Effective this year, expect listed companies to attach to their usual annual reports accounts of how they manage their businesses’ impact to the community not just economically, but environmentally and socially as well.
Securities and Exchange Commission’s (SEC) memorandum circular 4-2019 outlines the sustainability reporting guidelines for publicly-listed companies (PLCs) starting this year.
The report should be released together with a listed company’s annual report.
“The guidelines provide 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 SEC said.
The guidelines reflect 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’s Sustainability Accounting Standard and the recommendations of the Task Force on Climate-related Financial Disclosure.
Under the guidelines, listed companies must 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,” the SEC said.
“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,” it added.
“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,” the SEC also said.
The SEC has given companies three years starting this year to adopt to the new rule, and to make the necessary adjustments to adopt sustainability reporting, requiring them to explain, if ever, why they failed to submit a sustainability report starting this year.
Under this “comply or explain” approach, companies are 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 listed companies’ 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,” the SEC said.
Sustainability reporting has become one of the emerging common practice for companies around the world, with 93 peroent of the world’s largest 250 companies and 75 percent of the top 100 companies in 49 countries reporting on sustainability.
The SEC lamented however that in the Philippines, less than 22 percent of listed firms have published a report on sustainability impacts and performances.
Emilio Aquino, SEC chairman, said the guidelines will give companies an idea on how to recognize “how sustainability reporting could benefit companies and subsequently create a positive impact on the economy, environment and society.”
These allow companies to identify, assess and effectively manage sustainability risks and opportunities; and give them an opportunity to make necessary changes in their strategies and business plans to ensure their long-term viability and competitiveness,” he said.
A survey conducted by the CFA Institute in 2017 found that 73 perxent of the respondent-companies 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. 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,” Aquino said.