I. Background and Scope
The Securities and Exchange Commission
("SEC") issued Memorandum Circular No.
3, Series of 2023 or the Guidelines on the Issuance of
Sustainability-Linked Bonds Under the ASEAN Sustainability-Linked
Bond Standards in the Philippines ("SLB
Guidelines"), which contains the guidelines on the
issuance in the Philippines of Sustainability-Linked Bonds
("SLBs") under the ASEAN
Sustainability-Linked Bond Standards ("ASEAN
SLBS") of the ASEAN Capital Markets Forum
("ACMF"). The SLB Guidelines took effect
on 6 April 2023. The SLB Guidelines primarily govern the issuances
of ASEAN SLBs where the proceeds are intended to be used for
general purposes.
The SLB Guidelines are aligned with the ASEAN SLBS and the
International Capital Market Association Sustainability-Linked Bond
Principles ("ICMA SLBP"). The SLB
Guidelines defined SLBs as any type of bond instrument where the
financial and/or structural characteristics can vary depending on
whether the issuer achieves predefined
sustainability/environmental, social and governance
("ESG") objectives.
The SLB Guidelines supplements the requirements and procedure of
the registration of securities under Sections 8 and 12 of the
Securities Regulation Code
("SRC").
According to SEC Commissioner Kelvin Lester Lee, "promoting
and enabling a sustainable investment framework would help ensure
that business activities and investment decisions contribute to
progress while also protecting Philippine resources." In its
efforts to further promote capital market integration in the
region, the SEC has been actively involved in the regional
sustainability agenda of the ACMF, currently working as co-chair of
the ACMF Sustainability Finance Working Group.
II. Five Core Components of the ASEAN SLBs A.
KPIs
The issuer must select external or internal sustainability Key
Performance Indicators ("KPIs") that
measure the Issuer's sustainability performance. The SLB
Guidelines provide the required standards and criteria for
selecting KPIs and the standards that are encouraged, such as
aligning the KPIs with the United Nations Sustainable Development
Goals. The definition and rationale of the KPI must also be
disclosed, among others.
B. Sustainability Performance Targets
("SPTs") The issuer must calibrate one or
more SPTs per KPI to express the level of ambition the Issuer is
ready to commit to. Moreover, the issuer must disclose strategic
information that may impact the achievement of the SPTs. Similar to
the KPIs, the SPTs must be disclosed by the issuer through a
publicly available website designated by the Issuer throughout the
ASEAN SLBs' tenure.
C. Bond Characteristics The financial and
structural characteristics of ASEAN SLBs can vary depending on
whether the selected KPIs have reached the pre-defined SPTs.
Potential variations of the ASEAN SLBs' characteristics and
fallback mechanisms must be disclosed.
D. Reporting The issuer of the ASEAN SLB
must publish and keep readily available and accessible through a
public website designated by the issuer throughout the ASEAN
SLBs' tenure (i) up-to-date information on the performance of
selected KPI's including baselines, where relevant; (ii) a
verification assurance report which includes an assessment on the
issuer's performance against SPTs as well as the related impact
and timing of such impact, on the bond's financial and/or
structural characteristics; and (iii) any information enabling
investors to monitor the level of ambition of the SPTs.
There must be a regular (at least annual) reporting of ASEAN SLBs.
Issuers are encouraged to do reports more frequently and to provide
a timeline as to when reporting on the ASEAN SLBs will be
available.
E. Verification Issuers must seek
independent and external verification, at least once a year, of
their performance level against each SPT and for each KPI. This
external verification will continue yearly until the last SPT
trigger event of the bond has been reached.
III. External Review Pre-Issuance An
external review by a credible and expert provider must be conducted
pre-issuance. The external review provider's credentials,
expertise, and scope of the verification conducted must be
disclosed. Moreover, the report containing the verification must be
available to the public and uploaded to a website designated by the
issuer throughout the tenure of the ASEAN SLBs.
IV. Applicability on Sustainability-Linked
Bonds In certain circumstances, and at the discretion
of the SEC, outstanding bonds issued prior to the effectivity of
the SLB Guidelines, which were issued by Philippine-based issuers
and/or in instances where the proceeds were used in the
Philippines, will be considered for eligibility under the SLB
Guidelines. However, the issuance must be compliant with the
requirements of the SLB Guidelines and have received certification
from an internationally recognized certifying body.
You may download the SyCipLaw ESG Bulletin January to June 2023 issue here or via this link.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.