The Securities and Exchange Commission (SEC) will require, on a comply or explain basis, publicly listed companies (PLCs) to submit sustainability reports starting next year, as part of efforts to help them asses and manage their economic, environmental and social impacts. The Commission on February 15 issued the "Sustainability Reporting Guidelines for Publicly Listed Companies" through SEC Memorandum Circular No. 4, series of 2019, outlining information that covered companies will have to disclose in relation to their non-financial performance across the economic, environmental and social aspects of their organizations. The Guidelines also provides a framework for the reporting of covered companies' contributions toward achieving universal sustainability targets like the United Nations Sustainable Development Goals as well as national policies and programs like AmBisyon Natin 2040. The Commission approved the sustainability reporting guidelines during its en banc meeting last February 12, operationalizing Principle 10 of the Code of Corporate Governance for Publicly Listed Companies. The Guidelines reflects four of the globally accepted frameworks for reporting sustainability and non-financial information: the Global Reporting Initiative's Sustainability Reporting Standards, the International Reporting Council's Integrated Reporting Framework, the Sustainability Accounting Standards Board Page 2 of 3 Office of the Commission Secretary S-309, 3F PICC Secretariat Building Philippine International Convention Center (PICC) Complex Pasay City 888-8141 ; 818-5478 For companies who already have sustainability reports in accordance with internationally recognized frameworks and standards, their reports shall already be considered as their compliance with the reporting template. Companies may choose to attach the whole sustainability report to their Annual Report or just include a statement providing a link to said report. What should be disclosed Under the Guidelines, PLCs should disclose information deemed material after undergoing the materiality assessment process provided under the Guidelines. For economic impacts, this may include material information relating to the companies' contribution to the pool of economic resources that flows in the local and national economy such as data on employee wages and benefits, investments in communities and procurement practices. For environmental impacts, material information may include information on energy and water consumption, materials used, operational sites near protected areas and areas of high biodiversity value outside protected areas, air emissions as well as solid and hazardous wastes. Disclosures should include the PLCs' initiatives to enhance their operations' positive impacts and minimize the negative impacts. For societal impacts, material information may range from employee benefits, diversity and equal opportunity at the workplace and occupational health and safety to customer satisfaction, customer privacy and data security. 'Comply or explain' approach The Guidelines shall be adopted on a comply or explain approach for the first three years upon implementation to give PLCs time to make the necessary adjustments to adopt sustainability reporting. Under the comply or explain approach, companies would be required to attach the template to their Annual Reports but they can provide explanations for items where they still have no available data on. The Commission will not penalize companies for failure to provide required material information as long as they provide sufficient and acceptable explanations. However, failure to attach the sustainability reports to the PLCs' annual reports is subject to penalty equivalent to that imposed for incomplete annual report. Under SEC Memorandum Circular No. 6, series of 2005, erring companies face fines of up to P60,000 plus P1,000 per day of delay of filing the amended report. Page 3 of 3 Office of the Commission Secretary S-309, 3F PICC Secretariat Building Philippine International Convention Center (PICC) Complex Pasay City 888-8141 ; 818-5478 Benefits of sustainability reporting Sustainability reporting has emerged as a common practice for companies globally, with 93% of the world's largest 250 companies and 75% of the top 100 companies in 49 countries reporting on sustainability. In the Philippines, less than 22% of PLCs have published a report on sustainability impacts and performances. "The Guidelines recognizes how sustainability reporting could benefit companies and subsequently create a positive impact on the economy, environment and society," SEC Chairperson Emilio B. Aquino said. "For one, it allows companies to identify, assess and effectively manage sustainability risks and opportunities; and gives them an opportunity to make necessary changes in their strategies and business plans to ensure their long-term viability and competitiveness." A survey conducted by the CFA Institute in 2017 found that 73% of the respondents take into account environmental, social and governance (ESG) issues in their investment analysis and decisions. Sustainability reporting provides institutional investors easy access to ESG information and, at the same time, allows companies to discuss their sustainability performance in a clear and concise manner. "The benefits of sustainability reporting extends to stakeholders," Mr. Aquino said. "It promotes transparency and accountability, empowering employees, customers, suppliers, investors, business partners, local communities, legislators, regulators, policymakers and other stakeholders to make informed decisions as well as contribute to the management of companies' economic, environment and social impacts."

Source: Securities and Exchange Commission

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