LISTED companies normally give out annual reports printed on paper to their shareholders, as regulators require them to do so.
Over the years, these reports have become scarce as many opted to publish their reports online to protect the environment and, at the same time, save on printing costs.
In recent years, however, reports printed on paper given out by firms have become thicker, particularly those distributed by conglomerates whose operations are woven into the daily lives of the people—from the moment they wake up until they go to sleep.
This is because conglomerates have started giving out separate reports on their respective sustainability reporting. Ayala Corp. Chairman Jaime Augusto Zobel de Ayala had even commented on the irony that the conglomerate has to print a separate report—and thus, use more paper—that will detail how it is caring for the earth and its inhabitants.
Ayala, one of the first companies that gave out a separate report on sustainability, held in August its first integrated corporate governance, risk management and sustainability summit to push the connection of the three disciplines in their growth strategies.
“We believe that by integrating the three, we will fortify the group’s capacity to function as a more efficient and relevant partner in nation building. To us, sustainability is key to bridging persistent societal gaps that have disenfranchised generations of Filipinos,” Zobel said.
Jaime’s brother and Ayala President and COO Fernando Zobel de Ayala said embracing the Sustainable Development Goals (SDGs) of the United Nations as guiding principles to doing business is a “winning proposition” for the company.
“In my view, we need a deliberate and strong alignment with sustainability principles, and adopt clear and consistent long-term thinking. Complemented by effective execution and meaningful impact in critical sectors. Embracing the SDGs as guiding principles…goes beyond improving a company’s brand; actual economic value is generated, and companies help the country by addressing underserved needs through inclusive business models, products and services,” he said.
Way back the 60s, 70s
Reporting on sustainability
started during the 1960s to 1970s in Europe, and the United States soon followed. During this period, companies in the West began to recognize their important role in society and not just focus on profits.
The “movement”—as people behind it would like to call it—was slow and arduous. It caught on in the US during Earth Day on April 22, 1970, when sustainability reporting first started. Some 17 years later the United Nations adopted the term sustainable development, and it was years later when the UN promoted a set of parameters that it now calls Sustainable Development Goals, or SDGs.
It was only some two to three years ago when local conglomerates started officially adopting the sustainability report, but it seemed uncoordinated and they used several ways of measuring their performance.
The Aboitiz group started to consolidate all their efforts on various disciplines of sustainability last year. The Gokongwei’s JG Summit Holdings Inc. also conducted its own sustainability summit recently, but it was mostly a simple sharing of best practices of each of its units.
New rule
Large enterprises may be prepared by now to comply with the recent memorandum of the Securities and Exchange Commission (SEC) requiring publicly listed companies to submit a sustainability report together with their annual reports starting next year. Smaller publicly listed firms, whether they are prepared or not, have no choice but to follow suit.
The SEC in February issued the “Sustainability Reporting Guidelines for Publicly Listed Companies” through SEC Memorandum Circular 4, Series of 2019, outlining information that covered companies will have to disclose in relation to their nonfinancial performance across the economic, environmental and social aspects of their organizations.
The agency noted that while sustainability reporting is now common practice for companies globally, less than 22 percent of publicly listed companies in the Philippines have published a report on sustainability impacts and performances.
The guidelines also provides a framework for the reporting of covered companies’ contributions toward achieving universal sustainability targets like the SDGs, as well as national policies and programs like AmBisyon Natin 2040.
4 frameworks
The SEC mandated firms to use four of the globally accepted frameworks for reporting sustainability and nonfinancial information: the Global Reporting Initiative (GRI) standards, the International Reporting Council’s Integrated Reporting Framework, the Sustainability Accounting Standards Board’s Sustainability Accounting Standard and the recommendations of the Task Force on Climate-related Financial Disclosure.
The sustainable reports, regulators said, will allow the Philippines and even local companies to tap other debt instruments, such as “green bonds.”
Under the SEC memo, listed firms should disclose information deemed material after undergoing the materiality assessment process provided. 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, the report 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 cite the listed firms’ initiatives to enhance their operations’ positive impacts and minimize the negative impacts.
The societal impact component of the sustainability report 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.
Challenges
Complying with the SEC rule on sustainability reporting, however, is easier said than done.
“We need to data mine and we don’t have that, yet. This is on a different level, such as measuring your greenhouse-gas emissions,” Roel Refran, COO of Philippine Stock Exchange Inc., the operator of the country’s equities market, said.
Refran is referring to the climate-related financial risk disclosures of companies, which he said is too technical to carry out as it needed verifiable data.
Listed companies will be divided in two groups, the financial and nonfinancial. The nonfinancial groups the high-risk companies such as those in the energy and manufacturing sectors. The financial aspect include the banks and insurance firms, all of which will be deemed as “no or less risk.”
“What is important is materiality. You will have to disclose if it is material [to your operations],” Refran said.
The SEC’s “comply-or-explain” approach in the implementation of the rule will be for the first three years, during which the companies would be required to attach the template to their annual reports, but will be allowed to provide explanations for items where they lack data.
The regulator will not penalize companies for failure to provide required material information for as long as they provide sufficient and acceptable explanations. However, failure to attach the sustainability reports to the listed firm’s annual reports is subject to penalty equivalent to that imposed for an incomplete annual report, such as fines of up to P60,000 plus P1,000 per day of delay of filing the amended report.
“We have to walk before we learn how to run,” Refran said, referring to the capability building on the part of the regulator to spot what should be disclosed by the listed firms.
“But this is important,” since it will also be adopted by other exchanges in the region, he said.
Image credits: Nonie Reyes