Sustainability Trends to Watch in 2023
2023 looks to be of greater interest for companies here in the Philippines when it comes to ESG and sustainability, built up on trends that have begun last year and are influenced by policies and regulatory guidelines on how to transition from the old practices in business to ESG-based or sustainable practices in the Philippines.
NRI Manila Branch wishes to share emerging trends in sustainability in the Philippines that should be on the lookout in 2023. In this article, the organization picked up renewable energy in the past, and it adds other topics this time as and upcoming initiatives to watch in 2023.
Accelerate disclosure of corporate greenhouse gas emissions
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Globally, the calculation and disclosure of greenhouse gas emissions from corporate activities has been progressing in recent years. Listed companies in the Philippines also calculate emissions from their own fuel consumption, electricity consumption, and materials procured to manufacture their products, and disclose their emission status on their websites, integrated reports, sustainability reports, and other forms of communication.
Companies disclose their annual results to show how much they have reduced emissions compared to their individual or group-wide emission reduction targets, and the data provides the results of their efforts to reduce emissions. In addition to reducing their own emissions, companies have recently been accelerating their efforts to reduce greenhouse gas emissions throughout their supply chains, and an increasing number of companies are being required to respond to customer requests for providing emission data.
Supply chain refers to the entire flow of a product, from procurement of raw materials and parts to manufacturing, distribution, and sales. Supply chain emissions are not only the emissions of the business itself of one company, but also the total amount of greenhouse gas emissions generated from the entire supply chain, including raw material procurement, manufacturing, distribution, sales, and disposal. When explaining supply chain emissions, Scope 1 (direct emissions of effective gases by the business itself. Scope 2 (indirect emissions from the use of electricity, heat, and steam supplied by other companies), and Scope 3 (indirect emissions other than Scope 1 and Scope 2, which are emissions from other companies related to the activities of the business) are used. Many of you may have heard of those terms. Scope 3 emissions are emissions from raw material procurement, transportation, and product use, which are beyond the direct control of companies. To accurately calculate these emissions, companies will need to work with their suppliers to obtain data of their emissions. Companies that have not yet started to calculate their emissions are expected to receive requests from their suppliers to disclose emissions information.
Setting a global common language of sustainability-related financial disclosures
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In the Philippines, listed companies are required to file sustainability reports under the regulations of the Philippine Securities and Exchange Commission (SEC), but the disclosure standards and frameworks used vary from company to company, with some companies disclosing information in accordance with the GRI, one of the sustainability reporting standards, and others using the SEC’s guidelines. From an investor’s perspective, it is easier to compare if reporting standards are standardized, but the challenge is that currently ESG disclosure landscape is fragmented, not only in the Philippines but globally as well.
In November 2021, the International Financial Reporting Standards (IFRS) established the International Sustainability Standards Board (ISSB) to develop draft standards for sustainability-related disclosures, which are being regulated individually in each region, with the aim of standardizing them at the global level. In March 2022, two exposure drafts of international disclosure standards were released. One of the drafts is “General Requirements for Disclosure of Sustainability-related Financial Information (S1) , and the other is “ Climate-related Disclosures ” (S2). Discussions on the draft are ongoing and the final standard is expected to be released around the first quarter of 2023. Although the Philippine accounting standard PFRS is based on IFRS, it has not yet been determined whether the two IFRS disclosure standards mentioned earlier for sustainability-related disclosures will also be applied in the Philippines anytime soon. Therefore, companies in the Philippines are not affected right now, but we will keep an eye on future announcements by the Philippine Securities and Exchange Commission.
NRI Manila supports companies in the Philippines in navigating through the sustainability and ESG spaces through its Sustainability Service components, and help companies plot their sustainability strategy through culture, systems, and reporting angles before starting on their journey to a more sustainable future.