On 23 February 2024, the Securities and Exchange Commission ("SEC") issued Memorandum Circular No. 5, series of 2024 or the Philippine Sustainable Finance Taxonomy Guidelines ("Guidelines"). The primary goal of the Guidelines is to channel capital towards economic endeavors that further sustainability goals, such as lowering greenhouse gas emissions and bolstering climate resilience. Additionally, it fosters transparency and reliability by reducing the likelihood of greenwashing and facilitates a fair transition to a sustainable economy.
The Guidelines uses the traffic light approach such as "green", "amber", or "red" in classifying an activity, as follows:
- A green activity is one that makes a substantial contribution to an Environmental Objective ("EO") and meets the Essential Criteria of Do No Significant Harm ("DNSH") and Minimum Social Safeguards ("MSS").
- An amber activity is one that makes a substantial contribution to an EO and meets the Essential Criteria of DNSH and MSS (i.e. a green activity), but causes significant harm to another EO. Such harm must be able to be remediated within five years, or within less than 10 years as verified by an independent party.
- A red activity is one that does not serve any EO or meet the Essential Criteria. This does not imply that the activity is unsustainable. Rather, it does not meet the higher sustainability ambition of the Guidelines, nor pass the DNSH or MSS tests.
The Guidelines also formally define sustainable finance in the Philippines as any form of financial product or service which integrates environmental, social and governance criteria into business decisions that support economic growth and provide lasting benefit for both clients and society while reducing pressures on the environment. Sustainable finance includes, as a subset, green finance which is designed to facilitate the flow of funds towards green economic activities and climate change mitigation and adaptation projects.
