[Ask The Tax Whiz] FAQs on ESG investing in the Philippines 

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The Philippine Tax Whiz explains how ESG investing and sustainability reporting can give companies a competitive advantage and attract more investors

What is ESG, and how does sustainability reporting contribute to its implementation?

ESG stands for Environmental, Social and Governance, and it refers to the strategic framework enabling companies to incorporate these principles into their decision making. These three terms offer a clear and easily understood framework to companies to align their practices with sustainable business standards.

The Philippines adopts sustainability reporting guidelines aligned with ESG issued by the Securities and Exchange Commission (SEC). They outline 7 reporting principles, as well as its internal and external benefits. This enhances transparency and accountability, enabling stakeholders to make informed decisions and helping the company manage its ESG impacts.

The quality of information is crucial for enabling stakeholders to make sound and reasonable assessments of an organization and take appropriate actions.

When and what are the corresponding regulations on ESG in the Philippines?

In 2019, the SEC issued a Sustainability Reporting Guidelines for Publicly Listed Companies (PLCs), requiring them to disclose their sustainability report along with their Annual Report (SEC Form 17-A). This report took effect on March 8, 2019, and emphasizes disclosures on economic, environmental, and social performance to assess a company’s sustainability and identify key topics important to the company. For the first three years of implementation, the SEC will adopt a “comply or explain” approach. 

In addition, the SEC has released a draft memorandum for Green Equity Guidelines to regulate and promote green equity issuance, supporting sustainability goals under the Paris Agreement and United Nations Sustainable Development Goals (SDG). The guidelines aim to attract capital for green businesses and a low-carbon, climate-resilient economy. Companies must generate at least 50% of revenue from green activities, disclose environmental Key Performance Indicators (KPIs), and undergo independent assessments for compliance. The SEC can revoke the Green Equity label if standards are not met. The draft is open for public comment until January 25, 2025.

What is the impact of sustainability reporting compliance on companies in the Philippines, and are there any tax implications?

ESG programs have become key factors for investors. Before the SEC Memorandum Circular No. 4, 2019 was issued, only 22% of listed companies reported on their ESG initiatives. Now, 95% of companies on the Philippine Stock Exchange (PSE) report on ESG, largely driven by major companies. A “comply or explain” approach allows non-compliant firms to provide explanations without penalties. However, failure to attach the sustainability report to the annual report may be subject to a penalty due to an incomplete annual report. The SEC plans to make reporting mandatory in phases, allowing time for smaller companies to comply. 

Companies that adopt ESG practices may be eligible for various tax incentives. For example, the Electric Vehicle Industry Act provides tax incentives for the importation of electric vehicles and their charging stations. Environmental taxes, such as those proposed under the Plastic Bags Tax Act and the Pesticides and Chemical Fertilizers Tax Act. These taxes aim to reduce environmental harm by discouraging the use of harmful materials.  Also, the Renewable Energy Act that promotes the development, utilization, and commercialization of renewable energy may be subject as well for tax incentives such as income tax holiday, tax exemption of carbon credits and others. – Rappler.com

The content provided in this article above is for general purposes only. If you want to know how these regulations affect your business, CONSULT ACG or email us at consult@acg.ph.