Navigating change: 10 key shifts shaping sustainability in the Philippines

(Second of two parts)

IN BRIEF:

• The SEC’s new sustainability reporting form aligns Philippine companies with global standards, enhancing climate risk transparency.

• The full adoption of IFRS S1 and S2 by 2027 will improve the Philippines’ attractiveness to investors seeking reliable ESG data.

• Innovations in insurance, electric vehicles, green steel, renewable energy and battery storage, and aviation fuel are creating new sustainable investment opportunities.

The Philippines is rapidly embracing a future where sustainability is not just a buzzword but a core aspect of business and economic strategy. Building on the regulatory reforms and market dynamics discussed in the first part of this series, the country is laying the groundwork for a transformative shift towards a more sustainable and resilient economy.

The first part of this article discussed the first five key shifts that are shaping the sustainability landscape in the Philippines, focusing on the implications for businesses and the opportunities for investors in this emerging low-carbon economy. 

This second article examines the key shifts that are influencing this green transition. It will discuss the roadmap for IFRS S1 and S2 adoption, the severity of rising climate-related loss and damage, rising growth in electric vehicle (EV) adoption, emergence of green steel in construction, decarbonization of the aviation industry, and the innovative approaches and opportunities that are emerging for businesses ready to adapt and thrive in this new landscape.

ROADMAP FOR IFRS S1 AND S2 ADOPTIONThe Philippine Sustainability Reporting Committee has proposed a roadmap for the adoption of IFRS S1 and S2, with a transition phase starting in 2025 and full adoption expected by 2027, which was approved by the Philippine Financial and Sustainability Reporting Standards Council (FSRSC) and for approval by the Board of Accountancy. This phased approach allows companies to gradually align their reporting processes with international standards, improving transparency and comparability across the market. As more companies adopt these standards, the Philippines is set to become increasingly attractive to global investors seeking consistent and reliable ESG data, which is crucial for sustainable investment portfolios.

RISING CLIMATE-RELATED LOSS AND DAMAGEThe increasing severity of climate-related loss and damage in the Philippines has led the insurance sector to re-evaluate its risk models. Consequently, premiums for natural catastrophe insurance products are expected to rise, potentially widening the insurance coverage gap. However, businesses that proactively assess facility-level climate risks can better manage these costs. Additionally, this scenario presents an opportunity for insurance companies to develop innovative products that address the unique risks posed by climate change in the Philippines, thereby safeguarding businesses and communities.

GROWTH IN ELECTRIC VEHICLE (EV) ADOPTIONEV adoption in the Philippines is gaining significant momentum, driven by investments in charging infrastructure and partnerships with global EV manufacturers. This trend creates investment opportunities in EV technology, infrastructure, and related services, catering to the growing demand for green mobility solutions in the region.

EMERGENCE OF GREEN STEEL IN CONSTRUCTIONThe construction sector in the Philippines is increasingly turning to green steel to reduce scope 3 emissions. This shift is driven by the need to meet sustainability-linked bond requirements and access capital tied to ESG performance. Green steel, which is produced with significantly lower carbon emissions, is becoming a preferred material in real estate and infrastructure projects. This trend opens new avenues for steel manufacturers and suppliers who can meet the rising demand for sustainable construction materials, aligning with global efforts to reduce the carbon footprint of the construction industry.

The expansion of the electric vehicle (EV) and green steel industries is set to drive increased demand for renewable energy and battery storage. This surge presents significant opportunities for the renewable energy sector, supporting the Philippines’ goal of 50% renewable energy generation by 2040.

DECARBONIZATION OF THE AVIATION INDUSTRYThe Philippine aviation industry is actively pursuing decarbonization strategies, including the production of Sustainable Aviation Fuel (SAF) from biomass feedstock and the implementation of carbon offset initiatives. Government is considering policies that would set clear direction for the use of SAF by airlines, creating a significant investment opportunity in SAF production. Moreover, private-sector companies that rely on aviation services can contribute to this decarbonization effort by purchasing SAF certificates. This approach not only supports the aviation industry’s sustainability goals but also enables these companies to reduce their scope 3 emissions related to air travel and freight, thereby enhancing their overall sustainability profiles.

HOW BUSINESSES CAN ADAPT AND THRIVEAs the sustainability landscape in the Philippines rapidly evolves, businesses must adapt to remain competitive and resilient. The following strategic priorities are essential for navigating this transition:

TRANSFORMING MANAGEMENT SYSTEMS, ANALYTICAL APPROACHESTraditional impact reporting, which often focuses on broad, enterprise-wide metrics, is no longer sufficient. The adoption of IFRS S1 and S2 entails a more detailed, data-driven analysis. Companies need to move beyond basic environmental metrics, employing advanced financial modeling to understand how climate and sustainability risks impact specific business segments. This granular analysis — tailored to the organization’s different business models — enables targeted risk mitigation and strategic planning, ensuring resilience against unique challenges.

For instance, a retail mall and an office building within the same company might face vastly different climate risks, requiring tailored risk management strategies. By embracing this level of detail, businesses can better identify vulnerabilities, develop targeted mitigation plans, and ultimately enhance their resilience to climate-related disruptions.

CLIMATE CONSIDERATIONS IN STRATEGIC PLANNING AND INNOVATIONIncorporating climate-adjusted financials into strategic planning not only helps businesses anticipate disruptions but also allows them to understand the broader shifts in their business ecosystem, driven by sustainability and climate imperatives. For example, as the finance community increasingly values sustainable investments, real estate companies are under pressure to adopt green building practices. This shift creates opportunities for manufacturers of construction materials to innovate and supply eco-friendly products, such as green steel or recycled materials.

By aligning their strategies with these market dynamics, companies can meet the evolving needs of key customers and capitalize on the growing demand for low-carbon solutions across various sectors. This ecosystem viewpoint ensures that businesses remain competitive and relevant in a market increasingly shaped by sustainability considerations.

ELEVATING CORPORATE GOVERNANCE AND OVERSIGHTThe transition to IFRS S1 and S2 significantly broadens the responsibilities of corporate boards, requiring a deep integration of climate and sustainability considerations into governance practices. Boards must ensure that climate-related risks are systematically managed, utilizing advanced tools like scenario analysis and stress testing to evaluate the resilience of the company’s strategies under various environmental scenarios.

Effective governance is also about recognizing and seizing new opportunities. Boards should actively engage in pursuing opportunities identified through strategic planning, such as expanding into emerging markets for sustainable products and technologies. By focusing on both risk management and opportunity capitalization, boards can ensure that the company is not only protected from potential disruptions but also well-positioned to thrive in a changing market.

To reinforce this strategic focus, it’s crucial that executive incentives are aligned with sustainability goals. Linking leadership compensation to the achievement of these objectives ensures that sustainability is embedded in the company’s core strategies and decision-making processes. This governance approach ensures compliance, strengthens the company’s reputation among stakeholders, and positions the business to capitalize on opportunities in the evolving sustainability landscape.

By focusing on these areas, businesses in the Philippines can navigate the evolving sustainability landscape and lead in building a resilient, sustainable future.

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

Bonar A. Laureto is an assurance principal and leads Climate Solutions under the Sustainability Services team of SGV & Co.

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