Philippines SEC Issues Draft Rules for SRI Funds

To qualify as an SRI fund, an investment company must have at least 70% of its NAV allotted to ESG investments.

The Philippines’ Securities and Exchange Commission (SEC) has issued new draft rules for sustainable and responsible investment (SRI) funds. They are open to public comment until 2 February, 2022.

Under the rules, to qualify as an SRI fund, an investment company must adopt one or more sustainability principles or considerations or ESG factors as its key investment focus, and appropriately reflect such focus in its investment objectives and/or strategy in its registration statement.

SRI funds must also have at least 70% of their NAV allotted to ESG investments, and their name must accurately and fairly reflect the sustainability or ESG factors set out in their investment objectives and/or strategy.

Investment companies must also be able to explain to the SEC how the proposed name of the SRI fund is proportionate to its features, and ensure that it will “neither mislead investors as to the role of ESG in its overall investment objective and strategy nor over-emphasise or overstate the SRI fund’s ESG features”.

Only SRI funds can use the term “ESG”, “sustainability” or words of similar import in their names and marketing materials.

Unauthorised use of these terms or the making of false statements can result in a reprimand, or daily monetary penalties for subsequent offences.

The draft rules specify that SRI funds may consider nationally or globally accepted ESG or sustainability principles or criteria, such as the UN’s Sustainable Development Goals (SDGs) or Global Compact Principles.

The rules also set out the strategies SRI funds may adopt to achieve their investment objectives relating to sustainability or ESG, such as negative screening, impact investing and other ESG strategies practised nationally or globally.

On disclosures, 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.

The SEC also sets out requirements for SRI funds to undergo regular assessment and monitoring to ascertain if they have achieved their ESG focus. An Independent Oversight Entity (IOE) shall oversee the transactions and performance of functions by the fund manager to ensure compliance with the disclosures made in the prospectus and the requirements provided in the new rules.

The rules set out different penalty levels for SRI funds that fail to report or delay reporting of a breach of their ESG investment thresholds or inconsistency with their ESG focus, where the fourth breach can result in the suspension or revocation of the fund’s registration statement and the licence of the fund manager.

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