The Philippines must accelerate the integration of Environmental, Social, and Governance (ESG) practices while strengthening financial resilience to unlock investments and sustain long-term growth, according to a new study by the Philippine Institute for Development Studies.
The paper, “Governance and Value: A Disaggregated Environmental, Social, and Governance (ESG) Analysis of Corporate Financial Performance (CFP) in Philippine Publicly Listed Firms,” highlights the urgent need to broaden ESG adoption—particularly among micro, small, and medium enterprises (MSMEs)—to deepen capital market participation and attract both local and foreign investors.
Covering publicly listed firms from 2015 to 2024, the study finds that governance performance is the most significant driver of firm growth and market-based outcomes, delivering immediate gains in asset expansion and market capitalization.
In contrast, social performance contributes to profitability over a longer horizon, while environmental metrics show weaker and less consistent links to financial performance.
Authored by Michael Angelo Cortez and John Paolo Rivera, the study outlines a phased roadmap to strengthen ESG integration through coordinated action by regulators, corporates, and investors.
Short-term reforms: transparency and disclosure
The study calls for improved ESG disclosure standards to boost investor confidence. It recommends that the Department of Trade and Industry develop sector-specific ESG reporting templates, particularly for mid-sized firms.
It also urges the Securities and Exchange Commission to mandate disaggregated ESG reporting, requiring firms to separately disclose environmental, social, and governance metrics instead of aggregated scores.
“Disaggregated reporting enhances investor insight and enables more accurate benchmarking,” the authors said.
To further improve transparency, the Philippine Stock Exchange is encouraged to incentivize firms that go beyond minimum disclosure requirements under International Financial Reporting Standards (IFRS) 12, particularly on foreign ownership.
Medium-term priorities: linking ESG to capital
The study emphasizes aligning ESG with financing frameworks by integrating ESG considerations into cost of capital and credit ratings, while updating corporate governance codes.
It also proposes the creation of ESG-focused index funds, particularly in key industries such as manufacturing.
State institutions like the Government Service Insurance System and Social Security System, along with private asset managers, are urged to develop sector-specific ESG indices to channel capital toward firms with verified sustainability performance.
Long-term strategy: institutionalizing ESG
Over the long term, the study calls for embedding ESG-finance linkages into the Philippine Development Plan and broader industrial strategies.
Key recommendations include establishing ESG-integrated performance dashboards for listed firms and expanding ESG education and capacity-building initiatives.
“Long-term competitiveness hinges on human capital,” the authors said. “Universities, business schools, and industry associations must integrate ESG-finance education into curricula and executive programs to develop a new generation of ESG-driven leaders.”