Making progress in sustainability efforts

MANILA, Philippines — The conversation on sustainability can no longer be avoided for businesses. Based on results of PWC’s latest Global Investor Survey, 50 percent of investors say that it is very or extremely important that companies change the way they create, deliver and capture value in response to climate change. On top of this, 71 percent of investors said companies should incorporate environmental, social, and governance (ESG) or sustainability into their corporate strategy.

Around three-quarters of survey respondents also said they would moderately or significantly increase their investment in companies that are taking certain climate-related actions. These include working with suppliers and communities to build sustainable value chains (80 percent), innovating products and services that enable customers to adapt to or mitigate the impacts of climate change (77 percent), building resilience against physical climate risk (73 percent), and increasing the use of renewable energy (72 percent).

These sentiments show the importance of sustainability initiatives in attracting investors.

Sustainability reporting

With the emphasis put on ESG efforts in recent years, a lot of businesses in the country — especially the larger ones — have already made their respective efforts in this area, while also acknowledging the need to discuss more on this through issuing sustainability reports.

As early as 2019, the Security and Exchange Commission (SEC) issued guidelines for publicly listed companies on sustainable reporting. The commission said the guidelines intend to help PLCs assess and manage non-financial performance across economic, environmental and social aspects of their organization as well as measure their contributions to sustainability targets such as the United Nation’s Sustainable Development Goals.

According to the SEC, it was able to increase sustainability reporting compliance among PLCs to 95 percent in 2023, from 22 percent, before the implementation of the guidelines in 2019. It attributed the increase to its capacity-building programs that sought to increase awareness of the importance of measuring sustainable practices.

“The corporate sector has a big role to play in ensuring that we achieve the UN Sustainable Development Goals. As a regulator, the SEC is committed to integrating sustainable practices within our organization and in the rules and regulations that we implement, in order to contribute to the overall goal of reducing the impacts of climate change,” SEC Chairperson Emilio Aquino said in an earlier statement.

In November, the SEC received for the third time the top honors from the United Nations Conference on Trade and Development (UNCTAD) for promoting sustainability reporting, receiving the International Standards of Accounting and Reporting Honors in the national category for empowering small, medium and large enterprises (SMLEs) in reporting their contributions to the fulfillment of national and global sustainable development goals.

The ISAR Honors recognizes policy, institutional or capacity-building initiatives that encourage and assist businesses to publish their contribution to the implementation of the 2030 Agenda for Sustainable Development and facilitating the dissemination of good practices in sustainability.

The SEC previously received the ISAR  Honors in 2019 for mandating sustainability and SDG reporting for PLCS, and in 2022 for conducting capacity-building programs to guide them in preparing their annual sustainability reports.

SME competitiveness

Adopting ESG principles is not only for large corporations, but is also vital for small and medium enterprises (SMEs) as it will inevitably impact their operations, competitiveness, and survival in supply chains.

“Even if ESG regulations usually target larger firms, SMEs are impacted through their role in supply chains,” said Jorge Ramirez, senior program officer at the International Training Centre of the International Labor Organization (ITCILO).

In a recent info session in Makati, Ramirez said SMEs should start giving serious thought to understanding and complying with ESG requirements, especially if they are suppliers to foreign buyers or part of supply chains as aligning with ESG standards helps SMEs avoid fines and maintain market access.

He added that while ESG may admittedly be challenging to meet, it offers opportunities to SMEs that manage to incorporate it into their processes.

One of these opportunities is access to finance as ESG practices can open doors to green loans and better lending rates. Investors increasingly prioritize ESG, creating opportunities for SMEs to secure financing, Ramirez explained.

He added that ESG can foster creativity and innovation, encouraging SMEs to develop sustainable products and improve their operations, something that can often lead to long-term competitive advantages.

Moreover, Ramirez emphasized that ESG compliance can also improve SMEs’ efficiency and risk management, enabling them to reduce costs and lower their risk exposure to environmental and social factors, thus enhancing their financial stability.

He added that ESG can also help SMEs in engagement and reputation efforts with their customers.

“Engaging with ESG enhances relations with local communities and governments, reducing regulatory risks and improving operational efficiency,” Ramirez said. “ESG boosts company reputation, attracting conscious consumers and increasing customer loyalty, while differentiating SMEs from competitors,” the expert continued.

Impact on real estate

As more businesses walk towards the path of sustainability, they are ensuring that every move they make is aligned with their ESG goals, even in choosing where to locate their operations. This has resulted in the demand for green-certified office buildings as well as rising interest for green features in industrial spaces.

Data from Colliers Philippines showed that in the nine months of 2024, 293,900 square meters of office space were transacted in green buildings with LEED, EDGE, WELL and BERDE certifications or pre-certifications, nearly double compared to the 151,900 sqm in the same period last year.

“Given the heightened importance of sustainability in occupiers’ office requirements, landlords are encouraged to infuse green features into their portfolio,” Colliers said.

It added that major office developers are taking the lead in promoting sustainability in workspaces.

“We see a more pronounced promotion of healthy office space as developers and occupants work together to lure employees back to traditional office setup,” Colliers said.

CBRE Philippines tenant representation director Garri Amiel Guarnes earlier explained that the trend towards sustainability will have implications on the office market in the site selection, negotiation and operation processes.

“From a site selection point of view, it’s now going beyond green certifications. While it’s good that the building has green certifications, occupiers are now looking into other factors: doing environmental due diligence, looking into climate risk assessments not only for the specific building but for the surrounding immediate environment in the vicinity of the building,” said Guarnes, adding that this is  already a major consideration of occupiers before sending a request for proposal (RFP) as well as in the negotiation stages.

“When they do tap the developers for potential transactions, they’re already incorporating green lease clauses into the discussion even before the contract stage. Some occupiers already want commitments from landlords at the LOI (Letter of Intent) stage and some even requiring landlords to make significant investments into their property before the tenant starts their fit-out,” Guarnes said.

Sustainability in industrial zones

The office market isn’t the only real estate sector affected by sustainability-driven goals, as a growing interest for green features is also seen from industrial and logistics occupiers.

Results of CBRE Asia Pacific Leasing Sentiment Survey showed that 58 percent of industrial and logistics occupiers in the region cited renewable energy supply as the most important consideration. Additionally, 53 percent of occupiers also cited green building certification as another important consideration, while 48 percent cited features for better energy efficiency.

CBRE explained that in the Philippines, industrial park or warehouse developers usually leave it to occupiers to implement these green elements to the specific properties they lease out. However, occupiers are now seeking more collaboration with developers for these efforts.

“But the key there is that occupiers’ expectations are already changing. So whereas before the developers really leave it up to them, now they want more collaboration with the developer,” Guarnes said.