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Charting a resilient future: A business imperative for the Philippines

(First of two parts)

IN BRIEF:

• Climate resilience is becoming an existential necessity in the Philippines due to the country’s vulnerability to climatic upheavals.

• Top government and private officials are stressing the need for resilience against climate impacts and the development of specific insurance products for climate change-related disasters.

• Philippine corporations are carrying out in-depth climate risk evaluations, which are aligned with global sustainability reporting standards.

In an era where climate change reshapes global economies, resilience transitions from a mere buzzword to a fundamental business strategy. For the Philippines, a nation perennially at the crossroads of climatic upheavals, this transition is not just strategic — it’s existential. The imperative for climate resilience is underscored by scientific projections, economic analyses, and policy shifts that beckon Philippine businesses toward sustainability and resilience.

This article discusses the importance of informed action, strategic foresight, and collaboration in building climate resilience. It highlights the pivotal role of business leadership in promoting sustainability and resilience as key drivers of economic growth and competitive advantage in the Philippines.

The second part of this series will focus on practical strategies and success stories, providing a roadmap for businesses to effectively manage climate risk with agility and insight.

Understanding climate resilience

At its core, climate resilience involves the capacity of businesses to adapt, survive, and thrive in the face of climate-induced disruptions. This notion gains prominence against the backdrop of the Philippines’ acute vulnerability to climate risks, highlighted by its ranking on Germanwatch’s most recent Global Climate Risk Index, an annual report that analyzes the effects of weather-related loss events.

Germanwatch is a non-profit organization that monitors global climate policies and human rights issues. Moreover, a recent publication from the Swiss Re Institute, a leading wholesale provider of reinsurance, highlights the economic impact of climate change, identifying the Philippines as the country most economically exposed to weather-related perils like floods and tropical cyclones.

In addition, new research by international journal Nature, the economic commitment of climate change, suggests that the world economy is committed to an income reduction of 19% within the next 26 years due to climate change, regardless of future emission choices.

This damage outweighs the mitigation costs required to limit global warming to 2°C by sixfold over this near-term time frame. The World Economic Forum also states that by 2050, climate change will cause an additional 14.5 million deaths and $12.5 trillion in economic losses worldwide. Healthcare systems will see an additional $1.1 trillion burden due to climate-induced effects, with floods, droughts, and heat waves identified as leading causes of climate-related mortality and economic losses, and the rise and spread of climate-sensitive diseases like malaria and dengue.

The Philippines typically experiences a significant 3% loss in GDP due to weather events, highlighting the urgency for adaptation measures to mitigate economic losses. The Swiss Re report, Changing climates: The heat is (still) on emphasizes the importance of accurately pricing climate change risk to catalyze necessary investments in adapting and resilience-building efforts.

THE WARMING WORLD AND ITS IMPLICATIONS
The Philippine economy, with its significant reliance on agriculture, tourism, and real estate, is particularly susceptible to climate-induced hazards. Flooding and droughts threaten agricultural productivity and asset values, and extreme heat elevates energy demand and costs. Furthermore, typhoons and storm surges can devastate tourism assets, a crucial income source for many communities.

With scientists warning of intensified, extreme weather events in a warming world, the cost to the economy can only go up. The insurance industry, grappling with losses from natural catastrophes, echoes this concern, highlighting a burgeoning coverage gap and the escalating cost of insurance in the Philippines.

LOCAL PERSPECTIVES
The urgency for climate resilience is echoed in the corridors of power, with President Ferdinand R. Marcos, Jr. elucidating the stark reality of the country’s economic exposure to climate risk. In March 2024, the President emphasized the need for the economy to be resilient against climate impacts, suggesting that without these challenges, the country’s economic strength would be more apparent. He made these remarks to highlight the importance of understanding and mitigating climate risks for economic development.

During the APEC CEO Summit in November 2022, the President also underscored the necessity of resilient infrastructure to combat climate threats, further underlining his commitment to climate resilience as a foundational element for the nation’s growth.

In addition, the Finance Secretary has expressed the need for developing insurance products specifically designed to address climate change-related natural disasters. This underscores his recognition of the increasing importance of adaptive measures in the financial sector to mitigate the economic impacts of climate-related events.

REGULATORY LANDSCAPES AND STRATEGIC IMPERATIVES
The Securities and Exchange Commission’s mandate for publicly listed companies (PLCs) to disclose climate hazard exposures and risk mitigation strategies illustrates a pivotal shift toward transparency and accountability in climate risk management. Aligned with global sustainability reporting standards, this regulatory evolution underscores the importance of integrating climate considerations into corporate governance and strategic planning.

Similarly, the mandate of the Bangko Sentral ng Pilipinas on environmental and social risk management and climate stress testing for banks systemically integrates climate resilience in the financial sector, influencing corporate strategies across the board.

CORPORATE LEADERSHIP IN ACTION
Many PLC and non-PLCs are proactively bolstering their defenses against climate change, with key industry leaders conducting in-depth climate risk evaluations in line with Task Force on Climate-Related Financial Disclosures (TCFD) guidelines. These comprehensive assessments deploy sophisticated climate models to gauge the potential severity and occurrence rate of climate-related threats, aiming to assess how these factors might impact corporate assets.

This forward-thinking approach demonstrates a broader commitment to sustainability and risk management, safeguarding stakeholder interests and ensuring long-term corporate value, which goes beyond standard regulatory requirements.

To continue this discussion, the next article will explore how leading Philippine companies are leveraging their proactive sustainability strategies to improve their market position and drive long-term value.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Bonar A. Laureto is an assurance principal and part of the Climate Change and Sustainability Services team of SGV & Co.