Capital with purpose: ESG and Philippines finance

Environmental, social and governance (ESG) considerations have become a significant force in shaping modern finance. Investors, regulators, corporations and consumers are increasingly recognizing that long-term financial performance is closely linked to sustainable business practices.

As climate risks, social inequalities and governance concerns continue to influence economic outcomes, ESG principles are transforming how capital is allocated and how businesses operate around the world.

In the Philippines, ESG adoption has gained momentum as financial institutions, corporations and regulators respond to global sustainability trends while addressing local environmental and social challenges.

From sustainable banking frameworks to green bonds and renewable energy investments, the Philippine financial sector is gradually embedding ESG principles into its decision-making processes.

Understanding ESG in finance

ESG is a framework used to evaluate a company’s non-financial performance alongside traditional financial metrics.

• Environmental factors examine a company’s impact on the natural environment, including carbon emissions, energy efficiency, waste management and climate resilience.

• Social factors assess relationships with employees, customers, communities and other stakeholders, focusing on labor practices, diversity, health and safety, and community development.

• Governance factors evaluate corporate leadership, transparency, ethical conduct, board effectiveness and regulatory compliance.

Investors increasingly rely on ESG metrics to identify sustainable companies that are better positioned to manage long-term risks and opportunities.

The global shift toward sustainable finance

The global financial landscape has undergone a major transformation as sustainability has become a core component of investment decisions. Institutional investors, pension funds and asset managers are integrating ESG considerations into portfolio management to mitigate risks and generate sustainable returns.

Several factors are driving this shift:

1. Increased awareness of climate change and environmental degradation.

2. Growing demand from investors for responsible investment opportunities.

3. Enhanced regulatory requirements regarding sustainability disclosures.

4. Recognition that strong ESG performance can improve long-term financial resilience.

As a result, sustainable finance products such as green bonds, sustainability-linked loans and ESG-focused investment funds have experienced significant growth worldwide.

ESG in the Philippines

The Philippines faces unique sustainability challenges, including vulnerability to natural disasters, climate change impacts, poverty reduction needs and infrastructure development requirements. These issues have encouraged regulators and financial institutions to adopt ESG principles as part of national development efforts.

The growth of ESG investing in the Philippines is not limited to traditional equity investments. Innovative financial instruments such as energy transition mechanisms, gender bonds and sustainability bonds have emerged as important tools for directing capital toward sustainable development objectives.

• Energy transition mechanism (ETM)

A pioneering Philippine ESG initiative is ACEN Corp.’s ETM transaction amounting to P17.4 billion, completed in November 2022 – the first such transaction in the world.

In this transaction, ACEN divested its stake in South Luzon Thermal Energy Corp. (SLTEC), owner of a 246-MW coal plant set to retire by 2040, and received P7.2 billion for reinvestment in renewable energy projects.

The mechanism supports a “just energy transition” by reducing dependence on fossil fuels and expanding investments in solar, wind and other clean energy technologies. This transaction, which drew equity investment from pension and insurance funds, demonstrated how innovative financial structures can align investor returns with environmental sustainability goals.

• Gender bonds

ESG finance extends beyond environmental concerns to social development and inclusion. In 2023, the Asian Development Bank supported the Philippines’ first gender bond issued by ASA Philippines Foundation Inc. The organization raised P5 billion through a five-year gender note whose proceeds are intended to expand financing for women entrepreneurs and improve their economic opportunities.

This landmark bond highlights the “Social” dimension of ESG by promoting gender equality, women’s empowerment and financial inclusion. It also demonstrates how capital markets can be used to address social challenges while providing investors with opportunities to generate positive societal impact.

• Green and sustainability bonds

In 2016, AP Renewables, Inc. issued a P10.7 billion climate bond – described by the ADB as the first in Asia and the Pacific – for its Tiwi-MakBan geothermal facilities. Sustainable bonds outstanding in the Philippines have expanded significantly, reflecting increasing investor demand for ESG-focused investments.

BDO Unibank is one of the country’s pioneers in sustainable finance through its Sustainable Finance Framework, which supports green, social, blue and gender-related financing projects. The framework aligns with international sustainability standards and supports projects in renewable energy, climate action, community development and women’s empowerment.

In recent years, BDO Unibank has emerged as one of the most active sustainability bond issuers in the country. It has launched six issues of its ASEAN Sustainability Bonds since January 2022, raising an aggregate P518.7 billion. Proceeds are earmarked for eligible assets under its Sustainable Finance Framework.

In August 2024, Bank of the Philippine Islands (BPI) issued P33.7 billion in Sustainable, Environmental and Equitable Development Bonds. Proceeds were intended to finance and refinance projects under BPI’s Sustainable Funding Framework, including renewable energy, energy efficiency, green buildings, water management, and lending to micro, small and medium enterprises.

The Philippine government has become a regional leader in sovereign sustainable finance. In August 2024, the Republic of the Philippines issued a $2.5 billion triple-tranche global bond offering, which included a 25-year Sustainability Bond issued under the government’s Sustainable Finance Framework.

The issuance represented the country’s sixth G3 ESG bond offering and attracted strong international investor demand. Proceeds from sustainability bond issuances have been allocated to projects supporting renewable energy, climate adaptation and resilience, food security, health care and education, infrastructure development, among others.

Challenges facing ESG adoption

Despite significant progress, several challenges remain:

• Limited ESG data and disclosure consistency across companies.

• Variations in ESG reporting standards.

• High implementation costs for smaller businesses.

• Need for greater ESG awareness among investors and corporate leaders.

• Balancing sustainability goals with economic growth priorities.

Addressing these challenges will require collaboration among regulators, corporations, investors and civil society organizations.

Future outlook

The future of ESG in Philippine finance appears promising.

Emerging trends include:

• Greater use of green and sustainability-linked financing.

• Enhanced corporate sustainability reporting.

• Increased investments in renewable energy and climate-resilient infrastructure.

• Stronger regulatory support for sustainable finance.

• Expansion of ESG-focused investment products.

As these trends continue, ESG will play a crucial role in shaping a more resilient, inclusive, and sustainable financial system in the Philippines.

While challenges remain, Philippine examples such as sustainable banking initiatives, renewable energy investments, green financing programs and financial inclusion efforts demonstrate that ESG is no longer a niche concept. Rather, it has become a strategic framework and an integral component of investment strategy, risk management and sustainable economic development. It is reshaping the future of finance and creating opportunities for sustainable economic growth while supporting the evolution of Philippine capital markets to address both environmental and social challenges.

Ma. Aurora “Boots” Geotina-Garcia, is the chairperson of SharePHIL. She is the founding chairperson and president of the Philippine Women’s Economic Network and chairperson of the Governing Council of the Philippine Business Coalition for Women Empowerment. She is also the president of Mageo Consulting Inc., a corporate finance advisory firm.

To learn more about SharePHIL, visit https://sharephil.org/