Navigating Change: 10 Key Shifts Shaping Sustainability in the Philippines (First Part)

Bonar A. Laureto

IN BRIEF:

 

  • As a signatory to the Paris Agreement, the Philippines is advancing towards a low-carbon economy with the proposed Low Carbon Economy Investment Act, incentivizing decarbonization plans and carbon pricing.
  • New legislation, including the Carbon Rights Act and BSP Circulars on Environmental and Social Risk Management Systems, is set to redefine sustainable investment and risk management in the financial sector.
  • The SEC's upcoming sustainability reporting form aligns with global standards, enhancing transparency and aiding investors in assessing climate-related risks and opportunities.

 

PULL QUOTE: “Philippine regulatory reforms are catalyzing a sustainable transformation, positioning businesses for resilience and investors for informed decision-making.”

 

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The Philippines is at a pivotal moment in its sustainability journey, driven by a blend of regulatory reforms, market dynamics, and heightened climate awareness. These developments create both risks and opportunities for businesses operating in the country and global investors interested in sustainable investments. 

As the nation confronts the realities of climate change and its potential impacts, there is a growing consensus among policymakers, business leaders, and civil society on the need for a strategic and coordinated approach to sustainability. This collective push towards environmental stewardship is shaping new business models and investment strategies that prioritize long-term resilience and ethical practices. The Philippines' commitment to this transition is reflected in a series of progressive policies and initiatives that aim to align economic development with sustainable outcomes.

This first part of the article explores the first five key shifts that are shaping the sustainability landscape in the Philippines, focusing on the implications for businesses and the opportunities for investors in this emerging low-carbon economy. It explores the upcoming Low Carbon Economy Investment Act, the proposed carbon rights legislation, BSP Circulars 1128 and 2022-042, BSP Circular 1187, and the upcoming Philippine SEC sustainability reporting form. 

Upcoming carbon pricing policy – Low Carbon Economy Investment Act (HB 7705)

The proposed Low Carbon Economy Investment Act, or House Bill 7705, is poised to be a transformative force in the Philippines' shift towards a low-carbon economy. This bill mandates that covered enterprises with substantial contributions to the country’s greenhouse gas (GHG) emissions develop decarbonization plans aligned with a pathway to limit global temperature rise to below 2°C. Additionally, it introduces a carbon pricing mechanism for emissions that exceed established milestones, creating a decarbonization fund. This fund will be reinvested into viable low-carbon projects, presenting significant opportunities for enterprises and investors committed to sustainable development.

Proposed carbon rights legislation

The Philippine Congress has introduced the Carbon Rights Act (HB 10635), which aims to address the barriers to investing in carbon forestry and other carbon projects. This legislation seeks to define ownership of carbon rights and establishes mechanisms for their transfer. By clarifying these ownership rights and enabling corresponding adjustments, the bill facilitates the Philippines’ participation in global carbon markets under Article 6 of the Paris Agreement. For investors, particularly those focused on nature-based solutions, this bill presents new opportunities to invest in carbon projects that are critical to achieving global emission reduction targets.

BSP Circulars 1128 and 2022-042 on Environmental and Social Risk Management

The Bangko Sentral ng Pilipinas (BSP) has implemented Circulars 1128 and 2022-042, which mandate financial institutions to integrate Environmental and Social Risk Management Systems (ESRMS) into their credit risk assessments. These regulations compel banks to conduct climate risk assessments, including stress testing, as part of their underwriting processes. Companies with strong sustainability and climate risk management practices are likely to benefit from easier access to finance, while those slower to adapt may face higher borrowing costs. These circulars also ensure that climate risks are systematically integrated into the financial sector, promoting long-term resilience and stability.

BSP Circular 1187 – Sustainable Finance Taxonomy

BSP Circular 1187 introduces the Philippine Sustainable Finance Taxonomy Guidelines (SFTG), a framework that classifies economic activities based on their environmental and social sustainability. The taxonomy uses a "traffic light" system—green for aligned activities, amber for transitional activities, and red for non-aligned activities. This classification is crucial for guiding banks and investors in directing capital toward projects that support climate change mitigation and adaptation. By preventing greenwashing, the SFTG ensures that sustainable finance practices in the Philippines are both transparent and credible.

Upcoming Philippine SEC sustainability reporting form

The Philippine Securities and Exchange Commission (SEC) is set to introduce a mandatory sustainability reporting form for publicly listed companies, requiring disclosures aligned with International Financial Reporting Standards (IFRS) S1 and S2. These standards emphasize the identification and management of climate-related risks and opportunities, encouraging companies to integrate sustainability into their core business strategies. For investors, these reporting requirements will provide critical insights into the sustainability practices of Philippine companies, facilitating more informed and responsible investment decisions.

Charting a sustainable path

The Philippines stands at a crossroads in its sustainability journey, with recent regulatory reforms and evolving market dynamics steering the nation towards a greener future. As climate change becomes an increasingly pressing global issue, the country is responding with innovative and comprehensive legislative measures and initiatives that aim to reduce carbon emissions and promote sustainable practices, while fostering economic growth, enhancing community resilience, and ensuring environmental justice.

The impending introduction of the Philippine SEC's mandatory sustainability reporting form marks a significant step towards greater transparency and accountability in corporate environmental practices. By aligning with international standards, this move propels Philippine companies toward more sustainable operations and equips investors with the requisite information to make responsible decisions. As the nation forges ahead with these regulatory changes, businesses can play a pivotal role in the transition to a sustainable economy, with the potential to set a precedent for other emerging markets in the region.

The second part of this article will discuss the roadmap for IFRS S1 and S2 adoption, the severity of rising climate-related loss and damage, rising growth in electric vehicle (EV) adoption, emergence of green steel in construction, decarbonization of the aviation industry, and the innovative approaches and opportunities that are emerging for businesses ready to adapt and thrive in this new landscape.

 

Bonar A. Laureto is an Assurance Principal and leads Climate Solutions under the 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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