Esg Reporting Act

Senate Offter of tie ma marp TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES First Regular Session 25 AUG -4 P1:04 SENATE RECENCU 6' S. No._ Introduced by Senator Loren Legarda AN ACT ESTABLISHING THE FRAMEWORK STRATEGY ON SUSTAINABILITY REPORTING COVERING ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CONSIDERATIONS, INSTITUTIONALIZING ASSURANCE THEREFOR, AND FOR OTHER PURPOSES EXPLANATORY NOTE Environmental, Social, and Governance (ESG) factors are now recognized as core dimensions of long-term business value and public accountability. ESG refers to how an organization manages its environmental footprint, social impact, and governance practices. These are key elements that influence its financial performance, reputation, and resilience. Globally, ESG has become a fundamental framework for evaluating corporate sustainability and ethical behavior. The United Nations' Sustainable Development Goals (SDGs), the Principles for Responsible Investment (PRI), and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) 1 have all reinforced the importance of transparency and accountability in sustainability practices. Likewise, the Organisation for Economic Co-operation and Development (OECD) Principles of Corporate Governance highlight the need for sound governance structures that integrate sustainability into corporate strategies and disclosures.2 1 TCFD Recommendations accessible at https://www.fsb-tcfd.org/recommendations/. 2 G20/OECD Principles of Corporate Governance accessible at https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0413.

While banks and institutions have already begun to encourage ESG reporting here in the Philippines, the absence of a unified and enforceable national framework results in inconsistent practices, limited comparability, and missed opportunities for integrating sustainability into investment and policy decisions. Establishing a clear and phased framework for ESG reporting ensures that companies disclose material sustainability-related information that is reliable, consistent, and useful to investors, regulators, and the general public. Furthermore, recent global developments in corporate disclosure standards, such as IFRS S1 and S2 issued by the International Sustainability Standards Board (ISSB), now require companies to report on sustainability-related risks and opportunities alongside traditional financial information. These frameworks promote the simultaneous filing of sustainability disclosures and audited financial statements, recognizing the critical link between financial performance and non-financial sustainability factors. Integrated reporting offers stakeholders a holistic understanding of a company's value creation and risk profile. 3 This measure seeks to establish a national ESG Reporting Framework that mandates sustainability reporting for large corporations, encourages compliance among micro, small, and medium enterprises (MSMEs) through incentives, and institutionalizes assurance mechanisms to improve the credibility of disclosures. It further requires all government entities to include ESG components in their annual reports, thereby embedding sustainability practices across both public and private sectors. Crucially, this bill also positions the Philippine government as a leader in ESG integration. For the first time, all government agencies (national departments, constitutional offices, GOCCs, and LGUs) will be required to include ESG components in their annual reports. This mainstreams sustainability principles into the public sector, reinforces government accountability, and sets a clear example for the private 3 BC1. Based on ISSB, a company would need to report sustainability-related financial information at the same time and for the same period as its annual financial statements. This is consistent with sustainability reporting proposals in certain jurisdictions including the EU, but not in other jurisdictions where sustainability-related information may be published after the financial statements. Many respondents supported reporting sustainability-related financial information at the same time as the financial statements. This would facilitate greater connectivity between sustainability-related financial information and financial statements, supporting capital allocation decisions.

sector to follow. By making ESG reporting a shared responsibility, the government affirms its commitment to climate goals, social equity, and good governance as essential pillars of national development. By adopting this legislation, the Philippines moves closer to a future where economic growth is pursued in tandem with environmental responsibility, social equity, and good governance. In view of the foregoing, the passage of this bill is earnestly sought. LOREN LEGARDA

as Office of the eurelary TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES First Regular Session 25 AUG -4 P1:04 SENATE RECEIVED 9% S. No._ Introduced by Senator Loren Legarda AN ACT ESTABLISHING THE FRAMEWORK STRATEGY ON SUSTAINABILITY REPORTING COVERING ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CONSIDERATIONS, INSTITUTIONALIZING ASSURANCE THEREFOR, AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled: CHAPTER I GENERAL PROVISIONS

Section 1. Short Title. — This Act shall be known as the "ESG Reporting Act."

Sec. 2. Declaration of Policy. - It is the declared policy of the State to: (0)

5 promote sustainability reporting in the corporate sector; (ii) guide companies in 6 assessing, measuring, monitoring, reporting on, and disclosing non-financial and financial aspects of their ESG initiatives and programs; (iii) align with globally- recognized standards on the integration and connection of sustainability and financial information to address the needs of the primary users of such information; and (iv) assist companies in achieving the universal targets of sustainability, aligned with the United Nations Sustainable Development Goals, as well as with national policies and programs, such as Ambisyon Natin 2040.

Sec. 3. Definition of Terms. - For the purposes of this Act:

a) Assurance refers to the act or process where an independent provider aims to obtain sufficient appropriate evidence in order to express a

conclusion as to the basis of an opinion, designed to enhance the degree of confidence of the intended users (i.e., investors, lenders, and the general public) about the sustainability and financial information of the reporting entity's sustainability reports and financial statements. This may either be: (i) Reasonable Assurance refers to a high but not an absolute form of assurance in which the assurance provider reduces engagement risk to an acceptably low level in the circumstances of the engagement as the basis for the conclusion of the assurance provider. The conclusion is expressed in a form that conveys the opinion on the outcome of the measurement or evaluation, including presentation and disclosure, of the sustainability matters against the applicable criteria; or (ii) Limited Assurance refers to an assurance in which the assurance provider reduces engagement risk to a level that is acceptable in the circumstances of the engagement but where that risk is greater than a reasonable assurance as to the basis for expressing a conclusion, in a form that conveys whether, based on the procedures performed and evidence obtained, a matter has come to the assurance provider's attention to cause them to believe the sustainability information is materially misstated. The nature, timing, and extent of procedures performed in a limited assurance engagement is limited compared with that necessary in a reasonable assurance engagement; but is planned to obtain a level of assurance that is, in their professional judgment, meaningful. To be meaningful, the level of assurance obtained by the assurance provider is likely to enhance the intended users' confidence about the sustainability information to a degree that is clearly more than inconsequential.

b) Assurance Provider refers to the firm, partner or other individual appointed by the firm, who is responsible for the assurance report and who, where required, has the appropriate authority from a professional, legal or regulatory body. An assurance provider must be independent of the reporting entity; c) Corporation refers to an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence; d) Environmental, Social and Governance (ESG) Reporting or Sustainability Reporting refers to an organization's practice of reporting publicly on its material economic, environmental and/or social impacts, in accordance with globally accepted standards as adopted by the Securities and Exchange Commission; e) Errorrefers to the effects of mathematical or clerical mistakes, mistakes in applying the definitions for metrics or targets, oversight or misinterpretations of facts, or unintentional misapplication of policies; f) Financial regulators refer to the Securities and Exchange Commission (SEC), Bangko Sentral ng Pilipinas (BSP), and the Insurance Commission (IC); g) Firm refers to a form of partnership of professional accountants registered with the SEC for the purpose of engaging primarily in the general practice of public accounting; h) Fraud refers to an intentional act by one or more individuals, whether from among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage that results in a misrepresentation of sustainability and financial information in the sustainability reports and financial statements; i) Independent Assurance Report refers to a report used as a means by which the assurance providers communicate the outcome of the assurance engagement to the intended users (i.e., investors, lenders, and the general public). It contains a clear expression of the

independent assurance provider's reasonable assurance opinion or limited assurance conclusion about the sustainability and financial information; j) Material Information refers to information that reflects the organization's significant economic, environmental, and social impacts that substantively influence the assessments and decisions of stakeholders, including investors. These are matters that substantively affect the organization's ability to create value over the short, medium, and long term. Information is material if omitting, misstating or obscuring that information could reasonably be expected to influence the decisions that primary users of general-purpose financial reports make on the basis of those reports, which include financial statements and sustainability- related financial disclosures and which provide information about a specific reporting entity; k) Misstatement refers to the difference between the disclosures and the appropriate measurement or evaluation of the sustainability matters in accordance with the applicable criteria. Misstatements can arise from error or fraud, may be qualitative or quantitative, and include omitted; l) information or information that obscures the presentation of the disclosures; m) Partner refers to any individual with authority to bind the firm with respect to the performance of a professional services engagement. A partner shall be a Certified Public Accountant (CPA) in public practice, supported by climate or sustainability experts, and, when necessary, such other types of subject matter experts; n) Professional competence and due care refer to the fundamental principle that applies to professionals. A professional is required to attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organization receives competent professional service, based on current technical and professional standards and relevant legislation; and act diligently and in accordance with applicable technical and professional standards;

o) Reporting entity refers to an entity that is required to prepare general- purpose financial reports; and P) Sustainability Reporting (SR) frameworks refer to the internationally recognized sustainability-related and financial reporting frameworks, which may consist of a set of sustainability-related principles, standards, and pronouncements for the preparation and submission of reports. These include, but are not limited to, International Financial Reporting Standards (IFRS) on disclosures for sustainability-related financial information, Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), and recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) and the Task Force on Climate-related Financial Disclosures (TCFD).

Sec. 4. Scope and Covered Entities. — This Act shall apply to all corporations,

both stock and non-stock, registered with the SEC. In the public sector, all departments, agencies, bureaus, and instrumentalities of the National Government, including constitutional bodies, government-owned or- controlled corporations (GOCCs), and local government units (LGUs), shall incorporate 19 ESG reporting components in their respective Annual Reports, as mandated under this 20 Act. The Governance Commission for GOCCS (GCG) shall not be precluded from adopting or supplementing sustainability reporting guidelines for GOCCs under its 23 jurisdiction, provided these remain consistent with the framework established by the SEC and the Department of Economy, Planning, and Development (DEPDev). CHAPTER II SUSTAINABILITY REPORTING FRAMEWORK AND REPORTS

Sec. 5. Sustainability Report. - In addition to their Annual Report, audited

financial statements, and other reports submitted to the SEC, all corporations-both stock and non-stock-are mandated to submit their Sustainability Report to the SEC in accordance with the implementation guidelines or directives set forth by the SEC.

1 The provided Sustainability Report must be accessible to the public upon request and 2 can be viewed during reasonable business hours on business days. The Sustainability Report shall include both financial and non-financial 4 disclosures. When certain information about sustainability matters affects the company's financial position, financial operations and cash flows, such information 6 shall be consistent with the disclosures in the financial statements. In accordance with the implementation guidelines issued by the SEC, the following entities shall be required to submit annual ESG or sustainability reports: a) All publicly listed corporations; b) All corporations with total assets or annual gross revenues exceeding One Billion Pesos (P1,000,000,000.00), as may be periodically adjusted by the SEC; c) GOCCs; and d) Such other entities as may be determined by the SEC, based on their scale, sector, or impact. The SEC shall issue implementing rules on the thresholds and coverage, provided that adjustments may be made every three (3) years in consultation with stakeholders. MSMEs, as defined under Republic Act No. 9501 or the Magna Carta for MSMEs, are strongly encouraged to participate in sustainability reporting through simplified mechanisms and incentives. The SEC, in coordination with the Department of Trade and Industry (DTI), DEPDev, and the Micro, Small and Medium Enterprise Development Council (MSMEDC), shall implement a dedicated ESG Support Program for MSMEs, which may include: a) Simplified ESG reporting templates and sectoral guides; b) Free training, workshops, and online tools; c) ESG-linked credit enhancements or access to green financing windows; d) Tax incentives, regulatory support, or procurement preferences for verifiable sustainability practices; and e) Public recognition through a "Sustainable MSME Seal" or inclusion in national sustainability platforms.

For this purpose, the SEC, in consultation with relevant government agencies, 2 shall issue guidelines on the phases of implementation of mandatory reporting on 3 corporations, while ensuring reasonable transition and structural reliefs. For the public sector, all departments, agencies, bureaus, and instrumentalities 5 of the National Government, including constitutional bodies, GOCCs, and LGUs, shall 6 be required to incorporate an ESG Reporting component as part of their existing 7 Annual Reports, in accordance with guidelines to be issued by the DEPDev, in 8 coordination with the SEC, the Commission on Audit (COA), and other relevant oversight bodies. This requirement shall apply to all covered government entities 10 beginning one (1) year from the effectivity of the Implementing Rules and Regulations 11 (IRR) of this Act. The ESG component shall form an integral part of the Annual Report and be submitted to COA and DEPDev, and published on the agency's official website. The Commission on Audit shall have the authority to examine the ESG disclosures in connection with its regular audit functions. All ESG components submitted under this provision shall be compiled by DEPDev into a consolidated National Public Sector ESG Report, which shall be transmitted to Congress every three (3) years.

Sec. 6. Integration and Connection of Sustainability Reports and Financial

Statements. - The connection between the sustainability reports and financial statements is important for stakeholders to provide a holistic view of the company's value creation through the integration of financial and non-financial information. The issuance of sustainability reports shall be authorized by the corporation's board of directors/trustees, in the same manner the issuance of audited financial statements is authorized. Sustainability reports should be filed at the same time and for the same reporting period as their audited financial statements.

Sec 7. Collection and Disclosure Requirements in Annual Report. - The SEC

shall act as the data collector and repository of ESG data submitted by corporations.

Sec. 8. Recognition of International Reporting Frameworks and Standards. -

The SEC shall have the authority to adopt internationally recognized standards as reporting frameworks and prescribe the most appropriate requirements that shall form part of the applicable reporting framework of the covered entities. In adopting a reporting framework, the SEC shall take into consideration the pronouncements and

1 interpretations of the Philippine Financial and Sustainability Reporting Standards 2 Council and the financial regulators. At all times, the adoption of a reporting 3 framework shall incorporate the principles of proportionality and structural reliefs to 4 avoid any unnecessary administrative burden to the reporting corporation.

Sec. 9. ESG Code of Conduct. - The SEC shall formulate a voluntary code of

6 conduct for ESG ratings and data product providers (ESG Code of Conduct). For this 7 purpose, the SEC may consider the adoption of an internationally recognized, 8 interoperable, and proportionate ESG Code of Conduct. The SEC shall likewise issue 9 the relevant guidelines, and exercise such necessary and reasonable powers, for the 10 effective enforcement of this ESG Code of Conduct. CHAPTER III ASSURANCE

Sec. 10. Independent Assurance Reports. - To establish transparency,

14 credibility and reliability of disclosed sustainability and financial information, the 15 sustainability reports and financial statements filed and submitted to the SEC and 16 other relevant agencies shall be covered by an Independent Assurance Report from a 17 duly registered assurance provider. The Independent Assurance Report may be a Reasonable or Limited Assurance as defined in this Act. Climate-related disclosures in 19 the sustainability report shall be subject to Reasonable Assurance or Limited 20 Assurance, while other sustainability disclosures outside of those climate-related shall 21 be subject to Limited Assurance, or as needed to be determined by the SEC. The SEC, in consultation with relevant government agencies, shall issue guidelines on the phased implementation of the Independent Assurance Report requirements.

Sec. 11. Assurance Providers. - All assurance providers engaged to provide

assurance services over sustainability reports and financial statements of the covered entities shall be registered with the SEC. All SEC-registered corporations shall engage assurance providers of sustainability reports and financial statements duly registered with the SEC.

For this purpose, the SEC shall prescribe the qualifications, requirements and 2 procedure for registration as an assurance provider of sustainability reports and financial statements within the coverage of this Act. Subject matter competency, industry knowledge, and levels of training shall be required for all assurance providers. Further, the SEC shall exercise such adequate level of oversight on the 6 assurance providers for sustainability reports and financial statements through, among 7 others, inspection programs, supervision of activities, monitoring, enforcement of 8 compliance, and imposition of sanctions over registered assurance providers.

Sec. 12. Professional Standards for Assurance Providers. - The SEC shall adopt

10 and prescribe internationally recognized professional standards for sustainability assurance engagements, including ethical and independence requirements, internal controls, and quality management systems. For this purpose, the SEC may consult relevant stakeholders, including standard-setters, financial regulators, and other government agencies.

Sec. 13. Independence and Ethical Requirements. - All registered assurance

service providers shall fully meet the requirements of independence and ethical requirements as provided for in the Code of Ethics for Professional Accountants in the Philippines and this Act. CHAPTER IV POWERS AND FUNCTIONS OF SEC

Sec. 14. Powers and Functions of the Sec. - The SEC, as the lead agency, shall

have original and primary jurisdiction in the enforcement and implementation of the provisions of this Act, and its implementing rules and regulations. In addition to the express powers granted under this Act, the Revised Corporation Code (RCC), Securities Regulation Code (SRC), and other relevant laws, the SEC shall also exercise the following powers and functions: (a) Issue such other rules, policies and guidance on sustainability reporting to ensure compliance with international standards and global best practices;

(b) Monitor compliance of the covered entities with the provisions of this Act and its Implementing Rules and Regulations, and such other SEC rules on sustainability reporting; (c) Exercise supervisory and oversight functions over assurance providers of sustainability reports and financial statements; (d) As may be necessary, create an appropriate unit or office within its control to regulate and supervise the implementation of the provisions of this Act; (e) Enlist the aid and support of any and all agencies of the Government, as well as private institutions, corporations, entities or associations, in the issuance of rules and regulations and for proper implementation of its powers and functions; initiatives on (f) Provide and facilitate continuous capacity-building sustainability reporting; (g) Conduct administrative proceedings, impose sanctions, fines or penalties for any non-compliance with or violation of this Act and its IRR; and (h) Perform such other functions as may be necessary to carry out the objectives of this Act.

Sec. 15. Appropriation. - The funding requirements for the implementation of

this Act shall be charged against the operating budget of the SEC. In this regard, the SEC shall be authorized to collect, retain and use the fees, fines, and other charges collected pursuant to this Act and its IRR. The amount collected shall be deposited and maintained in a separate account, which shall form a fund to be utilized exclusively for the implementation of this Act, including the promotion of sustainability reporting. The funding requirements of other government agencies shall be charged against their respective budgets.

Sec 16. Incentives. - The SEC and other concerned government agencies may

establish a system of rewards and incentives, including streamlined regulatory processes, based on a reporting entity's demonstrated commitment to ESG practices, policies and reporting.

CHAPTER V PROHIBITED ACTS AND PENALTIES

Sec. 17. Willful Certification of Incomplete, Inaccurate, False; or Misleading

Statements or Reports; Penalties. - Any person who willfully certifies a report required under this Act, knowing that the same contains incomplete, inaccurate, false or misleading information or statements, shall be punished with a fine ranging from Twenty Thousand Pesos (P20,000.00) to Two Hundred Thousand Pesos 8 (P200,000.00). When the wrongful certification is injurious or detrimental to the 9 public, the assurance provider or the responsible person may also be punished with 10 a fine ranging from Forty Thousand Pesos (P40,000.00) to Four Hundred Thousand Pesos (P400,000.00).

Sec. 18. Collusion by the Assurance Provider; Penalties. - An assurance

provider who, in collusion with the corporations directors or representatives, certifies the corporation's sustainability reports and financial statements despite its incompleteness or inaccuracy, its failure to give a fair and accurate presentation of the corporation's condition, or despite containing false or misleading statements, 17 shall be punished with a fine ranging from Eighty Thousand Pesos (P80,000.00) to Five Hundred Thousand Pesos (P500,000.00). When the statement or report 19 certified is fraudulent or has the effect of causing injury to the general public, the 20 assurance provider or responsible officer may be punished with a fine ranging from One Hundred Thousand Pesos (P100,000.00) to Six Hundred Thousand Pesos (P600,000.00).

Sec. 19. Administrative Penalties. - Any violation of this Act, its IRR and other

related regulations shall be subject to the following administrative penalties: 1. Imposition of a fine of not less than Ten Thousand Pesos (P10,000.00) but not more than One Million Pesos (P1,000,000.00), plus not more than Two Thousand Pesos (P2,000.00) for each day of continuing violation; 2. Suspension or revocation of any registration for the offering of securities; 3. In case of material misrepresentation or misstatements in the Sustainability Report, disqualification from being an officer, member of the Board of Directors, or person performing similar functions;

4. Imposition of monetary penalties not exceeding Five Hundred Thousand Pesos (P500,000) and/or disciplinary measures to registered assurance providers in case of non-compliance of professional standards, misconduct or breach of independence and ethical requirements as required in this Act; and 5. Suspension or revocation of the assurance providers' registration with the SEC; Provided, that the fines and penalties imposed under this Act shall be without 9 prejudice to the administrative penalties that the SEC may impose pursuant to the 10 RCC, SRC, and other relevant laws and regulations. CHAPTER VI MISCELLANEOUS PROVISIONS

Sec. 20. Open Government, Transparency, and Public Disclosure. - In

accordance with the principles of open government and the public's right to information, the SEC and the DEPDev shall ensure the transparent collection, use, and dissemination of ESG data submitted under this Act. The SEC shall maintain an open-access digital portal where ESG reports and independent assurance statements of covered private entities are published and made available to the public. DEPDev shall likewise publish a summary of ESG compliance trends, analyses, and performance findings for the public sector, based on the ESG components submitted through agency Annual Reports. These publicly available disclosures shall serve to inform stakeholders, improve investor and citizen awareness, and guide future policy development and oversight. All published data shall be regularly updated, searchable, and presented in accessible formats, consistent with the Data Privacy Act and applicable transparency laws.

Sec. 21. Implementing Rules and Regulations. - Within ninety (90) days from

the approval of this Act, the SEC, in consultation with DTI, CCC, DEPDev, COA, and other stakeholders concerned, shall formulate and promulgate the necessary rules and regulations to effectively implement the provisions of this Act.

Sec. 22. Separability Clause. - If any part or provision of this Act is declared

2 invalid or unconstitutional, such declaration shall not affect in any manner other parts or provisions hereof.

Sec. 23. Repealing Clause. - All laws, decrees, proclamations, issuances or

ordinances that are contrary to or inconsistent with the provisions of this Act are hereby amended, repealed or modified accordingly.

Sec. 24. Effectivity. - This Act shall take effect fifteen (15) days after its

publication in the Official Gazette or in a newspaper of general circulation. Approved,