SEC adopts rules for ‘greening’ PHL financial sector

The Securities and exchange Commission (SEC) on tuesday said it has adopted taxonomy guidelines on sustainable finance as part of efforts to promote sustainable economic activities.

the agency issued SEC Memorandum Circular 5, Series of 2024, providing for the guidelines on the Philippine sustainable finance taxonomy.

Formulated under the auspices of the Financial Sector Forum, composed of the Bangko Sentral ng Pilipinas, the SEC, the Insurance Commission and the Philippine deposit Insurance Corp., the Philippine Sustainable Finance taxonomy guidelines (Sftg) provide a framework for the determination of the environmental and social sustainability of economic activities and guidance for stakeholders in making wellinformed investment and financing choices.

the Sftg offers a “simplified approach” for the assessment of micro, small and medium enterprises’ activity for financing, to ensure that they were not excluded from participating in sustainable finance.

“With the Philippine Sustainable Finance taxonomy guidelines in place, we hope to channel and amplify more capital toward economic projects that further sustainability goals such as lowering greenhouse gas emissions and bolstering climate resilience, while fostering transparency by reducing the likelihood of greenwashing,” SEC chairman emilio B. Aquino said.

Issuers of securities will have to refer to Philippine Sftg when making investment decisions or designing sustainable financial products and services. they must also comply with the relevant memorandum circulars issued by the SEC when issuing green, social, sustainability and sustainability-linked bonds.

to determine if an economic activity qualifies as environmentally or socially sustainable, and whether its financing can be categorized as aligned with the Sftg, issuers should refer to the enumeration of excluded activity under the Sftg, and determine whether or not the activity complies with Philippine laws.

Issuers should then select the environmental objective of the activity, such as its relevance and strategic alignment; investors or financial institution’s priority; and government and industry guidance.

the SEC said regulated entities should refer to the general guiding questions for the “do No Significant harm (dnsh)” to focus the assessment on the potential or actual harm to another environmental objective.

An activity that falls under the “red ” classification does not meet the higher sustainability ambition of the Sftg or pass the dnsh or minimum social safeguards tests. the classification, however, does not imply that the activity is unsustainable; such an activity may still be eligible for unlabeled financing.