The European Union’s (EU) environmental, social and governance (ESG) legislation is seen to increase demands on Philippine suppliers and exporters in three key areas, according to a new joint study.
The report, entitled “ESG Study: The Effects of EU Sustainability Regulations in the Philippines,” identified these areas of increased clamor for sustainability as those pertaining to sustainable production and products, sustainability due diligence, and corporate sustainability reporting.
In terms of sustainable production and products, some of the new EU legislation “are highly likely to result in increased demands for Philippine suppliers to ensure that their products are sustainably designed, manufactured and transported,” said the report undertaken by the Employers Confederation of the Philippines (ECOP) and the Danish Industry (DI), Denmark’s largest business and employers’ organization.
These regulations include the Proposal for an Eco-Design for Sustainable Products Regulation, Revision of the Packaging & Packaging Waste Directive, Carbon Border Adjustment Mechanism, and EU Deforestation Regulation (EUDR). They aim to make sustainable products the standard in the EU by setting new requirements for using circular materials, encouraging cleaner production in non-EU countries, and preventing deforestation.
To amplify, the report said exports of machinery and electronics, for example, must now comply with rules against deforestation, and packaging materials will need to meet recycling and reuse standards.
As for sustainability due diligence, Philippine suppliers should note that several new EU ESG regulations, including the Corporate Sustainability Reporting Directive (CSRD), Sustainable Finance Disclosure Regulation, EU Battery Regulation, Conflict Mineral Regulation, EUDR, and Corporate Sustainability Due Diligence Directive, require businesses to practice this activity.
“This means they must assess and address the environmental and social impacts of their entire supply chain,” said the paper. “As part of the supply chain for EU companies, Philippine suppliers will need to demonstrate how they are protecting human rights and the environment.”
Finally, Philippine firms are expected to expand their corporate sustainability reporting or add it to their administrative tasks as EU laws like the CSRD and the EU Taxonomy raise the bar for sustainability reporting.
As such, domestic suppliers will need to provide reliable ESG data and transparency, as European companies must now disclose detailed ESG data covering not only their own operations but also the environmental and social impacts of their supply chains.
This means Filipino companies must track and report on their environmental footprint and the social impacts of their business.
“Reliable data and strong transparency will be key to maintaining business relationships with European buyers,” added the report.
Growing impact
Meanwhile, the ECOP and DI held a seminar in Makati recently to highlight the salient findings of the report and underline the urgency for Philippine businesses to prepare for the coming wave of ESG regulations and to learn to comply with ESG standards.
Speakers, including DI’s Tobias Hansen and Thomas Skov-Hansen and ECOP’s Jelermina Abigail Gorospe, stressed how the EU’s ESG legislation is expected to exert a growing impact on Filipino companies, including small enterprises, in the coming years.
They urged Philippine industries to strive to become highly familiar with the EU’s sustainability laws to remain part of the supply chain to the EU market.
This is in light of the global move from voluntary standards to hard laws on sustainability. “In recent years, there has been a notable shift toward more formal and structured ESG legislation, both in the EU and beyond,” with Europe leading the charge with the introduction of comprehensive ESG laws, the presenters said.
Unfortunately, they said the study found that more than 70% of Philippine companies are unfamiliar with these forthcoming EU directives.
“For many businesses, especially smaller firms, there is significant knowledge gap, leaving them vulnerable as the EU tightens its sustainability requirements,” the speakers said.
Still, local companies are beginning to recognize the growing significance of sustainability and the need to improve their operations to align with ESG principles. This is particularly brought home to them by the increased demand for sustainable practices from their customers. As a result, 94% of these businesses said they expect sustainability to become an even bigger focus for them in the next three years.
Moreover, companies are starting to see sustainability not just as a burden but as an opportunity to open up new business paths and increase sales.
“However, the path forward is not without obstacles,” said the study. “Many businesses, particularly smaller ones, are struggling to meet these rising demands due to limited knowledge, resources, and financial constraints.”
The paper recommends raising awareness of EU regulations to support Philippine companies’ competitiveness for trading with the European market.
Support can come in the form of workshops, webinars, and information sessions to bridge the knowledge gap and equip businesses with the tools they need to comply with evolving standards. Businesses can also be assisted to invest in sustainable practices that align with international standards and prioritize supply chain transparency to improve their position on the global market.
