm has taken decisive action to reduce its emissions, with a particular focus on power consumption, the primary source of its emissions. By transitioning to renewable energy sources under the Department of Energy’s Green Energy Option Program (GEOP), the firm has made significant strides in cutting down emissions related to electricity. This program enables consumers to switch from conventional energy supplies to renewable sources within the country. Part of the Firm’s portfolio of initiatives includes producing thought leadership reports and articles on sustainability and relevant regulations surrounding it, as well as crafting the annual SGV Sustainability Report and Beyond the Bottom Line publications.SGV has further strengthened its capabilities to confront climate-related challenges by establishing a robust climate risk advisory team composed of climate science, geology, and engineering professionals. This strategic development equips the firm to analyze projected climate hazards, develop localized climate hazard information, and perform in-depth vulnerability assessments across assets and portfolios — overcoming a major hurdle in crafting effective climate resilience strategies for its clientele.Advancing the country’s sustainability journeyToday, Philippine companies are not only safeguarding their future – they are actively shaping the narrative of sustainable development within the country. As we can see from the above examples, businesses, in close cooperation with Government, are pivotal in steering the country toward a resilient, sustainable trajectory.In a rapidly evolving business landscape, further shaped by the pressing imperatives of climate dynamics, trailblazing entities can offer blueprints for action. Through innovative approaches to the intertwined risks and opportunities of climate change, companies can find new ways to gain a competitive edge in an economy increasingly defined by sustainability. Bonar A. Laureto is a Sustainability Services Principal of SGV & Co.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.

22 April 2024

Ana Katrina C. De Jesus

Achieving transfer pricing certainty

Global tax reforms are leading to double taxation risks, which are significantly altering businesses' approaches to transfer pricing certainty and operational transfer pricing needs. Other key concerns include inflation, increased focus on enforcement by tax authorities, environmental, social, and governance (ESG) pressures, advancements in transfer pricing related technologies, such as generative artificial intelligence (GenAI) and transfer pricing dispute resolution tools, and changes in supply chain.EY recently released the results of the 2024 International Tax and Transfer Pricing Survey, which sampled 1,000 senior tax and finance professionals from large companies in 47 jurisdictions across 19 industries. The survey, which was conducted by an independent provider, highlighted the increasing need for businesses to implement robust transfer pricing policies given new international tax risks. This article will tackle the concerns, challenges, and considerations that were identified by surveyed tax and finance professionals.The role of transfer pricingHistorically, transfer pricing has followed a linear approach that comprises planning, implementation, compliance, and controversy. With the changing landscape, tax and transfer pricing professionals need to engage more strategically with the broader business, considering the rapid increase in double taxation risks and external pressures. Tax audits are expected to increase and intensify, with transfer pricing identified as a top risk area. Tax authorities are now going beyond traditional, functional interviews by processing more details about taxpayers’ global operations, including how tax obligations and business activities align in specific jurisdictions.The data accessed by tax authorities in this evolving tax controversy landscape can be utilized by GenAI and related technologies, allowing them to conduct the audit and process data more effectively. Public regulatory filings, social media profiles, news articles and intellectual property registrations are some sources of information that tax authorities can analyze to evaluate risks and challenge a taxpayer’s position. In the Philippines, the Bureau of Internal Revenue (BIR) identified the creation of a Transfer Pricing Office as a priority program for 2024. The new office will be expected to monitor compliance with transfer pricing documentation requirements, including the preparation and maintenance of local files, master files, and country-by-country reports (CbCR). These will be done pursuant to the minimum standards of the BEPS Action Plans as basis for strategic decision making and managing tax compliance risks. Consequently, the BIR will be keeping a keen eye on cross-border transactions to ensure fair and accurate allocation of costs and profits. The need to standardize data to manage tax controversyTraditional transfer pricing operations are labor-intensive, especially those focused on compliance. Reconciliations and adjustments should ensure that intercompany pricing policy continuously occurs throughout the year, and not just by the end. Gathering the required data for fact-finding, such as financials, taxes, and supply chain information for open years, becomes a challenge when sourced from multiple systems and jurisdictions. This is particularly evident in tax audit cases because taxpayers are expected to respond within a limited period.Increased technology adoption can enable traditional operations and compliance functions in this changing landscape. Taxpayers must plan ahead to harness the power of data, systems, and technology. Investing in data strategy system improvement and advanced operational transfer pricing technology or partnering with a service provider who has built these capabilities can facilitate transfer pricing certainty.Likewise, tax and transfer pricing professionals may resort to GenAI tools to align the group’s transfer pricing policies while identifying and addressing tax risks. This will revolutionize how professionals prepare, analyze, and present data to ensure that their positions are clear, defensible, and easily understood. With the rollout of Pillar Two and disclosure of CbCR in a number of tax jurisdictions, businesses must standardize their internal data to efficiently manage tax authority controversy and Pillar Two calculations. The Philippines has recently accepted the invitation from the Organization for Economic Co-operation and Development (OECD) to join the Inclusive Framework on BEPS, but the country has yet to see local adoption of the Pillar Two rules. To be proactive, tax and transfer pricing professionals should start standardizing their internal transfer pricing data.Transfer pricing certainty through dispute resolution programsTransfer pricing certainty can be realized through various factors, such as increasing interest in advance pricing agreements (APA), mutual agreement procedures, and other dispute resolution programs by tax administrations. In some tax jurisdictions, the International Compliance Assurance Program (ICAP) is considered as a pre-filing and dispute resolution mechanism. Moreover, the ICAP coordinates between a multinational enterprise (MNE) group and multiple tax administrations through the effective use of transfer pricing documentation, including the MNE group’s CbCR to improve multilateral tax certainty.In the Philippines, there have been discussions on the upcoming release of the APA Guidelines to fortify transfer pricing implementation. APA is a mechanism where the tax authority and the taxpayer would agree in advance on the appropriate set of criteria (e.g. transfer pricing method, comparables and appropriate adjustments) to ascertain the transfer prices of controlled transactions over a fixed period of time. Tax and transfer pricing professionals foresee that unilateral APAs will be useful to manage transfer pricing related controversy. How can professionals prepare for the new reality?Tax and transfer pricing professionals highlight escalating concerns regarding double taxation and broader tax and legislative changes, emphasizing the emergence of a new era where businesses are seeking more certainty in their transfer pricing positions.Some measures that companies can take include: focusing on transfer pricing certainty, mapping out future and current dispute resolution mechanisms, centralize processes around standard data to decrease risk, prepare for increasing application of data to define the company’s transfer pricing approach. These measures, naturally, will require the cooperation and support of the company’s C-level executives. Realizing transfer pricing certaintyTax and Finance departments should prioritize transfer pricing certainty through standardized data, modified processes, and technology adoption to facilitate dispute resolution. Tax and transfer pricing professionals should collaborate more closely with the C-suite in making business decisions to enhance certainty from the outset of any business changes and to effectively navigate the evolving regulatory environment.Internally, tax and transfer pricing policies should align with the organization’s broader public image. Externally, pre-filing and dispute resolution programs should be considered.Preparation is also key. Taxpayers that invest in modern transfer pricing approaches will be adequately equipped to engage with tax authorities in future controversies and better support their positions. Finally, tax and transfer pricing professionals must recalibrate and adapt their strategies in response to the changing global tax and economic landscape. Ana Katrina C. De Jesus is a Tax Principal of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

22 April 2024

Rossana A. Fajardo

How can shifting dynamics help revitalize your workforce

In the aftermath of the COVID-19 pandemic, the Philippine labor market has shown a remarkable recovery and transformation. Comparing data from Philippine Statistics Authority (PSA) Labor Force Surveysin April 2020 and February 2024, an increase in employment rates — from 82.4% to 96.5% — has been noted. This represents a substantial growth of 15.15 million in the workforce, showing a robust entry of the working-age population into active employment since the onslaught of the pandemic.Amidst the broader economic rebound, one of the most striking differences that can be derived from the pre-pandemic and post-pandemic Labor Force Surveys is the reduction of average weekly work hours in the country, from 43.2 hours in 2019 to 40.1 hours in 2024. It coincides against a backdrop of strong economic recovery post-pandemic. According to the Philippine News Agency (PNA), the Philippine government’s official web-based newswire service, the economy continued to flourish after a sharp rebound to 5.6% GDP growth in 2021 from the 2020 downturn. According to the DOF, it achieved an unprecedented 7.6% growth in 2022, and last year, the country posted 5.6% growth, making it the fastest growing economy among its peers in the Association of Southeast Asian Nation (Asean).This three-hour reduction might seem modest, but it serves as a microcosm of current global trends that have been magnified by the pandemic. These include the rapid adoption of remote work, increased flexibility, and a broader cultural shift towards the “Great Rebalancing” — a movement to recalibrate work policies and prioritize employee well-being and personalized work arrangements, often entailing shorter hours.Today, employees are motivated by the desire for more comprehensive total rewards packages, improved well-being, and the necessary skills to thrive in a world that increasingly values work flexibility.According to the EY 2023 Work Reimagined Survey, these trends are integral to the seismic shifts defining the “next normal” in work. This survey was conducted through an anonymous online poll involving 17,050 employees and 1,575 employers across 25 different sectors and more than 20 geographies, including the Americas, Asia-Pacific (including Southeast Asia (SEA) — Indonesia, Malaysia, the Philippines and Singapore), and EMEIA (Europe, the Middle East, India, and Africa). The survey underscores distinct perspectives on work between employers and employees, particularly regarding the balance of power in the workplace. It highlights that while employers generally believe economic challenges will reduce employee turnover, as many as 34% of employees are considering changing jobs within this year. It also shows that as hybrid work evolves, it demands a deeper understanding of how technology, office infrastructure, and employee amenities impact productivity, organizational cohesion, and trust. Rebalancing power dynamicsTraditionally, employers held more influence and control in the workplace. However, perceptions have shifted since the pre-pandemic period, with fewer respondents now believing that employers maintain the upper hand.Interpreting current market conditions from different perspectives can influence how employers and employees perceive each other. For example, the disparity in their views on financial pressures can create an imbalance in workplace power dynamics. This imbalance is evident in survey findings, where only 47% of employees believe their organization is facing growth or profit challenges, compared to 61% of employers.Rightsizing rewards, boosting retention ratesTo secure sought-after skills, organizations must develop talent from within or recruit new hires effectively. One way to do this is to ensure that compensation and career opportunities are competitive, both internally and externally. Both employees (80%) and employers (79%) surveyed also agree that “total rewards” programs need “moderate” to “extensive” changes. Total rewards encompass various factors like time off, recognition, well-being, and health and retirement benefits.Organizations can improve their ability to attract and retain talent by developing offerings that enhance the employee value proposition (EVP) through market benchmarking and internal surveys. By restructuring total rewards programs to align with the broader objectives of the EVP, these initiatives can positively impact perceptions of change and transformation, innovative work methods, and leadership approaches.Fostering a people-first cultureA major action point is to define and cultivate a people-first culture – with humans at the center — and emphasizing trust. However, only 64% of employees surveyed agreed with the statement that employees feel trusted and empowered by their leaders compared with employers who agreed (81%), showing a 17-point gap.Trust and empathy foster positive results, essential for effective leadership, team cohesion, and organizational success. These work values can be exemplified by transitioning from individual to collaborative thinking — a shift from a “me” mindset to a co-created “we” mindset. Meanwhile, transparency and tracking of behaviors, attitudes, and results from diverse data can help build trust. Understanding these metrics can enhance a sustainable collective mission, purpose, and culture.Enhancing the workplace experienceEmployers and employees hold divergent views on talent, culture, and leadership. Specifically, 76% of employers agreed that “Leadership cares about employees as people,” compared to only 54% of employees. On the other hand, 59% of employees and 78% of employers agreed that “Employees have the ability to innovate and/or have time for unplanned collaboration.”These gaps underscore the need for an overall workplace environment aligned with employees’ realities to foster a more engaging and supportive workspace, thereby boosting satisfaction, retention, and productivity.Reinventing workIn today's work landscape, flexibility in work arrangements is not just desired but expected, especially for knowledge-based roles, with more than a third of employees expressing a preference for full remote work. To adapt, organizations must pinpoint which roles can effectively function remotely and devise comprehensive strategies, leveraging appropriate technologies and refining processes to facilitate seamless transitions to hybrid work environments. This approach should encompass not only work operations but also learning initiatives and the nurturing of company culture.Moreover, establishing guidelines for sourcing talent across different regions can mitigate risks while maximizing the advantages of flexible work for both the organization and its mobile employees. While real estate may not directly impact employee satisfaction, the study shows that it does influence culture, productivity, and retention. Therefore, investing in well-designed spaces that foster social connections and collaboration can yield significant returns.Upscaling AI Both employers and employees recognize the promise of Generative Artificial intelligence (GenAI), which has recently entered mainstream technology discussions. One of the key advantages of this disruptive technology is its ability to generate initial drafts of work, which can then be reviewed and refined by human users.In Southeast Asia, as high as 64% of employees and 86% of employers have a positive outlook on the potential of GenAI to enhance working flexibility. Despite this, only 25% are committed to offering training in GenAI-related skills.In addition to acquiring new technical skills such as in GenAI, organizations must also evaluate employee soft skills such as critical thinking and resilience to ensure that their talent strategies align with business objectives, commitments to diversity, equity, and inclusion (DE&I), and fosters a culture of trust. Redefining workforce dynamicsAmidst the evolving work landscape and dynamics, companies are urged to equip their teams to handle uncertainty and to offer the necessary financial, physical, emotional, and social support to help them excel. More and more, fostering an environment where employees can thrive and better support organizational success is becoming an imperative. Rossana A. Fajardo is the EY ASEAN Business Consulting Leader and the Consulting Service Line Leader of SGV & Co.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.

22 April 2024

Bonar A. Laureto

Charting a resilient future: A business imperative for the Philippines

In an era where climate change reshapes global economies, resilience transitions from a mere buzzword to a fundamental business strategy. For the Philippines, a nation perennially at the crossroads of climatic upheavals, this transition is not just strategic—it's existential. The imperative for climate resilience is underscored by scientific projections, economic analyses, and policy shifts that beckon Philippine businesses toward sustainability and resilience.This article discusses the importance of informed action, strategic foresight, and collaboration in building climate resilience. It highlights the pivotal role of business leadership in promoting sustainability and resilience as key drivers of economic growth and competitive advantage in the Philippines. The second part of this series will focus on practical strategies and success stories, providing a roadmap for businesses to effectively manage climate risk with agility and insight.Understanding climate resilience: A business necessityAt its core, climate resilience involves the capacity of businesses to adapt, survive, and thrive in the face of climate-induced disruptions. This notion gains prominence against the backdrop of the Philippines' acute vulnerability to climate risks, highlighted by its ranking on Germanwatch’s most recent Global Climate Risk Index, an annual report that analyzes the effects of weather-related loss events. Germanwatch is a non-profit organization that monitors global climate policies and human rights issues. Moreover, a recent publication from the Swiss Re Institute, a leading wholesale provider of reinsurance, highlights the economic impact of climate change, identifying the Philippines as the country most economically exposed to weather-related perils like floods and tropical cyclones. In addition, new research by international journal Nature, titled The economic commitment of climate change, suggests that the world economy is committed to an income reduction of 19% within the next 26 years due to climate change, regardless of future emission choices. These damages outweigh the mitigation costs required to limit global warming to 2 °C by sixfold over this near-term time frame. The World Economic Forum also states that by 2050, climate change will cause an additional 14.5 million deaths and $12.5 trillion in economic losses worldwide. Healthcare systems will see an additional $1.1 trillion burden due to climate-induced effects, with floods, droughts, and heat waves identified as leading causes of climate-related mortality and economic losses, and the rise and spread of climate-sensitive diseases like malaria and dengue. The Philippines typically experiences a significant 3% loss in GDP due to weather events, highlighting the urgency for adaptation measures to mitigate economic losses. The Swiss Re report Changing climates: the heat is (still) on emphasizes the importance of accurately pricing climate change risks to catalyze necessary investments in adapting and resilience-building efforts. The warming world and its implications for the PhilippinesThe Philippine economy, with its significant reliance on agriculture, tourism, and real estate, is particularly susceptible to climate-induced hazards. Flooding and droughts threaten agricultural productivity and asset values, and extreme heat elevates energy demands and costs. Furthermore, typhoons and storm surges can devastate tourism assets, a crucial income source for many communities. With scientists warning of intensified, extreme weather events in a warming world, the cost to the country’s economy can only go up. The insurance industry, grappling with losses from natural catastrophes, echoes this concern, highlighting a burgeoning coverage gap and the escalating cost of insurance in the Philippines. Local perspectivesThe urgency for climate resilience is echoed in the corridors of power, with Philippine President Ferdinand R. Marcos Jr. elucidating the stark reality of the country’s economic exposure to climate risks. In March 2024, the President emphasized the economy's resilience against climate impacts, suggesting that without these challenges, the country's economic strength would be more apparent. He made these remarks to highlight the importance of understanding and mitigating climate risks for economic development. During the APEC CEO Summit in November 2022, the President also underscored the necessity of resilient infrastructure to combat climate threats, further underlining his commitment to climate resilience as a foundational element for the nation's growth. In addition, the country’s Finance Secretary has expressed the need for developing insurance products specifically designed to address climate change-related natural disasters. This underscores his recognition of the increasing importance of adaptive measures in the financial sector to mitigate the economic impacts of climate-related events. Regulatory landscapes and strategic imperativesThe Philippine Securities and Exchange Commission’s mandate for publicly-listed companies (PLCs) to disclose climate hazard exposures and risk mitigation strategies illustrates a pivotal shift toward transparency and accountability in climate risk management. Aligned with global sustainability reporting standards, this regulatory evolution underscores the importance of integrating climate considerations into corporate governance and strategic planning. Similarly, the mandate of the Bangko Sentral ng Pilipinas on environmental and social risk management and climate stress testing for banks systemically integrates climate resilience in the financial sector, influencing corporate strategies across the board.Corporate leadership in actionMany PLC and non-PLC Philippine corporations are proactively bolstering their defenses against climate change, with key industry leaders conducting in-depth climate risk evaluations in line with Task Force on Climate-Related Financial Disclosures (TCFD) guidelines. These comprehensive assessments deploy sophisticated climate models to gauge the potential severity and occurrence rate of climate-related threats, aiming to assess how these factors might impact corporate assets. This forward-thinking approach demonstrates a broader commitment to sustainability and risk management, safeguarding stakeholder interests and ensuring long-term corporate value, which goes beyond standard regulatory requirements.To continue this discussion, the next article will explore how leading Philippine companies are leveraging their proactive sustainability strategies to improve their market position and drive long-term value. Bonar A. Laureto is an Assurance Principal and part of the Climate Change and Sustainability Services team of SGV & Co.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.

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