The Green Path: the road to sustainable development

SUITS THE C-SUITE By Conrad Allan M. Alviz

Business World (07/10/2017 – p.S1/2)

All of us are under threat. Because of human activity, our planet is now out of balance. Earth’s vital signs are worsening: the planet is warming, CO2 is increasing, sea levels are rising, and numerous species are disappearing. In some parts of the world, people are being driven out of their homes because they have no food to eat and no clean water to drink. We must all take action to save our environment for the sake our future generations.

The Conference of Parties 21 (COP21), in which the Philippines participated, was held in Paris in 2015. It tackled two main issues: climate change and greenhouse gas emissions. COP21 was the first such gathering of concerned nations in over 20 years of United Nations negotiations. It aimed to achieve a legally binding and universal agreement on climate, with the aim of keeping global warming below the disastrous 20C mark. Scientists have noted that the rise in the global temperature is having serious effects on the planet, such as the increase in frequency and intensity of natural disasters.

COP21 has recognized the reality that true, long-term development can only take place if the survival of our planet is also considered. It sought to provide the primary frame of reference for an alternative development path, one that is sustainable and looks at the planet as having a life of its own and capable of reaching a critical state. Individuals, enterprises and governments that advocate the planet’s sustainability for the long-term have taken the so-called green path.

SUSTAINABLE DEVELOPMENT

In 1987, the Brundtland Commission defined sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The direction of sustainable development is to progressively change and sustain growth. This growth should not only focus on quantitative growth but also on qualitative growth.

The concept of sustainable development encourages companies and institutions to implement programs, better manage risks and improve their business operations to enhance economic performance, promote social welfare and community development, and protect the environment.

SUSTAINABILITY REPORTING: AN OVERVIEW

Historically, the performance of a company has been primarily measured through its financial results. Investors only focused on the financial condition and profitability of companies as a basis for allocating funds. This was followed by a significant shift when governance was given weight by investors. In recent years though, climate change and environmental risks have found their way onto the agenda of board discussions. If a company is profitable at a point in time, the next question is “How long can the company sustain its existence and remain relevant to the market?”

Sustainability reporting is becoming a leading business practice. Investors have developed an appreciation for the value of sustainability reporting and has seen the pivotal role of non-financial information (i.e., social, economic and environmental) in their investment decisions. Investors are growing more skeptical and curious, demanding quality information.

Companies are motivated to report non-financial information for a variety of reasons. Big businesses are more likely to report than the small ones, and big companies appear to be influenced by expectations of transparency with stakeholders and differentiation from its competitors. In addition, companies also see sustainability reporting as an opportunity to manage business risks to increase the probability of achieving its business objectives and targets. A joint report by EY and the Boston College Center for Corporate Citizenship titled Value of Sustainability Reporting indicated that the main reasons why companies report non-financial information include: transparency with stakeholders, risk management, stakeholder pressure, building up their competitive advantage and enhancing their brand or reputation.

Reporting companies may be better able to predict and manage risks emanating from the sustainability-related dimensions of business. Engaging in sustainability reporting may allow companies to anticipate and prepare for issues in the communities where they operate, increase agility in process improvements, and anticipate and prepare for future scarcity of resources.

Promoting transparency is also a worthwhile goal since companies can gain significant financial and social benefits from it. Reporting non-financial information has drawn positive reactions from the market, stakeholders and customers. Also, companies who demonstrate a clear sustainability agenda may make themselves more attractive to potential investors because they come across as being competitive and low-risk investment options.

Sustainability reporting could also increase employee loyalty and build a good reputation with future recruits. If employees feel good about the company, it could increase productivity and sense of ownership, thus, positively affecting the company’s overall performance.

Although there is strong evidence that transparency offers a number of advantages that make it more than worth its costs, issuing a sustainability report requires a great deal of work. Based on the survey, the top two challenges in sustainability reporting are the availability of data and data integrity.

Sustainability reporting is not an entirely internal activity. Information needed for sustainability reporting may require working with various departments, as well as subsidiaries and suppliers. For some companies, these suppliers may not be mature enough to support robust reporting or may not yet have adopted the practice of sustainability reporting.

SUSTAINABILITY REPORTING IN THE PHILIPPINES

Even in the absence of a regulatory requirement in the Philippines, over 10% of publicly-listed companies (PLCs) have embarked on sustainability reporting. This demonstrates that sustainability reporting is the way forward and will likely become a mainstream business practice in the country.

On Nov. 22, 2016, the Securities and Exchange Commission (SEC) issued Memorandum Circular No. 19, Series of 2016, which provides for the Code of Corporate Governance for Publicly-Listed Companies. The memorandum took effect on Jan. 1, 2017 and requires all PLCs to submit a new Manual on Corporate Governance to the SEC on or before May 31, 2017. Principle 10 of the memorandum states that “The Company should ensure that material and reportable non-financial and sustainability issues are disclosed.” In addition, Principle 10, Recommendation 10.1 also states that “The Board should have a clear and focused policy on the disclosure of non-financial information, with emphasis on the management of economic, environmental, social and governance issues of its business, which underpin sustainability. Companies should adopt a globally recognized standard/framework in reporting sustainability and non-financial issues.”

Some of the globally recognized standards/frameworks include the Global Reporting Initiative (GRI) Standards by Global Sustainability Standards Board (GSSB), the International Integrated Reporting Framework by International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) Conceptual Framework.

The Implementing Rules and Regulations are expected to be released by the SEC in the near future to provide guidance on the required non-financial information for reports and the basic principles to help companies in preparing sustainability reports.

THE WAY FORWARD

The Philippine government strongly advocates protecting our planet. As Filipinos, we should also do our part to support this objective and join the journey along the green path. Companies must declare their stance on sustainable development and executives must go beyond competitiveness and the bottom line. Businesses can no longer ignore the growing environmental, social and economic issues affecting our society and community. To remain relevant, companies must consider sustainability issues as relevant and sustainable development should bring inclusiveness, shared prosperity and responsible environmental stewardship.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Conrad Allan M. Alviz is a Senior Manager from the Advisory Services Group of SGV & Co.