Philippine SEC Finalises Green Fund Rules

Under the new rules funds must allocate two-thirds of their NAV to sustainable investment objectives. 

The Philippine Securities and Exchange Commission (SEC) has issued its final rules for sustainable and responsible investment (SRI) funds. 

The rules were issued for consultation in January 2022, with the aim to enhance the transparency of disclosures on sustainability-related products, improve product comparability, and guard against greenwashing. 

To qualify as an SRI fund, an investment company must adopt one or more sustainability principles or considerations or ESG factors as its investment focus. It must also appropriately reflect this focus in its investment objectives or strategy in its registration statement. 

SRI funds may consider sustainability principles from nationally or globally recognised frameworks, such as the UN Sustainable Development Goals, UN Global Compact Principles, the International Capital Market Association’s Green Bond Principles, or Climate Bonds Initiative’s Climate Bonds Taxonomy. 

The rules require SRI funds to allocate at least two-thirds of their net asset value (NAV) to their sustainable investment objective, less than the 70% proposed in the initial consultation.  

The rules also set out the different investment screening approaches and sustainable investment strategies SRI funds may adopt to achieve their objectives, such as negative screening, positive screening, ESG integration, impact investing, and others. 

Additionally, SRI funds must ensure their names accurately and fairly reflect the sustainability or ESG factors set out in their investment objectives or strategy. These green funds must not mislead investors as to the role of ESG in their investment objectives and strategies, or overstate their ESG features. 

Non-SRI fund investment companies will not be allowed to use the SRI or ESG terms in their names or marketing materials, unless permitted by the SEC. Firms will be subject to penalties for using such terms without authorisation.  

Penalties will also be imposed against SRI fund investment companies that fail to report a breach of their ESG investment threshold or inconsistency with sustainable investment objectives. 

The rules specify the disclosures SRI funds should make, including those around their key ESG investment focus, ESG criteria and investment selection process, asset allocation, ESG-related risks, and assessment methodologies, among others. 

SRI funds will be required to undergo regular assessment and monitoring to ascertain if they have achieved their ESG focus. 

The SEC said that the rules are applicable to newly formed and existing investment companies that meet the qualifications for an SRI fund, as well as non-SRI investment companies that incorporate sustainability factors in their investment objective and disclose these in their registration statement. 

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