Suits the C-Suite

17 April 2023

Lee Carlo B. Abadia

Future-proofing with the Metaverse

The Metaverse has been positioned as the next phase of the internet. It makes use of several innovations in technology, from extended reality (XR) to artificial intelligence (AI), to enable new digital experiences.With the increasing focus on how to appropriately regulate data and the use of AI, digital governance is becoming even more crucial. Similarly, in the future of the Metaverse, effective board oversight will be just as essential and serve as a significant difference between firms that thrive and those that struggle.As mentioned in my previous article, “The Metaverse beckons: Is it time to explore?” published in this column in June 2022, the Metaverse can be defined as a virtual world where people can take on digital identities. The key characteristics of the Metaverse include (1) Persistence: where your central digital identity is maintained even as you enter and leave the Metaverse; (2) Ownership: where everything you earn or purchase in the virtual world is certified and attributed to be truly yours; (3) Interoperability: where you can carry what you own and use it in other virtual places, and (4) Decentralization: where there is no central organization that dictates the rules of the space, and is instead defined by the users themselves.By understanding the opportunities as well as risks the Metaverse presents, boards can provide effective oversight and value creation.OPPORTUNITIES FROM THE METAVERSEA wide range of use cases, including entertainment, education, commerce, and even virtual prototyping, can be expected from the Metaverse. More immersive extensions of entertainment are already taking place in virtual worlds on gaming platforms like Fortnite and Roblox, such as a celebrity concert held on Roblox that received almost 37 million visits, according to Wired UK.The synergy between digital twins — defined as digital versions of their physical counterparts in the real world — and the Metaverse in the working world is exciting. Before making changes in the real world, a digital twin can be used to test new policies or corporate decisions online. Digital twins can assist with tasks that include product creation, urban planning, and even customer experience design when combined with the Metaverse immersion.Boards may assist their organizations in seeing the value of leveraging these platforms for internal learning requirements, particularly for Gen Z and younger frontline employees, in addition to external customer interaction. New hires can have the opportunity to tour their workplace before starting for a much more immersive virtual onboarding.POTENTIAL RISKSAs the Metaverse becomes mainstream, it can give rise to new risks. Similar to the risks today arising from the widespread use of the internet, increasing participation and commercialization of the Metaverse is likely to exacerbate existing issues, ranging from online safety to data privacy.It is imperative for boards to fully understand the risks magnified by the Metaverse and include the related technical and social risk subjects in the company risk management process, given broader ethical concerns regarding the use of technologies to influence human behavior. Privacy issues are the first ones to consider, particularly in how information will be used due to the variety of biometric and emotional data that is likely going to be collected through Metaverse hardware.Depending on the applications being used in the Metaverse, boards must concentrate on protecting the privacy of consumer and employee data.Boards must also be aware of security concerns in three key areas: devices, fraud, and identity. Attacks may target Metaverse hardware, such VR headsets, and use them to rob unknowing users of their private information. The Metaverse will also likely give rise to more sophisticated or advanced phishing and counterfeiting attacks, including stealing non-fungible tokens (NFTs) and scamming for wallet credentials. Moreover, there are issues of digital identity to consider, where compromised user identities can lead to digital identity theft.THREE ACTIONS THAT BOARDS CAN TAKE1. Determine applicability and long-term valueBoards will have to adopt a critical and measured perspective toward the Metaverse and its applicability to the organization. They need to evaluate whether they are engaging the Metaverse only as a response to a trend or if it truly offers a specific benefit that enables long-term value without compromising the core principles of the business. This will help influence if the enterprise risk management program of their organization will be concentrated on monitoring the achievement of strategic goals from investments in the Metaverse.As boards determine the Metaverse’s applicability, they must consider if they have the necessary expertise to manage the risks that arise from it to protect its value. They should look into enabling tools to help identify and quantify the resulting risk scenarios accordingly and facilitate management in developing responses to them. To complement this, boards should determine if the business has teams with enough age, identity, experience, and cognitive diversity to comprehend the technological, business, ethical, cultural, and legal aspects of the Metaverse use cases so that they can drive actions in improving the thoughtful adoption of it.2. Prioritize oversight based on purpose and riskThe board is responsible for applying due diligence and supporting technology investments to boost the organization’s strategy, purpose, and values. In line with this, they must understand the extent and purpose of why the Metaverse is being leveraged by the business. In the gaming industry for example, close oversight is necessary because investments in the Metaverse can be instrumental in delivering differentiated services or goods of a gaming company.In other cases, the Metaverse may only be used solely for marketing purposes, but there would still be associated risks — particularly if it can jeopardize the company’s reputation or legal standing. Another example would be the buying and selling of digital assets to facilitate Metaverse activity, in which boards need to understand the legal and accounting repercussions of these operations. Depending on the purpose and related risks, the level of oversight will need to be carefully considered. Regardless of this however, Boards have to consider if they will need additional investments in compliance, data privacy, and fraud prevention.3. Recognize laws and moral standards Boards can help management execute a Metaverse plan by making the business aware of any legal and compliance challenges and enabling them to address these. Furthermore, they can explore how businesses can collaborate with policymakers to develop workable laws and regulations that foster innovation while upholding human rights and providing value to relevant stakeholders.Boards should consider what “code of conduct” or ethics guidelines can be applied to foster the constructive cooperative engagement in the Metaverse world of the company and minimize its risks. In parallel, they must be conscious of any new governance models that may need to emerge from Metaverse activities and pivot on how these can be considered in their enterprise risk management program.SEIZING OPPORTUNITIES THROUGH THE METAVERSEWith the Metaverse bringing about exciting new ways to live and work through an immersive virtual world, boards must understand the strategic opportunities and risks associated with it to provide effective oversight. Only then can they effectively influence investment decisions, evaluate risks, and seize their future in the Metaverse. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Lee Carlo B. Abadia is a technology consulting principal of SGV & Co.

10 April 2023

Maria Vivian C. Ruiz

Building resiliency during economic uncertainty (Second Part)

Second of two partsBoards play a critical role in helping management teams find ways to thrive in unpredictable circumstances as organizations today find themselves navigating a wide range of challenges. With so much uncertainty still present, boards must decide where to focus their attention. To better understand board priorities in 2023, EY conducted a study of more than 400 corporate board members across the Americas, including Argentina, Brazil, Canada, Chile, Colombia, Mexico, and the US. While the study focuses on western markets, the insights on the five top board priorities are also relevant for Philippine companies.In the first part of this article, we focused on two of the top board priorities, which were navigating difficult economic circumstances and rethinking capital strategy through investments in technology. This second part of the article will discuss the remaining three priorities, specifically on how boards can enable innovative technology transformation, champion a future-focused talent agenda, and establish cybersecurity as an enterprise risk and strategic opportunity.TECH TRANSFORMATION AND INNOVATIONBoards are crucial in helping to promote innovation, regardless of the state of the economy and the business environment. They can support the executive team in maintaining balance and push decision-makers to consider how the company can address new external challenges by innovating the business rather than investing or cutting costs.Boards are in a unique position to provide thought-provoking hypothetical questions about potential new products, services, and income streams related to megatrends, such as how the emergence of Gen Z is changing employee and consumer trends. Scenario planning can further build resilience by allowing for the potential of uncertainty, challenging long-held beliefs, and spotting possibilities to redefine the future of the company through proactive innovation.Despite the prevailing volatility, it is important to keep an eye on the longer-term developments that will shape the future of business. The value of operational, consumer, and market data is now being unlocked by advanced data analytics as the world enters a new era of data centricity powered by developing technologies. Deeper interaction is made possible by new human-machine interfaces, which also open up new avenues for communication, commerce, customer outreach, and the creation of goods and services. To best support their companies, boards must stay current on new technologies and their ideas.For our planet and social institutions, new technologies and the behaviors they encourage in people carry both promise and risk. On one hand, technological advancement can lead to a new immersive virtual workplace, the capacity to reduce unconscious bias, the potential to encourage healthier lifestyles, and lowered carbon emissions by substituting non-polluting virtual experiences for real-world presence and physical goods.However, emerging technologies can pose significant dangers for data privacy, fraud, false information, polarization and isolation, mental health, and energy costs. Better sustainability results need to be part of the future vision and strategy around new technologies and consumer strategies. This is especially significant at a time when stakeholder expectations and demands are drastically shifting in light of environmental and social developments.A FUTURE-FOCUSED TALENT AGENDAGlobal macrotrends are still influencing the future of work, making it more urgent for businesses to adjust to the shifting talent landscape. The structural shift in labor markets poses a formidable challenge as we suffer the highest global talent shortage in more than a decade. Employees are reevaluating and reordering the things they value most in an employer and are prepared to take action to satisfy those needs, with 68% of employers stating that employee turnover rose during the previous year. Previous methods used to attract and retain employees are no longer effective due to evolving employee needs, including the need for flexible and hybrid employment.Highly-skilled employees will continue to retain more power even as the labor market cools. Millennials and Gen Z, particularly those working in the hardware and technology industry, are where the highest turnover is anticipated. Technologically-skilled workers are also in high demand, with inflation driving up the cost of competitive remuneration as a result.It is crucial to monitor employee morale and workplace culture, as employers and employees have varied perspectives regarding the effects of hybrid, flexible, or mobile work options on productivity and career progression opportunities. If employees are not given the same level of flexibility provided during the pandemic, 54% of respondents to the EY Global Workforce Survey said they would consider resigning.The ability of a company to retain talent may depend on whether or not its leaders are decisive and human-centered, with an emphasis on innovation, building trust, and exhibiting desired attributes. In order to get a more comprehensive understanding of employee needs and sentiment beyond simply gauging the tone at the top, boards may need to spend more time in conversation with the chief human resources officer to champion a future-focused talent agenda. They also need to evaluate the company plan for overall compensation, filling of any skills gaps, and talent retention.CYBERSECURITY: A STRATEGIC OPPORTUNITYThe high degree of cyber risks that businesses confront are growing, with risks from ongoing digital transformation, flexible working, and the introduction of disruptive technologies having increased in 2022. Management must continue to stress the value of managing cybersecurity as an enterprise risk since the stakes are higher than ever, but should also see it as a chance to strategically position their companies as reliable business partners.The board should set the tone by discussing cyber threats with management outside of the chief information officer (CIO) or chief information security officer (CISO). When developing new technology, goods, and business arrangements, CEOs should be questioned about how cybersecurity is incorporated into the design process from the beginning using the “trust by design” idea. In order to better challenge management, boards should be familiar with new or growing risks, the financial worth of the company’s risk (including the effectiveness of cyber insurance coverage), and leading cybersecurity risk management techniques.Cybersecurity risk management in the current context is about response readiness and resilience. This means focusing on early detection, isolating important assets, preparing continuity plans to operate in a crisis, reporting to and working with authorities while managing litigation, and communicating with employees, customers, and investors.Holding cyber incident simulations with management and the board should be prioritized, as well as stress-testing the organization to improve readiness and recovery efforts by clarifying roles and escalation processes. Third parties, such as a public relations agency or forensic specialists, can be included as necessary.Finally, boards may oversee improved disclosures that make it clear to investors and other stakeholders how seriously they are taking cybersecurity threats and how qualified they are to do so. These disclosures are becoming more crucial as stakeholder scrutiny of these issues grows.BUILDING STRENGTH IN RESILIENCETo meet the challenges in this new era of constant uncertainty, resilience will be key to sustained success. Boards should work together with management to navigate uncertain economic conditions, rethink capital markets through investments in technology, pursue transformation and innovation, enable a future-focused talent agenda and elevate cybersecurity risk oversight.Through continuous collaboration with management, boards will be able to build strength in resilience to weather ongoing volatile economic conditions. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Maria Vivian C. Ruiz is the vice chair and deputy managing partner of SGV & Co.

03 April 2023

Maria Vivian C. Ruiz

Building resiliency during economic uncertainty (First Part)

First of two partsOrganizations today find themselves navigating a previously unheard-of range of challenges, including the ongoing pandemic, the effects of climate change, shifting regulatory requirements, and more. Boards play a critical role by helping management teams explore options and find ways to thrive in unpredictable circumstances, supervising plans to traverse this complex corporate climate, and by providing guidance on transformational investments.Resilience — the capacity to foresee, plan for, respond to, and adapt to a changing environment — is essential. Given the uncertainty in the market, deciding where the board should focus its time and attention is vital.To learn more about board priorities for 2023, EY conducted a study, Americas board priorities 2023: how to build resiliency in uncertain times, surveying more than 400 corporate board members across the Americas, including Argentina, Brazil, Canada, Chile, Colombia, Mexico, and the US. Given the distinctive difficulties businesses are facing in this area and their responsibility for financial oversight, it may not be so surprising that boards placed the highest priority upon economic conditions. Though the study focuses on western markets, the insights on the five top board priorities are also relevant for Philippine companies.DIFFICULT TIMES AHEADSeveral factors indicate the increasing possibility of a global recession in 2023. These include the ongoing conflict in Ukraine, stricter financial restrictions, and a simultaneous economic slowdown in the US, Europe, mainland China, and several emerging markets. Persistent inflation, rising borrowing costs, declining private sector sentiment, and the rapidly slowing global economy are all contributing to a potential global economic cooldown. Some businesses are choosing to exercise more caution in hiring people and undertaking investments due to ongoing cost challenges, deteriorating demand, and increased uncertainty.Drivers of economic activity that were once taken for granted will now require more attention from boards in the current business landscape.In the first part of this article, we will look at the first two top priorities identified in the report:1) Economic circumstances that companies have to focus on to support themselves through economic volatility (these include inflation, labor, capital costs, supply chain and energy switch) and2) How to rethink capital strategy through investment in technology.ECONOMIC CIRCUMSTANCESInflation. It is unlikely that the supply and demand mismatch in the energy sector, which is caused by geopolitical unrest and climate change, can be remedied very soon. Price inflation in energy, commodities, and food will likely continue to be volatile.Boards should monitor how companies are developing price and supply strategies that are flexible enough to react to demand fluctuations that have become more severe in recent years. The part that cost control and productivity improvements play in a company’s inflation strategy must also be considered.Labor. While laying off excess labor has historically been a tactic to control expenses during economic downturns, talent is now not only more expensive, but it is also more valued. Business executives currently prefer strategic hiring freezes, strategic layoffs, attrition, and furloughs over broad-based layoffs as cost-control methods.As they monitor how productivity, training, and efficiency benefits might offset increasing labor expenses and keep an employee base engaged when rehiring is possible, boards will need to keep an eye on the long-term talent agenda.Capital costs. The rapid and coordinated tightening of monetary policy around the world has resulted in an increase in borrowing costs, a decline in equity values, and major changes in foreign currency rates. The focus on optionality to meet strategic goals is increasing due to the rising cost of debt, and the wide variations in equity valuations have widened the gap between the perceptions of buyers and sellers of the true value of an asset. In order to address this, boards can collaborate with management to explore business capital strategy plans.Supply chain. The switch some firms made from just-in-time to “just-in-case” inventory management during the pandemic may likely be unsustainable, and some organizations may experience new challenges as demand slows down and inventory builds up.As businesses explore reshoring options, geopolitical developments are also quickly altering the business environment and redefining supply chain risks and opportunities. In an increasingly fragmented environment, boards should monitor how management can strike a balance between supply chain risk and redundancy.Energy switch. The impact of the war in Ukraine on energy security and supply, coupled with other climatic repercussions, is disrupting economic activity in real time and making the energy transition urgent. While inflationary pressures might postpone some plans, boards can also collaborate with management to determine whether this is a chance to accelerate that transition.CAPITAL STRATEGY AND TECH INVESTMENTMany businesses are committed to modernizing their operations, despite rising interest rates, in order to stay ahead of disruption. Additionally, they continue to maintain their investment plans in an effort to increase value, resilience, and long-term options. Nearly three-fourths of worldwide executives (72%) surveyed for the EY 2022 Digital Investment Index stated they must significantly transform their operations to remain competitive by investing in technology and digital capabilities.Many businesses are looking to build long-term value through cost-of-capital optimization, reduced operational disruption, creating stronger connections with customers and employees regarding the environmental, social, and governance (ESG) agenda, and putting environmental and social sustainability at the core of the business. Organizations are also interested in investing in early-stage companies to expand their current portfolio, obtain fresh talent, or build new business platforms.Mergers and acquisitions (M&A) continue to be a crucial alternative to improve capabilities in technology, talent, and innovation as well as sustainability plans. Divestment may also be a key strategy to free up capital to reinvest in core capabilities and growth areas.It will be crucial to maintain flexibility in order to achieve strategic objectives, especially with the rising cost of debt. Boards can play a significant role in addressing the assumptions that underlie management decisions and disputing possible options that management has explored. They can facilitate discussions that aid in strategy clarification and provide a clear view of the markets and underlying growth factors, such as demand, competitive advantage, alignment to company vision, and potential for long-term value.Finally, boards have the chance to direct management’s investor engagement strategy as a crucial component of long-term value creation initiatives in the current downturn. They will need to determine if their efforts to proactively communicate with shareholders are sufficient and ensure that potential innovation and growth opportunities are considered.The second part of this article will discuss the other three priorities, specifically on how boards can enable innovative technology transformation, champion a future-focused talent agenda, and establish cybersecurity as both an enterprise risk and strategic opportunity. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Maria Vivian C. Ruiz is the vice chair and deputy managing partner of SGV & Co.

27 March 2023

Kristopher S. Catalan and Dwayne G. Ignacio

Effective internal controls: A vital enabler for private companies

Change is inevitable, and we know this now more than ever. The technological disruptions that were hastened by the exigencies of the pandemic have now become widely accepted and mainstream, with such changes continuing to grow more rapidly each day.The pace of change in organizations has also accelerated. As a response to risk events such as cybersecurity breaches and fraud, especially during the pandemic, organizations had to quickly reinforce controls to protect their assets and manage compliance, reputational and legal risks. Regulatory activities have increased over the last several years in response to these events, and recently, as a result of corporate failures from previous decades, have become a race to adopt a compliance-focused mindset.With the pandemic slowing down, some companies are now re-aligning risk management with changes in business models and emerging risks in the face of disruption and technological advancements. This is challenging for private companies, especially for small- and medium-sized enterprises (SMEs), which are recovering lost growth and managing transitions to more resilient business and operating models while simultaneously meeting new demands from internal and external stakeholders.Private companies have an opportunity to clarify or reinforce the roles and responsibilities within their internal control environment, stressing that management is responsible for internal controls. Enhancing internal controls by formalizing ad hoc practices, creating units or departments that will complement the monitoring functions of existing business units (such as the compliance department or risk management unit) or strengthening internal audit are some ways to respond to the emerging risks. Controls need to respond to the challenges of ever-changing business and regulatory landscapes. Private companies cannot just focus on growth today; they need to level up to ensure they protect their future.CREATING A WELL-DEFINED GOVERNANCE STRUCTUREClear reporting lines and a strong governance structure play important roles in any organization’s internal control environment. A well-defined governance structure provides an end-to-end view of stakeholder involvement by clearly assigning process ownership and accountabilities, identifying the roles and those responsible for responding to risks, and ensuring that controls are working. It also describes how performance ratings of the control owners are linked to the effectiveness of the controls for which they are responsible.Since maintaining a strong internal control environment normally involves people who work in various functions within the organization, the governance structure of a private company should be designed such that it enables effective coordination and communication across various business units. Having a well-defined governance structure in place also facilitates the timely reporting and analysis of any observations and findings on the effectiveness of controls. This in turn helps ensure that any weaknesses and deficiencies are identified, appropriate risk and impact assessments are performed, and remedial action is taken and implemented.PERIODIC REASSESSMENTWhen governance structures and internal controls are not regularly reassessed, private companies may struggle to keep up with the pace of disruption and change. With today’s dynamic operating environments, controls that worked in the past may no longer be as effective today.As complexity and disruption continue to rise in business, performing periodic reassessments enables private companies to evaluate whether the owners and management still have the appropriate level of oversight over business processes. It also helps private companies assess whether their current structure still fosters a culture of risk awareness and whether internal controls still work as effectively as intended. By periodically reassessing internal controls and their governance framework, private companies can also identify opportunities for improvement and optimization. This includes automating certain processes and controls as well as updating the controls mix in response to changes in the business.AGILE RESPONSEPrivate companies should stay on top of the changes in business, regulatory, tax and financial reporting requirements, and weigh any possible resulting risks to the organization. It is important that private companies have a process to identify these changes early and communicate them to those responsible for related processes and controls.By being proactive, private companies can timely assess the impact of changing regulatory requirements on various functions across the organization, such as governance, technology, people, policy, processes and controls. This also helps facilitate an appropriate interpretation of the changes and their application to the business, enabling management to evaluate whether the current internal control environment remains adequately equipped to respond to the changes.Private companies can stay abreast of these changes by regularly monitoring updates from organizations such as the Philippine Financial and Sustainability Reporting Standards Council (FSRSC) for accounting standard updates, the Securities and Exchange Commission (SEC), the Bureau of Internal Revenue (BIR) and other regulators for new developments and updated regulations. Private companies need to empower their C-suites, such as chief financial officers, chief risk officers or chief legal officers, to proactively discuss changes with the board and craft related action plans. When evaluating the impact that the changes have on the organization, private companies should also closely coordinate and work with their external advisors, experts and even external auditors to ensure that a holistic view of the impact is being considered.TALENT RETENTION AND UPSKILLINGThe success of sustaining an effective control environment also depends on the resources involved. Given the pace of change, private companies may need a workforce with a broad range of skills and competence. It is therefore important for private companies to consider whether current skillsets in the organization are sufficient in addressing its changing requirements. Given their growth strategies and the anticipated changes in their business, private companies should also consider whether these are the same skillsets they will need in the future to maintain an effective control environment.Any gaps in skills should be evaluated for their impact on the organization. Similarly, the organization should identify solutions that can address gaps, such as expanding the sources of talent and upskilling the current workforce through partnerships with training and learning providers.For private companies that are implementing new processes or migrating manual processes to technology-enabled solutions, it is important that, as part of the transition, the organization also evaluates whether the resources selected to monitor the scope and mix of internal controls continue to possess the necessary skills and competence.BUILDING CONFIDENCE IN INTERNAL CONTROLSThe ability to respond to the challenges of today and the future by identifying and managing risks early is a vital enabler of success for any business regardless of its stage of growth. Since businesses with strong and effective internal control environments are in a better position to timely identify and mitigate risk, it is increasingly important for private companies to build confidence in their internal control environment if they are to succeed in navigating business and industry disruptions. Having effective internal controls, especially on financial reporting, builds confidence in the information that management uses. Suffice it to say, timely and reliable financial information are crucial in making impactful business decisions.Investing now to manage the risks of the present and beyond is as crucial as spending to grow a business. In the long run, a strong and effective governance and internal control framework that is responsive to the changing business and regulatory environments will enable private companies to continually build and strengthen the right foundation to support their growth ambitions, comply with regulations, sustain long-term profitability and protect company value. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Kristopher S. Catalan is an assurance partner and the EY private leader of SGV & Co., and Dwayne G. Ignacio is a manager from the Financial Accounting Advisory Services (FAAS) of SGV & Co.

20 March 2023

Joseph Ian M. Canlas

Accelerating sustainability with emerging technology (Second Part)

Second of two partsThe most recent EY Reimagining Industry Futures Study, which examined executive attitudes and intentions toward 5G, IoT, and other emerging technologies from respondents across 1,325 global firms from various industries, found that organizations are increasingly relying on these emerging technologies to advance their sustainability initiatives. The study offers Chief Information Officers (CIOs) crucial solutions and steps to help their organizations rethink their future and demonstrates that emerging technologies provide advantages that include improved measurement, increased efficiency, and the capacity to create virtual goods and processes.Findings from the study demonstrate significant convergence between business technology and sustainability strategy. The first part of the article discussed emerging technology as sustainability drivers, sustainability-related benefits of modern technology, environmental, social, and governance (ESG) as a key factor in emerging technology investments, enterprise sustainability strategies already benefiting from 5G and IoT, and how sustainability imperatives are changing perspectives towards industry ecosystems and technology suppliers.The second part of this article discusses differing industry perspectives on emerging technology and sustainability, and considerations organizations can make to ensure expectations translate into long-term value creation.DIFFERING INDUSTRY PERSPECTIVESEnergy efficiency and business circularity expectations at the sector level showed notable differences when respondents were asked how they perceive the sustainability benefits of emerging technology. Despite the fact that 46% of respondents across all industries cite decreased energy usage as the top benefit, only 38% of the healthcare sector mentioned this benefit compared to 54% of the automobile sector. Only 35% of executives in government organizations mentioned reduced waste output, compared to 50% of executives in the manufacturing sector.The two industries most likely to point to benefits from emerging technology in gauging the environmental effect of their organizations were government and healthcare with both at 44%. However, evaluating the environmental impact of suppliers is seen as significantly less critical in government and healthcare but as a significant advantage among manufacturing and energy respondents.This is because reporting Scope 3 emissions makes it more necessary than ever. Industries are aware of the potential for new technologies to aid in measuring performance and advancement, but the scope of their ambition varies depending on whether they are concentrating on their own organization or expanding to include their supplier chain.CONSIDERATIONS FOR LONG-TERM VALUE CREATIONESG factors are already influencing the technology investment decisions of several businesses, and sustainability requirements are expected to overpower other considerations when selecting technology vendors.However, CIOs are able to do more to ensure that high expectations result in the production of long-term value through the following points of action:Long-term sustainable advantagesAlthough businesses are aware of the variety of sustainability advantages offered by emerging technologies, it is crucial that technology leaders concentrate their ambitions. Technology leaders have to carefully consider the combined impact of many technologies before prioritizing and phasing the important ESG outcomes they are seeking and selecting the best technologies that can deliver them. Another consideration is including ESG risks as part of the assessment, as ESG risk should be embedded in a company’s enterprise risk management process. In certain instances, these ESG risks can be resolved by utilizing appropriate technologies.Assessing environmental implicationsOrganizations can examine the carbon footprint and energy efficiency of their portfolio of emerging technologies, and make sure their approach directly ties into the overarching goals of the organization for lower IT energy use. They will have to be sure to consider how upgrading their IT to newer standards and technologies will improve sustainability, particularly in how it will impact their carbon footprint and energy efficiency.Sustainability agendas informed by techWorking closely together with other leadership roles and responsibilities will make sure that everyone in the organization is aware of how new technology can accelerate ESG goals. Discussions with the Chief Sustainability Officer (CSO), or equivalent role, will contribute to the proper assessment of the acquisition and use of new technology. This will ensure that existing digital transformation roadmaps continue to serve their intended purposes while sustainable principles take on greater significance as motivating factors.Sustainability as a guiding concept for relationships with technology suppliersCIOs are already giving sustainability capabilities priority when looking for qualities in technology companies. It is critical that businesses prioritize sustainability in their conversations with wider partner networks. Although decisions about vendors and technology investments are currently being made with sustainability in mind, there is still room for more cooperation in the future regarding circular business models and shared ESG objectives.Technological use cases created with sustainability in mindSeveral firms already have established IoT projects, and the rapidly expanding deployment of 5G and edge computing is progressively enhancing these initiatives. Sustainability-aligned results must be incorporated into use cases and deployment methods. To do this, CIOs must think about how new technology use cases might benefit partners, customers, and employees alike. They must also establish the proper feedback loops with technology vendors to make their vision a reality.Using emerging tech to drive sustainable outcomesWith sustainability goals coming under even more intense scrutiny, organizations will have to keep prioritizing the sustainability capabilities and credentials of their technology vendors in the future. CIOs will have to assess the benefits and drawbacks of developing technologies in achieving sustainability goals, creating long-term value and ultimately building a better working world. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Joseph Ian M. Canlas is a consulting partner and part of the Climate Change and Sustainability Services team of SGV & Co.

13 March 2023

Joseph Ian M. Canlas

Accelerating sustainability with emerging technology (First Part)

First of two partsWith sustainability and digitalization increasingly becoming a business imperative, organizations are relying more and more on 5G, the Internet of Things (IoT), and emerging technologies to advance their sustainability initiatives. The advantages these technologies provide include improved measurement, increased efficiency, and the capacity to create virtual goods and processes.These are some of the key findings of the most recent EY Reimagining Industry Futures Study, which examined executive attitudes and intentions toward 5G, IoT, and other emerging technologies from 1,325 global firms across a range of industries. The study offers Chief Information Officers (CIOs) crucial solutions and steps to help their organizations rethink their future, with findings demonstrating significant convergence between business technology and sustainability strategy.EMERGING TECH AS SUSTAINABILITY DRIVERSMore than half of surveyed businesses at 54% believe that emerging technology can significantly speed up their path toward sustainability, while 41% agree that new technologies play a mostly positive function but with some risks. This knowledge of potential drawbacks is in line with a 2021 study by Science Direct indicating that information and communication technology (ICT) as a whole accounts for 1.8% to 2.8% of greenhouse gas emissions and an even larger percentage of electricity usage.Interestingly, organizations in Asia are more likely to emphasize the importance of new technology than businesses based in Europe (62% versus 49%, respectively). This regional variation may be a result of the historical attention paid by European governments to the potential energy consumption problems posed by data centers and cloud computing.SUSTAINABILITY-RELATED BENEFITS OF EMERGING TECHRespondents believed that emerging technologies such as AI, automation, 5G and IoT can provide a variety of beneficial contributions to long-term sustainability plans. Topping the list of these benefits are decreased energy use, improved measurement and planning, and decreased waste output. The use of virtual services and workforce tools is another significant trend.Only around a quarter of respondents highlighted the advantages of adopting circular business models and renewable energy sources, suggesting that these might be areas that require more attention from the CIO community in the future. Nonetheless, the variety of positive results highlights the multifaceted potential of these technologies from a sustainability perspective.ESG A KEY FACTOR IN EMERGING TECH INVESTMENTWhen considering all emerging technologies, 35% of respondents identified environmental, social, and governance (ESG) as a leading factor in their decision-making, while 41% saw it as important. 5G investments were most likely to involve ESG as a key factor, with IoT close behind.ENTERPRISE SUSTAINABILITY BENEFITING FROM 5G, IoTCompared to other emerging technologies, the ESG implications of 5G and IoT tend to weigh more heavily on business investment decisions. Organizations investing in these two technologies are more likely to already see current benefits compared to other organizations who looked at a broader scope.As a result, 5G and IoT are even more directly tied to many of the ESG advantages associated with emerging technologies as a whole, with 48% highlighting the increased productivity benefits from 5G and IoT, compared to just 22% for all developing technologies. More than half (55%) of those currently investing in 5G and IoT said that these investments assist in improving sustainability planning and forecasting compared to 39% of organizations who believed that the same could be said of emerging technologies in general.SUSTAINABILITY IMPERATIVES CHANGING PERSPECTIVESThe qualities that businesses are looking for in their IT vendors are evolving as sustainability takes center stage in the technology strategy of many CIOs. More than 75% of businesses claimed to give priority to vendors who can explain how emerging technologies affect the environment. Companies also considered that suppliers need to do more to include sustainability into their service offerings.These viewpoints are reflected in the qualities that businesses look for in their technology vendors, where respondents prioritized speed of deployment and execution, end-to-end solution capabilities and sustainability credentials and capabilities. However, corporations predict that sustainability credentials and competencies will be even more sought-after in the future.Business ecosystem strategies that facilitate the acquisition of new skills and competencies through partnerships with vendors and other businesses will also be able to provide sustainability benefits. Eighty percent of businesses concurred that, over the next five years, working with other groups and sectors to develop circular business models will become significantly more crucial.The second part of this article will discuss differing industry perspectives on emerging technology and sustainability, and considerations organizations can make to ensure expectations translate into long-term value creation. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Joseph Ian M. Canlas is a consulting partner and part of the Climate Change and Sustainability Services team of SGV & Co.

06 March 2023

Luisa Anna E. Hebron

Championing social equity on International Women’s Day

The 2023 International Women’s Day campaign theme on equity seeks to help forge conversations on why “equal opportunities are no longer enough” in today’s world. In recent years, the debate has grown significantly and the words equity and equality are often used interchangeably. In order to champion social equity, it is important for organizations to understand and acknowledge the difference between the two.EQUALITY VS EQUITYEquality is defined as the state of being equal while equity takes the element of justice or fairness into consideration. When conditions and circumstances differ, it is possible that “equal” treatment does not produce “equity.” This distinction is explained with the famous illustration showing people of different heights using boxes to stand on in order to see over a fence; equality means all boxes are identical, but equity means the boxes are the appropriate sizes to permit the people, regardless of their height, the ability to see over the fence.Equity has become an important focal point in Diversity and Inclusiveness campaigns, changing the former D&I to DE&I as socio-political polarization and social inequities continue to increase. However, it is important to note that while an inclusive group is diverse by definition, a diverse group is not always inclusive. An inclusive organization strives for equity and respects, accepts and values differences. Therefore, equity is the means to achieve an inclusive environment and remove impeding equal outcomes.INCORPORATING EQUITY INTO THE D&I STRATEGYLast year, SGV made a conscious effort to explicitly incorporate equity in our overall D&I strategy. It better reflects who we are and how we work. It shows our commitment to shaping environments that support inclusive experiences for our people to thrive. Equity accounts for the uniqueness we all bring to the firm — recognizing that different individuals and social groups have different needs, starting points and opportunities. We want our DE&I journey to enable a sustainable, inclusive environment that advances our culture by continuously looking for opportunities to close our ‘say/do’ gaps and remove fences within the organization.The firm has introduced a series of actions to ensure a safe environment, fair access for all and to make opportunities more equitable. For example, SGV professionals have access to communication channels they can contact to ensure compliance with ethical behaviors within the framework of our Global Code of Conduct and in accordance with our values. We also have a coaching culture; coaching helps us uncover different perspectives and creates a safe space that enables vulnerable and authentic conversations. We are committed to providing the tools, resources, and environment that our people need to be successful and build meaningful careers.As highlighted in a recent EY article, “How EY is working to uplift social equity through authentic storytelling,” EY, of which SGV is a member firm, has been stepping up its existing commitment with specific focus on social equity. This includes the formation of the Global Social Equity Taskforce (GSET) in 2020, which is made up of 40 senior leaders across geographies, functions, and backgrounds. The GSET has developed a suite of actions to advance social equity in the firm and beyond.A global standard for DE&I measurement across all business units was also developed three years ago in the form of the DE&I Tracker, which was created to hold everyone accountable to progress and covers a range of visible and invisible differences. Moreover, all partners and employees have access to an “Inclusive Leadership for ALL” e-learning course within EY, and can also work towards an Inclusion and Belonging Badge through the global upskilling program, EY Badges.To identify gaps and ensure that hidden inequities are uncovered and addressed, EY launched additional global Self-ID capabilities in 2022. This increased the range of personal information choices that people can select in EY HR reporting systems. In addition, listening tools like the EY People Pulse Survey help EY better understand how its people are feeling and what they need. The survey takes into consideration differentials in responses based on various dimensions such as gender, cultural background, and generation to minimize gaps.SUPPORTING THE EFFORT TO PROMOTE SOCIAL EQUITYOrganizations can support efforts to further encourage social equity by creating a strong sense of belonging for all. When people feel they genuinely belong, they are more motivated and engaged, as well as exhibit lower stress, greater wellbeing, and higher performance. Equitable sponsorships can also boost progression, inspire confidence and transform careers.While everyone has biases — these can be challenged and mitigated by understanding what these biases can look like, what shapes them, and when they’re likely to arise. By questioning whether a decision is a preference, a tradition or requirement in every process, we can uncover different perspectives, remove barriers, expand options, and improve the quality of our decisions.INSPIRING CONVERSATION THROUGH AUTHENTIC STORIESOn Feb. 27, Karyn Twaronite, the EY Global Vice-Chair for Diversity, Equity and Inclusiveness, officially announced the external launching of a short film series featuring EY colleagues from around the world. These films spotlight a range of different experiences and inequities to help our people better connect and understand each other. The storytelling campaign has been internally meaningful, sparking reflections, insights, and conversations. The stories have helped our people to better engage with one another as a community, building greater connections and understanding. These films are shared with broader audiences to create a positive impact beyond our organization.This is one step forward to create positive change through a greater awareness and an invitation to participate in the conversation. It is hoped that by sharing these stories, we make a difference beyond us. Together, we can inspire social equity and create meaningful change towards a more inclusive environment where everyone can thrive. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Luisa Anna E. Hebron is a talent director and the talent leader of SGV & Co.

27 February 2023

Lisa Marie T. Escaler

Deepening the strategic value of the CHRO (Second Part)

Second of two partsChief Human Resources Officers (CHROs) have always been crucial to the success of an organization. However, as a result of current events, they may now be just as valuable to CEOs as the Chief Financial Officer (CFO). As such, it is imperative to deepen their strategic value.In order to better understand why the connection between the board and the CHRO is becoming more crucial, insights from EY thought leaders and clients were gathered to fuel strategies to improve the board and CHRO dynamic along with the ways of working. Instead of merely reducing potential risks, organizations can find opportunities in current, unheard-of labor trends to gain a competitive advantage.The first part of this article discussed challenges in talent, perception gaps identified with employees, and considerations for boards to make. This second part will discuss three strategies that boards and CHROs can implement to help each other succeed: strengthening and enabling the CHRO role, re-examining the risk framework to support the talent agenda, and supporting CHROs in developing a human-centric strategy and employee value proposition.STRENGTHEN, SUPPORT, AND ENABLE THE CHRO ROLEOrganizational culture, which includes purpose, well-being, and social inclusion, has emerged as a critical factor in motivating present employees and attracting potential hires. Therefore, choosing who oversees this crucial sector is the first step for the board and the executive team.Once roles are defined, the board should challenge the CHRO (or an equivalent role) on matters that are now within their purview. These include corporate activism and reputational talent risks. Boards must also communicate the significant financial value of having a strong employer brand to investors and other external stakeholders to support the CHRO role.In addition, boards should inquire about whether the HR team has the right qualifications, experience, and support of top management. The CHRO should be subject to the same accountability standards as the other C-Suite members. The CHRO is responsible for engaging the board in important discussions about important issues that include the external market environment and an internal perspective that covers determining what talent the organization has, how to retain key personnel, understanding critical current and future skills, and how to address gaps in talent.They should also draw attention to and thoroughly evaluate the significant developments that have an impact on the firm, and they should exhort the board to adopt fresh and unusual perspectives. In order to accomplish this, the CHRO needs early access to the board so they can establish and show their credibility, trust, and transparency. They will then be able to present innovative, game-changing ideas with assurance when the time is right.And last, the board and the CHRO should keep putting first-class oversight of executive remuneration and C-suite succession planning at the top of their list of priorities. When properly implemented, the former ensures that rewards correspond to the cultural practices the organization wants to promote. Additionally, debates in boardrooms are showcasing the latter more prominently than ever due to evolving talent dynamics.RE-EXAMINE THE RISK FRAMEWORK TO SUPPORT THE TALENT AGENDATalent is frequently at the top of risk agendas for organizations worldwide. However, because risk profiles vary by industry, organization size, and various other criteria, each organization handles its talent differently. In order to determine what is best for them, boards should consult with their respective CEOs and CHROs. These conversations do not have to wait until board meetings; they can take place during routine check-ins with other board members.To avoid the temptation to micromanage, the board should discuss and decide what role it should play in supervising talent concerns as well as determine the best governance structure to support the CHRO. The board will also have to think about how to include the voice of the employees in the governance structure. They must pay attention to what employees want, even if not all requests can be granted.Executive learning is also a key area. Historically, board members tended to have extensive backgrounds in more traditional fields such as law and finance. However, the board will need to supplement these skills with new perspectives in light of new risks and difficulties. By ensuring that the board has access to and is learning from industry best practices, the CHRO can support these initiatives, helping the organization become more performance-driven and purpose-led as a result.SUPPORT CHROS IN DEVELOPING A HUMAN-CENTRIC STRATEGY AND EMPLOYEE VALUE PROPOSITIONIn order to balance the demands of the people strategy and the business strategy, as well as to create and sustain the culture of the organization, boards must narrow their focus on their people, and look more closely into what the employees need from their organization as well as what the organization needs from them.These discussions must be incorporated into the broader strategic talent plan to attract, nurture, and retain the talent required to carry out the organization strategy. The board can help the CHRO carry out this strategy by ensuring that each individual feels heard, appreciated, and supported.Board members do not need to know the specifics of employee insights, but they should be made aware of any potential risks, opportunities, and impact. They can then ensure that the organizational employee value proposition, culture, and overarching strategy all take into account the needs of various employee groups while allowing for customization where appropriate. Culture is a particularly significant factor as well; research shares that businesses which thoroughly understand and reflect their cultures outperform their competitors by a factor of three, while those with serious cultural problems falter or even fail.Boards should ensure that the cultures of their particular organization are in sync with their talent and retention strategies as they assume increased responsibility in managing this vital area. In exchange, the CHRO must thoroughly assess the organization’s employee value proposition with the board and assist in filling in any knowledge gaps.All of these discussions should be supplemented by an effective use of data. It will be easier to engage the board and win their support if they are presented with clear, succinct, and well-researched recommendations.COLLABORATING TO NAVIGATE THE TALENT LANDSCAPEThe constant disruption in recent years has only exacerbated the war for talent, requiring the CHRO role to be even more strategic as people-related risks rise to the top board agendas across the globe. In order to overcome challenges in talent, CHROs and boards must collaborate to enhance the CHRO role, supporting as well as challenging each other to navigate the talent landscape and remain competitive.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services Workforce Advisory (PAS WFA) leader of SGV & Co.

20 February 2023

Lisa Marie T. Escaler

Deepening the strategic value of the CHRO (First Part)

First of two partsOrganizations have been undergoing wave after wave of transformation since disruption is now a modern-day constant, and managing talent plays a key role to overcoming every obstacle that organizations encounter. The war for talent continues to heat up in today’s uncertain business landscape.In order to support and counsel the CEO on their transformation and growth strategy, Chief Human Resources Officers (CHROs) and their equivalents have had to go well beyond traditional human resources territory. However, in order to recruit, keep, and utilize the best talent now and in the future, organizations must acknowledge that talented workers have a significant amount of negotiating power.The CHRO is responsible for all things related to people in an organization, including the development and implementation of a people management strategy. This includes how to attract, onboard, engage, develop, reward, and retain the talent necessary for the organization to succeed. It also includes succession for C-Suites, change management, executive compensation, and diversity, equity and inclusion (DE&I) initiatives.In the current talent landscape, the role expands further to include purpose, culture, and well-being, which are all increasingly important factors for employees. More recently, these factors include access to more flexibility in ways of working as well as development opportunities.Boards must manage the talent agenda in a way that takes the current dynamic into account. This means ensuring that the CHRO role is elevated from business function to strategic collaborator, and that talent management continues to be a primary business focus. Additionally, it entails helping the CHRO listen to employees and influence the company to develop a human-centered culture and a more tailored employee experience.In order to better understand why the connection between the board and the CHRO is becoming more crucial, insights from EY thought leaders and clients were gathered to further uncover the strategic value of the CHRO role. These insights fueled strategies to improve the board and CHRO dynamic along with the ways of working. Instead of merely reducing potential risk, organizations can find opportunities in current, unheard-of labor trends to gain a competitive advantage.CHALLENGES IN TALENTThe responsibility of the board is to ensure that management provides the organization with the key talent it needs to execute its strategy. However, in recent years, a depleting talent pool and rising employee demands have made this difficult. The pandemic and its economic repercussions compounded the issue by creating a shift in what employees value in both their professional and personal lives — and the situation is still evolving.Talent challenges are being exacerbated by a constantly evolving environment. Just three years ago, flexible working was a differentiator or a means of achieving a competitive edge. Now, according to the EY 2022 Work Reimagined Survey, as much as 90% of the respondents said they would think about quitting their current position if flexible working was not an option. Flexibility also has different meanings, as younger individuals might prefer to work from the office more as a result of rising heating and cooling expenditures. However, those who drive or commute to work are more inclined to prefer the reverse to save money on fuel and time.A recent EY survey of graduates and interns looked into what will keep younger generations engaged and motivated due to their tendency to shift employment more frequently. Since flexibility is becoming more and more synonymous with mobility for these groups, governments all around the world need to develop policies that can compete with the attractiveness of traveling abroad for work. This reality is particularly true for the Philippines with our sizable overseas worker population.Meanwhile, since the COVID-19 pandemic started, a sizable number of the population over the age of 50 have quit working in some advanced economies. Organizations have to assess the effects of this shift while monitoring market conditions and, where necessary, think about strategies to entice this group back.Organizations are being forced to react quickly in the short term as a result of this ongoing disruption. One way is by assessing how the cost-of-living crisis is affecting employees and developing assistance strategies. However, focusing on the short term may also keep CHROs and their boards from thinking strategically. The organization must be able to assess the talent it currently has, the talent it will require in the future, and the best way to bridge the talent gap.PERCEPTION GAPS WITH EMPLOYEESBoards and their CHROs must make decisions about how to carry out commitments related to the talent agenda while navigating a rapidly shifting, occasionally contradictory reality. While they are better positioned to do so now than before the pandemic, the EY 2022 Work Reimagined Survey found that employers and employees are not always on the same page when it comes to employee engagement.For instance, when asked why they would change professions, employees most frequently cited career advancement and an increase in overall salary. On the other hand, employers say that learning, skills development, and well-being are some of the key elements to ensuring their employees can thrive. Additionally, there is a “loyalty disconnect” where employers think younger generations are less dependable. However, younger workers claim that they merely have different loyalties and values. Younger workers, for instance, place a higher priority on mental health, the mission of an organization, and its ethical standards than they do on management structures or the actual work.Organizations must act fast to close these perception gaps while maximizing the abilities of each and every worker. Putting humans at the center needs to be a strategic focus for the board and the CHRO to better understand what employees across all demographics want.CONSIDERATIONS FOR BOARDSBoards will need to ask themselves how they enhance both formal and informal talent governance to support and reflect the strategic relevance of the CHRO role. By collaborating with the CHRO, they can make sure the company stays on top of talent issues and can deal with the constantly shifting attitudes of its employees.The management group and the larger employee organization will have to determine how they uphold the culture and values of the company, as well as the systems in place to quantify this. Boards will also have to determine if the company has the necessary expertise and abilities, particularly those for future leadership, to execute its business plan.Lastly, board members must ask themselves what role they see themselves playing in developing a sustainable workforce and advancing the talent agenda. This can range from retraining the workforce and gauging the employee experience to boosting staff retention and integrating hybrid working styles into organizational culture.The second part of this article will discuss three strategies for boards and CHROs to help each other succeed: strengthening and enabling the CHRO role, re-examining the risk framework to support the talent agenda, and supporting CHROs in developing a human-centric strategy and employee value proposition.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services Workforce Advisory (PAS WFA) leader of SGV & Co.

13 February 2023

Benjamin N. Villacorte and Erica Nicole D. Gomez

Understanding the implications of the EPR Law (Second Part)

Second of two partsThe circular economy concept has been given more and more attention through the years and has now materialized in the Philippines through the Extended Producer Responsibility (EPR) Act of 2022 and its Implementing Rules and Regulations (IRR). In fact, the Philippines is one of the few countries around the globe with active regulations or national programs on the circular economy, counting itself among Scotland, Canada, South Africa, China, Japan, Singapore, and the European Union.Because of the huge potential of the Act to accelerate the transition of the Philippines to a more circular economy, all companies, not just obliged enterprises, can play a critical role in this ambition.In the first part of this article, we discussed six recovery programs, six reduction strategies and additional steps that obliged enterprises can undertake as part of their EPR programs. In this second part, we discuss EPR registration, EPR implementation, and keeping confidence through third-party assurance.FROM EPR REGISTRATION TO EPR IMPLEMENTATIONThe EPR registration with the National Ecology Center due on Feb. 13 is just the prelude to a long-term transformation process for plastic waste management. Mobilizing large enterprises in an action-oriented approach would lead to greater positive impact, which can also influence the micro, small and medium enterprises (MSMEs). MSMEs may voluntarily comply with the law by introducing small-scale EPR programs, but the real challenge lies in implementation.Since both reduction and recovery methods are required to fully comply with the law, investment in technology, innovation, facilities and product development are needed. Partnerships with local governments and the informal waste sector are also highly encouraged to ensure the engagement of key stakeholders in EPR programs. Because the EPR requirements set forth in the law may be demanding for some, authorizing a Producer Responsibility Organization (PRO) can serve as a viable additional platform for EPR program implementation.Obliged enterprises are required to have a system in place to account for their plastic footprint and engage an independent third-party auditor to certify the veracity of their reported plastic footprint, recovery and EPR program compliance using uniform standards established under the law. In this case, it would be advantageous to set up an internal auditing system as early as now to avoid delays and setbacks in the future. This will also allow obliged enterprises to thoroughly review the strategies and schemes that best suit their company.KEEPING CONFIDENCE THROUGH THIRD-PARTY ASSURANCEThe initial waste footprint to be submitted in time for the EPR registration can be self-declared by the obliged enterprises. However, after the first-year implementation of their EPR programs, obliged enterprises would need to report their compliance and recovery targets achievement, assured by third-party audit.While the submission of an EPR Law Compliance Audit Report (ECAR) is required for the government to monitor and evaluate the compliance of the obliged enterprises with their respective EPR programs, having third-party assurance provides transparency and confidence to businesses and their stakeholders that their efforts are contributing to a greater purpose.The first ECAR submission is still in July 2024 covering the EPR programs implemented in 2023, and the following should be covered in the report:• Footprint declaration for the volume of the obliged enterprise’s plastic packaging brought into the market during the period covered;• Recovery or plastic packaging waste diversion based on third-party audited diversion or credits;• Determination of the equivalent plastic packaging waste footprint reduction resulting from other EPR programs;• Confirmation of confidential information declared by the obliged enterprise.ADVANCING CIRCULARITY IN BUSINESSESEmbedding circular economy strategies in a company’s overall strategy and shifting to a circular model from a linear model can benefit the entire company and positively impact its operations, growth, and legal compliance. A circular economy is a type of economic structure that aims to reduce waste and unending resource usage. It represents a fundamental change in how stakeholders manage the use of goods and resources at their core. The goal is to maintain resources and their value in the loop rather than the present take-make-waste cycle, and to reimagine future business models suitable to creating a more sustainable society.In advancing circularity, companies can reassess their product designs and material options, and target to reduce waste generation in their whole operations cycle. Businesses that utilize durable, renewable, and recyclable materials can lessen its reliance on scarce and expensive resources as well as reduce their susceptibility to supply chain disruptions. Companies can also employ more sustainable procurement.Essentially, deciding to go with the more sustainable choice in applicable aspects of operations can make a huge impact and take the company a step closer to circularity. Additionally, shifting to a circular economy creates new jobs and revenue sources within the process of looping materials back into the system, including sorting, collecting, refurbishing, and remanufacturing, which is uncommon in the linear economy and opens businesses to new ways to drive growth.BEYOND COMPLIANCE: TAKING STEPS TOWARDS A CIRCULAR ECONOMYTaking into consideration the target timeline in the EPR, companies should now be ready for their plans and strategies on the implementation of their EPR programs for 2023. The first submission of the ECAR will cover the 2023 EPR programs. Obliged enterprises or PROs are required to establish and implement accounting, data recording, and auditing systems for their respective EPR Programs.The implementation of effective EPR programs goes beyond compliance — it also benefits companies through cost and tax reduction, energy savings, and favorable investor and consumer perception of their brands.The EPR Act of 2022 is an opportunity for businesses to contribute to tackling the growing volume of plastic waste in the country, preventing the loss of valuable resources and reducing environmental degradation. Since the IRR has been published, businesses must now step up and act to monitor and evaluate their plastic waste generation. By beginning to build partnerships and strategies for EPR program implementation, they can take a significant step towards a circular economy. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Benjamin N. Villacorte is a partner and Erica Nicole D. Gomez is a senior associate from the Climate Change and Sustainability Services team of SGV & Co.