New Guidelines On Sustainability-Linked Bonds Issuance Now Available

• Published date: 01 August 2023
• Subject Matter: Corporate/Commercial Law, Law Department Performance, Compliance, Securities, Performance
• Law Firm: SyCip Salazar Hernandez & Gatmaitan
• Author: -1 SyCip Salazar Hernandez & Gatmaitan

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...