Environmental, social and corporate governance (ESG) is a serious business.
The term ESG got public attention in a joint report for the U.N. by financial institutions. It was titled “Who Cares Wins.”
Within two decades, ESG grew from a corporate social responsibility (CSR) initiative into a trillion-dollar asset under management industry. Today, regulators started making ESG compliance a key focus.
One country that is getting serious about driving ESG from a country-wide level is the Philippines. In April 2020, the Bangko Sentral ng Pilipinas (BSP) issued a circular on Sustainable Finance Framework. It gave Philippine enterprises a roadmap and guiding principles to mainstream sustainable finance by 2023.
Yet, ESG compliance is not even; it is piecemeal and erratic. In a FutureCFO dialogue, organised by CXOciety and DXC Technology and titled “Cost and Cause: Propelling towards vision 2030 through ESG,” finance leaders from Philippine corporations shared their experience and the significant roadblocks to achieving the BSP’s vision.
Different maturity levels
The 2022 Finance Trends Survey reveals that ESG metrics and measurement will be in the top 10 priorities. It also highlighted that CFOs plan to increase the focus and frequency of ESG reporting in 2023.
During the Dialogue, Philippine CFOs acknowledged the importance of ESG in their objectives. Yet, they also highlighted they are at different points in their ESG journeys.
Some companies like Vista Land & Lifescapes, Energy Development Corporation, and QBE Group Shared Services have been doing it as part of compliance.
“We have already started with our sustainability journey as part of the company's goal. In addition we are a listed company and it is part of the requirements,” commented Brian Edang, CFO & head of investor relations at Vista Land & Lifescapes.
“I can say we are in the middle (of the ESG journey). We have a lot of ESG activities,” said Marlita Villacampa, FVP controller at Aboitiz Equity Ventures, which sees ESG as part of critical compliance.
It is a similar approach at Universal Robina. Rhodora Lao, the company's corporate controller and chief compliance and risk officer, explained that they have several ESG initiatives. While her organisation has had a strategy “for many years” embedded in their individual goals, the work is carried out by “several teams.”
Universal Robina has started to take a more centralised approach. They’ve had a sustainability group managing their ESG journey for some time. “We need to embed it in the strategic goals. So, we look at the contribution to sustainability,” explained Lao.
A major roadblock
Balancing financial objectives and meeting sustainability goals can be challenging. It also needs the correct data.
It is also where many of the Dialogue participants felt lay the first big roadblock. It is not just access to data but consolidating all the efforts to create a single data repository that can be quickly and easily analysed.
“We are focused on many initiatives but do not have a group. We have lots of different groups doing it in their ways,” said Choi.
So, companies like Meralco created a single organisation. “It is hard to determine who will populate the requirements and how we get the data. That’s why we have created an office,” said Amelita Tan, finance process management head at Meralco.
It’s the same reason why Khristine Antonio-Lardizabal, chief financial officer at NutriAsia started doing the same after years of ESG compliance efforts. “Right now, we are forming a sustainability team to consolidate all the efforts into a core function.”
For Rebecca Bautista, AVP business process and digitalization at Aboitiz Equity Ventures, it is not just having a single group or data source. The real benefit lies in creating a single standard.
“We need to measure. But are my measurements done the same way as others? And are we measuring the same parameters,” she added.
Rangnath Deshpande, ASEAN CFO at DXC Technology called for better nurturing. He observed that standardisation and access to the right data are universal ESG problems. But part of the issue also lies with how ESG used to be part of CSR and is now riddled with misconceptions.
Deshpande called for organisations to “nurture our teams” so they are aligned with the ESG goals from the onset.
Another major financial leader concern is whether ESG can financially benefit an organisation. This allows them to take a step beyond ESG being seen as a mere compliance exercise.
Vista Land & Lifescapes’ Edang suggested taking a long-term view on ESG-related costs.
"We see ESG-related cost as a capital expenditure rather than an operating expense. And we look at these costs in a position of strength. We look at it as a CAPEX whose benefit are long-term in nature. You just need to take a position."
Such a position allows companies to reframe the ESG cost-benefit analysis. "Since we are building sustainable cities as part of our SDG activity, why don’t we use this as a unique selling proposition?" Edang remarked.
Even in the short term, you can reframe cost as value. For example, Gil Ramon Veloso, group internal audit head at Del Monte Philippines noted that most companies would likely look at waste water from the perspective of cost and discussions about it would likely revolve around how much will it cost to build a treatment plant or expand the capacity of an existing one.
"However, if we look at it from the value perspective, the discussion would change drastically and most likely revolve around whether such waste water can be converted to energy in scale and how much savings can it generate. The value perspective would drive ESG forward."
Bounty Fresh Group’s Choi noted that to drive the cost-benefit argument forward, it helps if you have a board of directors willing to invest.
For their part, Bounty Fresh Group is looking to increase the utilisation of their investments, “so that’s one way we can talk about balancing cost with sustainability,” said Choi. “It’s not about cost vs. sustainability; rather, it is about rebalancing costs.”
Going beyond technology
Technology has undoubtedly evolved to a level where it can give many of the answers that ESG and finance leaders seek. Today, companies are deploying vast data structures and better pipelines to understand their ESG risk exposure and make suitable adjustments.
But it’s still early days, though. “Looking at the data: there is a challenge in capturing the data for ESG. We have a lot of things to be done regarding how we collect and analyse data,” said Erwin Avante, chief financial officer at Energy Development Corporation.
“We need technology to embed into the operational architecture and requirements. And we need to process all the data. And I am not aware of any tool at this moment that can allow us to analyse all the data for reporting,” said Universal Robina’s Lao.
Edang at Vista Land & Lifescapes wants technology that is automation driven and can operate “without human intervention.”
At NutriAsia, Antonio-Lardizabal is worried about biases in the ESG projects. She’s looking for technology to “broaden the scope of measurements.” “Adding value to the economy is super hard to measure,” she remarked.
Maria Angelica “Ange” Yap at DXC Technology noted that sometimes it is not just technology but how it is used.
“I think the technology is agnostic and flexible enough to give you the report you need. But what I see is that specific companies have specific requirements for reporting and want specific technologies. I think we have not established one source of reporting.”
The people question
Aboitiz Equity Ventures’ Villacampa agreed. “We have a lot of data. But we face talent scarcity to turn it into something productive in the Philippines,” she said, adding that her organisation had to outsource this talent or hire from overseas.
DXC Technology’s Deshpande agreed that we need the right technology. However, he observed that companies tend to see it as a cost exercise instead of a long-term play, as Vista Land & Lifescapes’s Edang highlighted earlier.
“So, we need to look at it from the long-term strategy of this investment. Then you start seeing the returns. And there are a lot of intangible returns as well,” said Deshpande. This includes investment in people.
Aboitiz Equity Ventures’ Villacampa felt that for this to happen, you need a change of culture and mindset. “We need to make ESG part of our lives.”
Mindset shift needed
DXC Technology’s Deshpande noted that any technology or ESG investment needs to be tied closely to business strategy.
“You want the right technology aligned with your business strategy,” he said. “If not, we would not know whether we have achieved what we need to be achieved.”
To take the right approach, Deshpande urged finance leaders to stop looking at ESG as a tick-box exercise.
“We need to get out of that mindset. The responsibility needs to be part of the entire company.”