In August of 2024, the Philippines Senate filed Senate Bill No. 2765 titled An Act Establishing the Framework Strategy on Sustainability Reporting Covering Environmental, Social, and Governance (ESG) Considerations, Institutionalizing Assurance Therefor, and for Other Purposes (hereafter referred to as the "ESG Reporting Act").
This bill seeks to promote and integrate ESG principles into the business practices of corporations by establishing a robust framework and program for sustainability reporting. Currently, this bill has undergone its first reading and is now pending in the committee.
1. Mandatory ESG Reporting
All corporations, both stock and non-stock, registered with the Securities and Exchange Commission (SEC) must submit an annual Sustainability Report in addition to their financial statements and other reports. This requirement applies to both private and public companies, with special provisions for Government-Owned or Controlled Corporations (GOCCs).
The report must include both financial and non-financial information related to ESG. This involves documenting environmental impacts, social responsibilities (e.g., community contributions, labor practices), and governance structures (e.g., corporate ethics, leadership transparency). Additionally, the reports must be publicly accessible, allowing stakeholders to view them during business hours.
2. Integration of Sustainability and Financial Reports
Sustainability reports must align with audited financial statements, presenting an integrated view of a company's financial and ESG impacts. ESG reports should cover the same reporting period as financial statements, enabling stakeholders to gain a holistic view of the company's financial and sustainable practices within the same timeframe.
3. Independent Assurance Requirements
The act mandates Independent Assurance Reports for sustainability disclosures to ensure the accuracy and credibility of ESG data. These reports must be provided by SEC-registered assurance providers who meet SEC-prescribed qualifications, including expertise in ESG standards, independence, and adherence to ethical standards.
4. ESG Code of Conduct
The SEC will establish a voluntary ESG Code of Conduct for providers of ESG ratings and data products, potentially aligned with international guidelines. The SEC is also empowered to issue guidelines, exercise oversight, and ensure compliance with this code to support transparency and credibility in ESG ratings.
5. Incentives and Penalties
The SEC, along with other agencies, may develop a system to incentivize corporations that excel in ESG practices, potentially streamlining regulatory processes or offering other benefits for high compliance.
In terms of penalties, any person certifying a report with incomplete, inaccurate, or false information faces fines ranging from PHP 20,000 to PHP 400,000. Assurance providers who collude with corporate representatives to misrepresent ESG data may be fined between PHP 80,000 and PHP 600,000. Other violations may incur fines up to PHP 1,000,000, suspension of privileges, or disqualification from certain corporate roles.
