Mandatory sustainability reporting has been a long time coming for the Philippines—and it’s coming at a time when there is increased pressure for Asian businesses to demonstrate outcomes, not just report. At no other time could it be truer for companies that reporting comes only after the doing, and there is a need to reflect on how the business is making progress on various sustainability-related issues and truly managing the associated costs.
This is not least because of the recent decree of the Philippine Securities and Exchange Commission (SEC) on sustainability reporting, adding to the overall surge in similar reporting instruments throughout the region. There are also the evolving expectations from the investment community around how companies are managing their environmental, social, and governance (ESG) risks, who’s responsible for it, and ‘why.’
The majority of asset managers and owners in Asia Pacific expect to incorporate more ESG funds over the next few years, based on a recent global survey of institutional investors (representing USD 23 trillion in assets).
Since the first GRI–based report in the Philippines was published almost 15 years ago, one of the first strides in sustainability leadership from the private sector, top companies have collectively produced many sustainability reports over the years. As the rate of reporting will inevitably increase among listed companies, which shouldn’t fall into mere box-ticking exercises (as cautioned by recent research in Hong Kong that listed companies are lagging on ESG), there’s still much to be done—beyond mastery of reporting frameworks, showcasing achievements, or stop-gap measures to announce ‘green’ commitments. The challenge lies not just in normalising reporting (that is, to comply) but ensuring that the principles behind it are channelled toward real change.
Driving action on ESG
Let’s face it. Meaningful sustainability reporting that makes the best use of the data and information and truly reflect progress all year round is a rare breed. Unsurprisingly, command-and-control from regulation can set companies into the tunnel vision of mere compliance, and this can perpetuate reporting without sincerity in action.
It’s tempting to set the sustainability agenda aside and carry on doing bare minimum to comply with the rules (Richard Newell, “Asian greenwashers – keeping them honest,” Asian Investor, 2019) that would actually result in little to no return to the business over the long term.
This is because driving action on ESG is ultimately about a company’s long-term strategic position. It demands a conscious shift toward business not as usual: to understand new risks, and opportunities, when managing the environmental and social impacts of growth—may that be water or food security, inefficiencies from operational waste streams, or the reputational risks from having no sustainability plan at all.
Businesses must contend with the question of how sustainability fits into its own strategy, and ideally, how they can challenge themselves in contributing to address urgent problems in the country and our global society.
Sustainability as a medium for change: three ways to get serious
How can businesses rise up to this challenge and use sustainability as a medium for change? Here are three ways to get serious about stepping up.
1. Develop a strategy and get on with it
Developing a strategy is the most basic change toward pushing for sustainability. With higher scrutiny that companies are now facing, staying reactive or merely responding to external stimuli today can be more costly in the long run.
Having an authentic strategy not only enables the business to chart the way forward on critical issues, but it also empowers the company when addressing and managing the expectations on ESG from stakeholders. Embedding intent within corporate strategy is the very articulation of the commitment to sustainability that many investors are looking for—from large institutional firms to the next generation of investors who are also funnelling new wealth into proven, sustainable companies (indeed, millennials are not to be outdone).
Embedding intent within corporate strategy is the very articulation of the commitment to sustainability that many investors are looking for.
It needs to articulate ambition levels and set targets. These are important so that business leaders know where they are going, why and how. For example, what does it mean for a food company to aspire for community-supported models, and what’s their KPI for inclusivity and the empowerment of local farmers? Similarly, if a business aspires to be the customer’s first choice or have the biggest market share, then it cannot simply ‘cruise along’ when it comes to environmental and social practices and must ensure consistency in those aspects too.
It’s on the basis of a clear, authentic strategy that business demonstrates progress over time (short, medium, and long term)—and when done right, this becomes an animating force that activates sustainability throughout all aspects of the organisation.
Unfortunately, even as companies are under more pressure to ‘have’ sustainability commitments, not everyone gets on with it. An earnest strategy has targets and tracks the progress—rather than be signed off by the Board, communicated once and never again. This is why enlisting the right expertise and external support is not only helpful for companies, but a good indication that they are serious about strengthening their sustainability efforts.
2. Mainstream ESG risks
In this rapidly changing environment, many business leaders have shifted to a conservative stance when it comes to ESG. A company cannot say it manages waste if it only donates food to charities, but does not get to the heart of waste in production, logistics and packaging. A property developer may have stellar green building credentials, but extend no support to its tenants to do the same. As such, companies do not want to talk about their efforts, for fear of wider scrutiny.
The truth is, we are now at a time when pilot and flagship projects are no longer enough. A commitment to carbon emissions reduction needs to go beyond installing LED lights and token solar panels. It has to hit the fuel mix, the way the company selects logistics partners, and even how one manages water sources. How do we shift from picking and choosing ESG challenges to addressing them comprehensively?
Some companies invest in materiality assessment, some do it every year, but few go so far as to show progress on how the most material issues are addressed. Top tip: if certain ESG issues are truly business-critical, they should also surface in the company risk register. They should make it to the agenda for discussion at the risk committee of the Board of directors (who ultimately are accountable for and have ownership of ESG).
If issues such as ageing population, extreme weather vulnerability, cost of labour and training, or rising cost of utilities do not make it to the top table’s agenda, then it will not get top table attention or resources.
Companies like Ayala Corporation have started to integrate ESG into risk management, but in the Philippines not many others have started to think like this. One may say this is too difficult, but if every company is conscious about business continuity, shouldn’t it ensure that it has a handle on key issues like ESG?
The impression is that it is extra work and costs more to overlay ESG risk assessment with regular business risk management. In truth, it actually could save you costs. Mainstreaming ESG means surfacing it in the same risk management process that the business goes through every year.
Consider elevating the discussion to senior management handling enterprise risk management or its equivalent. Speaking to HR about talent attraction and retention may lead to discussions on equal employment opportunities, hiring people with disabilities, or overall inclusion policies. Suddenly, the ‘S’ conversation on employees is no longer a sustainability issue; it quite simply is an HR issue.
It doesn’t just end there. Viewing ESG from this risk lens within business units and other departments leads to identifying opportunities and exploring new models of value creation that will enable the company to stand out from the rest. In managing health and safety risks, for example, what if this involved not just the workplace but also your suppliers’ workplaces and was monitored that way? After all, risk reduction is a major outcome of successfully internalising sustainability throughout the company culture—from the top, down to those on the ground whose day-to-day tasks should activate these commitments.
3. Set the tone: Establish governance
One of the main challenges with ESG and sustainability is the lack of executive leadership champion and governance. There has to be an empowering tone coming from the top to set the pace for progress—that whether the driver for sustainability is resource efficiency or new business development, it informs how the organisation prioritises resources, improves existing processes (eg company-wide policies, position statements), and develops new initiatives.
The sustainability agenda necessitates senior-level ownership, backed by a governance system that starts at the Board level and puts accountability measures in place. Responsibility at the highest level of leadership should provide good indicators that a company is managing ESG risks. Imagine if overseeing material sustainability issues mapped to the Board diversity and expertise, or if a CEO’s KPIs measured blended financial and social value from low-carbon technologies. Governance systems also require a dynamic process to deliver on one’s goals in a way that is aligned to the business.
Make no mistake: what it takes for sustainability to be embedded (and thus, for the company to move faster) directly correlates to leadership support and accountability. At the same time, advocates for reform within the business must bridge siloes across teams and establish mechanisms that the next generations of sustainability champions will inherit. It’s part of stepping up to the long-term view of sustainability by making it everyone’s agenda and ensuring that processes like ESG assessments are transferable and passed on. After all, what will be the long-term value of a company without the environment to resource it and society to do business with?
Pat Dwyer is the founder and director of Hong Kong-based sustainable business consultancy The Purpose Business.
Carissa Pobre is a sustainability advisor at The Purpose Business and leads the consultancyʼs work in the Philippines.
This piece was published with permission from The Purpose Business.