Sustainability agenda: Key regulations and what lies ahead

By: Jesus Lava III and Mariam Hazel Pugoy

THE Philippines' sustainability landscape is fast evolving. As 2024 comes to an end, here's a rundown of sustainability regulations issued this year and the expected regulatory changes that businesses should look out for in 2025 and beyond.

Since the Securities and Exchange Commission (SEC) introduced its Sustainability Reporting Framework in 2019, there has been a notable increase in compliance, with 95 percent of listed companies now reporting on their sustainability initiatives.

This year, the SEC released the revised Sustainability Reporting (SuRe) Form, adding climate-related physical and transition risk assessments, financial impact analysis and climate adaptation plans over the short-, medium- and long-term horizons. The form fully integrates the International Sustainability Standards Board's International Financial Reporting Standards (IFRS) modules S1 and S2, boosting the country's competitiveness on the global stage.

Next year, the SEC will conduct continuous refinement of the jurisdictional roadmap. Mandatory disclosures for Tier 1 (large capital listed), Tier 2 (mid capital listed), and Tier 3 (SME listed and large non-listed) entities will follow in 2026, 2027 and 2028, respectively. We may also see some form of assurance requirement in the future, in line with sustainability reporting developments in other countries.

With mandatory sustainability disclosures on the horizon, 2025 is a good starting point for companies to conduct gap assessments against the SuRe Form and IFRS S1/S2 guidelines, not only to comply with new regulations but also to leverage these in driving transformation and creating strategic value.

Furthermore, companies (especially banks) should assess the impact of climate-related risks on their financial statements and embed climate risks in business risk management, due diligence processes for asset acquisitions and asset valuations.

Sustainable finance

In February, the Bangko Sentral ng Pilipinas (BSP) issued Circular 1187 or the Philippine Sustainable Finance Taxonomy Guidelines (SFTG), requiring banks to assess economic activities based on alignment with environmental objectives (EO) and classify how well each activity contributes to these objectives using a traffic light system.

In November, the BSP released a user guide to facilitate the assessment of whether an economic activity contributes to an EO. By the end of the year, banks are expected to understand and be familiar with the application of the SFTG.

In 2025, the BSP will collect information on the use of the SFTG. Banks that have yet to assess the environmental objectives and traffic light classification for existing economic activities should consider identifying responsible units to perform the assessment. Seeking external support may also be beneficial to ensure compliance within the BSP's timeline.

For banks that have already assessed their activities, external validation will help determine gaps and provide recommendations to streamline the assessment process.

Climate change and decarbonization

In June 2024, the Philippines submitted to the United Nations Framework Convention on Climate Change its National Adaptation Plan (NAP), outlining strategies to reduce vulnerability and significantly enhance the country's resilience to climate-related risks by 2050.

The NAP also introduced priority sectors for adaptation and resilience that include agriculture, fisheries and food security; water resources; health, ecosystems and biodiversity; cultural heritage, population displacement and migration; land use and human settlements; livelihoods and industries; and energy, transport and communications.

Among the next steps stated in the report is the development of sectoral, subnational, local and geographical plans, which will take place until 2050.

Companies with high exposure in the NAP's identified sectors can look into the adaptation priorities and see how they can contribute meaningfully to mitigate the impacts of climate change.

Some notable priorities for agriculture and fisheries with high capital-intensiveness are the expansion of cold storage chains and facilities and improvement of gender-responsive aquaculture infrastructure.

For water and sanitation, among the priorities with high capital-intensiveness are the retrofitting and upgrading of water infrastructure and wastewater treatment facilities.

Transition to low carbon economy

The House climate change committee in August approved the Low Carbon Economy Investment Act of 2023, which mandates large enterprises to develop decarbonization plans and introduces a carbon pricing framework.

Following the approval, the bill advances to the plenary session of the House of Representatives for further debate and voting. If the House passes the bill, it will proceed to the Senate for consideration before it will be presented to the president for signing into a law.

If passed into law, the act will drive regulatory changes that prioritize decarbonization for funding and investments. Companies will be expected to lower emissions as the Department of Environment and Natural Resources, in collaboration with the Department of Trade and Industry, will set a cap on greenhouse gas emissions (GHG).

To provide economic incentives and lessen the impact on businesses, the bill proposes a carbon trading system wherein a company whose GHG emissions are lower than the mandatory cap may sell its excess on the free market to companies whose emissions exceed their caps.

Given the bill's importance in addressing climate change and the significant support it received from lawmakers, it is imperative for businesses to begin the measurement of their material GHG Scope 1, 2 and 3 to have a full understanding of their organizational emissions.

The Philippines has certainly made significant strides over the past year in advancing its sustainability agenda through key regulatory changes. These developments collectively signal the country's strong commitment to sustainable development and a low-carbon future.

Change is underway and business leaders must proactively choose the path of transformation or risk being left behind.

As published in The Manila Times on 30 December 2024. Jesus Ma. Lava III is the ESG assurance leader and Mariam Hazel Pugoy is a manager at the Sustainability & Emerging Assurance practice of Deloitte Philippines