From Compliance to Climate Stewardship: A Board-Level Imperative for Philippine Companies

Mr. Jonas Marie A. Dumdum, AICD

Vice Chairperson, Sustainability Committee

Institute of Corporate Directors

Climate-Related Risks and Opportunities Are Now a Leadership Test

The starting point for understanding where Philippine boards stand on climate governance is not a regulatory deadline or a global framework. It is the evidence of what Philippine organizations are currently doing, and not yet doing, when it comes to managing climate-related risks and opportunities in practice.

A 2025 survey by Willis, ICD Philippines, and GRI provides that evidence. The progress is glaring as 45 percent of respondents rated their governance bodies as well-equipped to oversee climate-related risks, 51 percent rated their organizations highly on understanding climate impacts on their business models, and 49 percent indicated that climate considerations are embedded in strategy and risk management. These numbers reflect a business community that has begun to move, and the direction of travel is encouraging.

However, the gaps that sit alongside this progress are equally telling, and for board directors, they are the more urgent story. Sixty-seven percent of respondents have not quantified the financial impact of climate-related risks. Among those with climate risks in their ERM frameworks, 90 percent address physical risks while only 58 percent address transition risks and 33 percent address liability risks, precisely the categories generating the most immediate regulatory and legal exposure under the new disclosure requirements. Only 42 percent confirmed having insurance coverage for climate-related risks, in a country consistently ranked among the most climate-vulnerable in the world. Taken together, these findings point to organizations that are aware of climate risk but have not yet built the governance structures to manage it with the depth and rigor that the current environment demands.

These gaps become even more striking when set against what Philippine business leaders themselves have been signaling through three consecutive years (2024-2026) of the World Economic Forum's (WEF) Executive Opinion Survey for the Philippines, under bigger Global Risks Report. The EOS does not measure what organizations are doing about climate risk but shares what business leaders perceive as the most pressing risks to their operating environment. And what it reveals, year after year, is a risk perception that is running well ahead of the governance readiness that the Willis survey documents.

In 2024, extreme weather events ranked first among economy and society risks for the Philippines, accompanied by energy supply shortages, inflation, and infectious diseases. The dominance of physical climate risks in that year's rankings aligns precisely with the Willis survey finding that 90 percent of organizations with climate risks in their ERM frameworks focus primarily on physical risks. Philippine business leaders were flagging physical climate impacts as their most immediate concern, and their organizations were, to their credit, responding to that signal.

Yet, the EOS data from 2024 also showed energy supply shortages as a top-ranked risk, a signal of emerging transition risk exposure rooted in the country's energy infrastructure vulnerabilities that the Willis survey suggests most organizations have not yet translated into transition risk management. Only 58 percent of respondents addressed transition risks in their ERM frameworks, despite their own leaders identifying energy supply and infrastructure fragility as a primary concern.

By 2025, the EOS risk profile had shifted toward economic and social stress, with unemployment, food supply instability, and cost-of-living pressures moving to the foreground. This shift is not a departure from climate risk but provided a deeper focus of it. Food supply instability in a country as agriculturally exposed as the Philippines is inseparable from the effects of changing rainfall patterns, intensifying typhoons, and rising temperatures on crop yields and supply chains.

The economic stress that Philippine business leaders flagged in 2025 is, in significant part, the downstream consequence of physical climate impacts working their way through labor markets, commodity prices, and household purchasing power. And yet the Willis survey found that 67 percent of organizations had not quantified the financial impact of climate-related risks. Business leaders were already experiencing climate risk as an economic and financial reality in 2025, but most of their organizations had no financial framework to measure or manage it.

By 2026, the picture had evolved further. Misinformation, adverse outcomes of AI technologies, and persistent lack of economic opportunity entered the top risk rankings alongside climate-related exposures. These may appear unrelated to climate at first reading, but they are not. Misinformation increasingly shapes how climate-related risks are perceived and acted upon at the policy and corporate level. The lack of economic opportunity is directly tied to the vulnerability of communities and industries to climate disruption. And the governance failures embedded in these risks, including weak institutional responses and fragmented climate adaptation, are precisely the conditions under which physical and transition climate risks become most financially damaging for businesses. The emergence of these risks in 2026 reflects something the Willis survey also show that organizations which treat climate governance as a narrow compliance function, rather than an enterprise-wide strategic priority, are more exposed to indirect consequences of climate disruption than those that manage it with genuine depth.

Read together, the Willis survey and the Executive Opinion Survey tell a coherent and urgent story. Philippine business leaders have spent three years signaling, through their own risk perceptions, that climate-related disruptions are translating into financial, economic, and governance consequences across their operating environment. And the Willis survey shows that the internal governance structures of most Philippine organizations have not kept pace with what their own leaders already sense. The gap between risk perception and governance readiness is not a technical problem. It is a leadership gap, and it sits squarely at the board level.

This is also an opportunity, and it is one that will not remain open indefinitely. Philippine companies that build credible, board-level climate governance now will be better positioned to retain multinational clients, access sustainability-linked financing, attract institutional investors, and navigate the regulatory environment with confidence rather than anxiety. The social dimensions of climate risk add further weight to this urgency. In a country where climate disruptions already translate into lost livelihoods, displaced communities, food insecurity, and deepening inequality, the organizations that treat climate governance seriously are also the ones that will build stronger relationships with the communities they operate in, the workforces they depend on, and the regulators and policymakers who are increasingly scrutinizing corporate responses to climate-related social impacts. The organizations that move decisively are not simply managing risk. They are building the kind of institutional credibility, social trust, and long-term resilience that creates durable competitive advantage. Early movers will shape the standards, the relationships, and the market positions that late movers will struggle to replicate. The window to lead rather than follow is open. It is narrowing, however, and the pace at which it closes will be set not by the organizations that are watching, but by those that are already moving.

Why Boards Are Accountable and Why the Pressure Is Already Here

SEC Memorandum Circular 16-2025, issued on 23 December 2025, represents a decisive shift in Philippine corporate reporting. Through this circular, the SEC has adopted PFRS S1 on General Sustainability Disclosures and S2 on Climate-Related Risks and Opportunities. Sustainability-related risks and opportunities are now regulated, investor-focused, and financially material information that must be governed, managed, disclosed, and assured with rigor comparable to financial reporting. The Memorandum Circular uses a three-tier structure: Tier 1 companies exceeding PHP 50 billion in market capitalization adopt the new standards starting FY 2026, Tier 2 follows in FY 2027, and Tier 3, which includes smaller PLCs and large non-listed entities with revenues exceeding PHP 15 billion, begins in FY 2028.

All sustainability reports must be reviewed and approved by the Board of Directors prior to issuance. Directors who sign off on climate disclosures without adequate understanding of their company's physical and transition risk exposures carry personal liability for material omissions or misstatements. According to a 2025 report by the Grantham Research Institute, approximately 20 percent of roughly 3,000 global climate litigation cases specifically targeted companies, their directors, or their officers. This is no longer a distant prospect for Philippine boardrooms.

The pressure is not coming from regulation alone. The EU's Corporate Sustainability Reporting Directive requires large EU-based companies to report on Scope 3 emissions across their entire value chains. Philippine exporters, manufacturers, and service providers supplying EU-based multinationals are already receiving sustainability questionnaires, supplier audits, and carbon disclosure requests as a direct consequence. The way Philippine companies export their goods in the coming years will increasingly depend on how seriously decarbonization is being treated at the organizational level.

From the financial system, BSP Circular 1128 requires banks to integrate environmental and social risk management into credit processes, while BSP Circular 1149 requires a Sustainable Finance Taxonomy to guide project financing decisions. Climate action is becoming a determinant of access to capital, not just a governance consideration. For companies linked to global value chains, the window for a gradual and internally-driven transition is narrowing.

What Boards and Leaders Need to Do Now

Though climate action in Philippine businesses has started among several PLCs, expanding the conversation from compliance to actions that lead to genuine impact is becoming more urgent regardless of company size. What is needed is a structured transition from reactive compliance to active stewardship, built on a coherent governance architecture anchored on two functions that sit most squarely within the board's direct responsibility.

Oversight is where board-level accountability is most directly tested. Boards must be able to answer who holds the highest responsibility for overseeing the organization's climate-related impacts, what active steps are being taken to provide that oversight, and how the board is driving a decarbonization agenda forward. This means directors must be sufficiently informed about physical and transition risk exposures, able to evaluate management's claims about climate performance rather than simply receive and note them and empowered to challenge and redirect the organization's approach when the evidence warrants it. Directors, executives, and senior managers who cannot speak to these questions with substance are not simply underprepared. They are personally accountable for what they approve and what they miss.

Understanding what climate disclosure frameworks require of the governing body is an essential starting point for building that preparedness. These frameworks organize what boards are expected to oversee across governance, strategy, risk management, and performance tracking. For directors exercising oversight, the governance dimension is the most immediately relevant, covering how climate responsibilities are assigned, embedded, and exercised at the board level. But effective oversight cannot stop there. Directors must be sufficiently familiar with the strategic dimensions of climate disclosure to understand and interrogate what management is reporting about the effects of climate-related risks and opportunities on the organization, including how those effects flow through the business model and supply chain, the overall company strategy, financials and cash flows, and the organization's resilience under different climate scenarios. These are not technical matters that boards can safely delegate without understanding. They are the substance of what directors are ultimately responsible for when they put their names to a sustainability report.

In practical terms, this means boards should conduct a structured self-assessment of their current climate governance capability, mapping what they know, what they are being told by management, and where the gaps are. Directors should request that climate-related risks be presented in board meetings not as standalone sustainability updates, but as items with direct financial, operational, and strategic implications.

Board agenda items on climate should be framed around questions that matter to governance: What is our exposure to physical risks in the next three to five years? How would a carbon pricing policy or an accelerated energy transition affect our business model? What are our largest customers and lenders expecting from us on decarbonization, and are we currently able to meet those expectations? Where board-level knowledge is insufficient to engage with these questions meaningfully, directors should actively seek to build fluency on physical and transition risk concepts, scenario analysis methodologies, and the disclosure expectations that investors and regulators are increasingly applying to boards. This is not a matter of professional development alone. It is a matter of being able to exercise genuine, informed oversight over one of the most financially consequential risk areas on the board agenda.

Boards should also review their committee structures to ensure climate governance is not confined to a sustainability committee. The questions that climate raises, including which assets are exposed, what contingent liabilities exist, and how capital should be allocated considering transition scenarios, are questions for the audit committee, the risk committee, and the strategy committee respectively. Directors sitting on these committees should be asking climate-related questions as a matter of routine, not as a special agenda item reserved for annual sustainability reviews.

Management translates board-level intent into organizational accountability. Senior leadership must be accountable for managing climate-related impacts in practice, with clear metrics and targets underpinning the delivery of decarbonization commitments. Climate performance must be treated with the same institutional seriousness as financial performance, incorporated into executive evaluations, embedded across finance, risk, and operations functions, and reported to the board through structured and regular reporting lines. Making clearer the ownership of decisions, aligning sustainability performance with financial planning, and strengthening credibility with investors and lenders are outcomes that flow directly from effective management-level accountability on climate.

For management, the climate disclosure framework provides a practical map of the work that needs to be done across the organization. It requires management to address the effects of climate-related risks and opportunities across the business model and supply chain, to reflect those effects in overall company strategy, to quantify their financial and cash flow implications, and to demonstrate how the organization's strategy holds up under different climate scenarios. Beyond strategy, management must also demonstrate structured processes for identifying, assessing, and managing both climate-related risks and opportunities, and show how these processes are woven into the organization's overall approach to enterprise risk. Performance metrics and time-bound targets close the loop, requiring management to demonstrate measurable progress rather than stated intent.

This means that management's role in climate governance is not confined to producing a report. It requires building the internal systems, data infrastructure, cross-functional processes, and accountability mechanisms that make credible disclosure possible and that would withstand scrutiny from investors, lenders, clients, and external reviewers. Executives should establish a cross-functional working group spanning risk, finance, operations, sustainability, and strategy, tasked with translating the organization's climate-related risk and opportunity profile into measurable targets and action plans. These targets should be specific and time-bound, covering areas such as emissions reduction trajectories where applicable, capital expenditure allocations toward resilience or low-carbon investments, energy intensity improvements, and supply chain decarbonization milestones tied to customer and lender expectations. Vague commitments will not satisfy the scrutiny that the current reporting environment demands, and they will not hold up when investors, clients, and external reviewers begin asking detailed questions about progress and accountability.

Management should also initiate cross-functional discussions on the financial implications of climate-related risks, specifically connecting physical and transition risk scenarios to cash flow projections, asset valuations, insurance adequacy, and cost of capital. Organizations that can demonstrate this connection clearly, including through scenario analysis and quantitative risk assessments, will be better positioned to engage with sustainability-linked financing, negotiate favorable terms with insurers and lenders, and communicate credible transition narratives to investors and regulators. Those that cannot do so will find themselves at an increasing disadvantage as capital markets progressively incorporate climate performance into credit assessments and pricing decisions.

The management function also has an important organizational culture dimension. Senior leaders set the tone for how climate risk is perceived and prioritized throughout an organization. Where CEOs and senior executives treat climate as a compliance obligation managed by a sustainability team, that signal cascades downward, and climate considerations remain peripheral to core business decisions. Where senior leaders treat climate as a strategic priority with real financial and competitive implications, climate thinking begins to inform procurement decisions, capital budgeting, product development, and client relationship management in ways that build genuine organizational resilience. Building that culture is itself a leadership responsibility, and it begins with the signals that senior executives send through their own engagement with climate governance.

The Moment to Act Is Now

Philippine boards have both the opportunity and the obligation to lead this transition. The regulatory floor is set. Personal attestation is required, disclosure deadlines are approaching tier by tier, and the liability landscape is shifting. The external market is already signaling its expectations through supplier audits, credit conditions, and investor scrutiny. Waiting for full regulatory clarity or for the domestic conversation to mature further is no longer a viable position for companies with significant market exposure.

What the Executive Opinion Survey has shown over three consecutive years is that Philippine business leaders already sense the direction of travel. They see climate-related disruptions translating into economic stress, social instability, and governance failures. What has not yet caught up is the governance architecture needed to respond to what they already perceive. The gap between risk awareness and governance readiness is precisely where the leadership test lies, and it is a gap that boards have both the authority and the responsibility to close.

The immediate priority for every board is clarity on who is responsible for climate oversight, what the organization's actual risk exposure is, and whether the current governance structure is equipped to manage it. Directors who can answer these questions with confidence, who can engage management substantively on decarbonization pathways and transition risks, and who ensure that climate considerations are embedded in audit, risk, and strategy decisions, are the directors who will be positioned to create long-term value rather than simply manage near-term compliance.

ICD’s Sustainability Committee calls on board directors across all sectors and company sizes to take this step.

Climate stewardship is not a higher standard reserved for the largest or most internationally exposed companies. It is the standard that sound governance now requires of all Philippine boards, and the time to demonstrate it is now.

Access the full report here:  https://tinyurl.com/ICDclimaterisks