Report Framework

This 2023 report, covering the period from January 1 to December 31, 2023, has been prepared under the Integrated Reporting Framework, originally developed by the International Integrated Reporting Council (IIRC). The IIRC subsequently merged with the Sustainability Accounting Standards Board (SASB) to form the Value Reporting Foundation (VRF). In addition, we have adopted the framework of the Task Force on Climate-Related Financial Disclosures (TCFD) to comprehensively address the impacts of climate change. The report is also aligned with the Global Reporting Initiative Standards for disclosures.

We have ensured that the report presents a balanced reflection of our company’s value creation process and the progress we have made in advancing the United Nations Sustainable Development Goals. It is our commitment to transparency and accountability that drives us to provide a comprehensive and accurate representation of our sustainability efforts.

This report is the result of a joint effort by the departments of Finance, Governance and Risk Management, Investor Relations, Human Resources, Corporate Communications and Sustainability, under the guidance of the Board’s executive committee

We are a signatory to

Our TCFD Progress Report

MAJOR POINTS

Any climate change that is not avoided must be adapted to. And because the climate is presently changing, and even under the most optimistic scenario, will continue to change for decades, adaptation must be part of our response to climate change. Doing so ensures the continuity of our business and lessens our exposure to risks that will affect our bottomline.

All of our business units continue to meet in a Climate Change Steering Committee every quarter with the purpose of sharing knowledge, learning and ultimately accelerating decarbonization work of our member business units. Chaired by our CEO, the steercom commits to one goal and that is: to do practical actions that will help reduce our emissions and adapt to a changing climate. We do this because our leaders believe that business units that embrace this opportunity early will build resilience and competitive advantage in a fast-changing world and be better prepared for the climate transition we all face.

In the past year we devoted our time in finishing up the climate scenario analyses of three of our businesses – Airspeed, 2Go and PGPC. Working with WWF under their Corporates for a Better Planet Initiative (CBPI), we analyzed future near-term risks and opportunities through a Climate Scenario and Geospatial Analysis using localized data from PAGASA’s Climate Extremes Report 2020 and tools such as HazardHunter Philippines and EasyXDI to determine flood susceptibility and Value at Risk (VAR), respectively.

There is an infinite number of possibilities for what could lie ahead. However, we are able to reduce this complexity by means of scenarios – pictures that help us imagine potential futures and prepare accordingly. That is the exercise that we have done with WWF. The scenarios we looked at may be slightly exaggerated and provocative but that is just to stimulate reflection and debate.

WWF Engagement: Corporates for a Better Planet Initiatives

The WWF CBPI Report for our three BUs provided an initial assessment of their sustainability strategies and climate readiness through the CBPI. The CBPI program adopts a dual lens of climate mitigation and adaptation, providing recommendations on greenhouse gas (GHG) emissions inventories, science-based targets (SBTs), and climate scenario analyses. WWF conducted the report in line with the recommendations of the TCFD.

For all the BUs, WWF recommended to set up a dedicated GHG Inventory Quality Management System to ensure inventory quality is on par with international standards, and all emission sources are accounted for, whether direct or indirect. Inventory data can be further improved with the system as the Inventory Quality Team ensures that data complies with GHG accounting and reporting principles namely: Relevance, Completeness, Consistency, Transparency, and Accuracy.

Business Unit-specific findings and recommendations include:

2GO

Mitigation

2Go’s current GHG inventory indicates that marine transport constitutes the bulk of emissions, and should be a priority target for decarbonization efforts This will require efficiency upgrades and the use of alternative fuel technologies

Adaptation

Airspeed

Mitigation

Airspeed’s Scope 3 Category 4 emissions (upstream transportation and distribution) is a major contributor to Airspeed’s GHG emissions. They will need to work closely with 3rd party logistics providers, particularly for international cargo for possible reduction programs.
Assess Low Carbon Options for land-based transportation such as vehicle electrification and fuel efficiency upgrades for its flee

Adaptation

Evaluate investments in structural upgrades to mitigate flooding susceptibility
Assess how extreme heat impacts Airspeed operations through risks associated with the health, safety, and productivity of employees

PGPC

Mitigation

Given the operational boundaries of PGPC’s GHG inventory and its contribution to the Philippines’ energy transition as a renewable energy resource, pursuing an SBT for Climate is NOT recommended. Instead, setting an SBT for Nature is recommended as an alternative, more material target

Adaptation

Further development of detailed and rigorous scenarios based on granular geospatial analysis and global energy transition trends to institutionalize climate scenario analyses in PGPC’s business strateg

WWF’s CBPI also analyzed our climate-related transition and physical risks. It also identified opportunities to improve processes to address climate-related risks, improve disclosure, and respond to identified gaps. The assessment classified climate-related risks into transition risks and physical risks.

The Risk Assessment according to the TCFD Framework is as follows:

Business Unit-specific findings and recommendations include:

2GO and Airspeed

Risks are present across multiple categories: policy and legal, technology, market, and reputation.
For the majority of climate scenarios, risks are present across all categories as more tangible and rigid national and international regulations are expected to be developed and fully or partially implemented by 2035 for more climate resilient operations.
Given the heavy contribution of international freight in Airspeed’s GHG inventory, market, policy and legal risks may be significant
Market risks are notable, evidenced by potential logistics clients’ preference for logistics providers with strong climate considerations.
Policy and legal risks may also be significant, especially if carbon pricing is implemented nationally or regionally.

PGPC

The risks are considerably lower relative to other power generating entities in the sector under policy and legal as current pressure is more focused on non-renewable energy sources.

Both acute and chronic physical risks are HIGH for the three companies

We identified major climate risks and we are currently working on reviewing adaptation plans and mitigation measures as well as enhancing our business continuity plans (BCP) at our facilities that have high climate change physical risk exposure.

Because of their frequency and impact, natural disasters brought about by climate change has been identified as a major enterprise risk. Our business units have put in place efforts to strengthen their BCPs; deeming it necessary to institutionalize plans that would help prepare a line of defense that would minimize impact and restore normal operations and service delivery as quickly and safely as possible after natural disasters.

Our Climate Roadmap

Reflecting on 2023, we have observed a noteworthy shift in consumer spending at SM. While our performance remains robust, the trend is no longer driven solely by revenge spending; rather, people are increasingly investing in pre-Covid lifestyle and experiences.

This bodes well for our growth but prompts consideration of possible environmental implications, given the surge in human activity, energy consumption and waste.

Recognizing this, we continue to quantify our climate impact using the Task Force on Climate-Related Financial Disclosures (TCFD) framework and participating in WWF’s CBPI. For instance, our initial climate risk assessment forecasts heightened risks such as infrastructure vulnerability to stronger long-term typhoons and increased employee exposure to excess heat.

These insights, coupled with increased regulatory demands for transparency, underscore the imperative for urgent climate action.

Adaptation

Board’s oversight of climate-related risks and opportunities

Management’s role in assessing and managing climate-related risks and opportunities

What We Committed in the Short-Term (1-2 years)

We will establish a Climate Change Working Group with senior management and technical staff, which presents recommendations to the Board. The Group will establish a practical roadmap and physical and transition risk strategies.

Our Current Practical Actions

The ExeCom performs an oversight function on material ESG issues relevant to the Company. It is assisted by the Climate Change Steering Committee, chaired by the CEO, which provides oversight on climate risks and opportunities.

Strategy

Climate-related risks and opportunities

Impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning Resiliency strategy, taking into consideration different climate-related scenarios, including a 2C or lower scenario

What We Committed in the Short-Term (1-2 years)

We will be conducting a comprehensive scenario analysis across our physical assets nationwide, identifying climate risks and opportunities. We will be incorporating climate-related issues in our Enterprise Risk Management and financial planning process.

Our Current Practical Actions

SMIC’s operating units (please see related story). The assessment covered climate-related physical risks and transition risks as well as a recommended science-based target in line with global climate goals. For 2024, three more business units will do their climate scenario analysis. Other portfolio investments, meanwhile, focus on renewable energy as both cost-reduction and climate strategy. Carmen Copper will be sourcing at least 10% of its power requirements from RE sources in the next five years. It has invested in a 180kw solar rooftop in its headquarters and a 4.996 MWp solar power Floating Photo Voltaic Project in its Malubog Dam. Plans are in place to install solar rooftop in other associated mining facilities within the mine camp.

Goldilocks also plans to install on-site solar power generating system in all of its plants in the next five years.

Retail business Alfamart is also eyeing solar deployment for new stores after it completed a 55KW solar rooftop project for their warehouse. In the pipeline is the construction of a 100KW

Strategy

Climate-related risks and opportunities

What We Committed in the Short-Term (1-2 years)

Our Current Practical Actions

WWF-Philippines, through their CBPI program, has concluded their assessment on climate-related vulnerabilities and opportunities for three of SMIC’s operating units (please see related story). The assessment covered climate-related physical risks and transition risks as well as a recommended science-based target in line with global climate goals.

For 2024, three more business units will do their climate scenario analysis.

Other portfolio investments, meanwhile, focus on renewable energy as both cost-reduction and climate strategy. Carmen Copper will be sourcing at least 10% of its power requirements from RE sources in the next five years. It has invested in a 180kw solar rooftop in its headquarters and a 4.996 MWp solar power Floating Photo Voltaic Project in its Malubog Dam. Plans are in place to install solar rooftop in other associated mining facilities within the mine camp.

Goldilocks also plans to install on-site solar power generating system in all of its plants in the next five years.

Retail business Alfamart is also eyeing solar deployment for new stores after it completed a 55KW solar rooftop project for their warehouse. In the pipeline is the construction of a 100KW onsite solar generation that will include warehouse battery charging stations.

Our banks on the other hand pursue financing for sustainability projects as a strategy. In January 2024, BDO launched its second ASEAN Sustainability Bonds issue which hope to finance eligible assets as defined by their Sustainable Finance Framework.

Risk Management

Processes for identifying and assessing climate-related risks Processes for managing climate-related risks Processes for identifying, assessing and managing climate-related risks are integrated into the overall risk management.

What We Committed in the Short-Term (1-2 years)

We take an inter-disciplinary approach to Enterprise Risk Management (ERM) with climate issues as part of the ERM agenda.

Our Current Practical Actions

We champion BCPs that improve organizational resilience through the protection of critical business functions that may be affected by climate change-related risks.

One of our BUs, PGPC, has a Facilities Hazard Risk Reduction Program and a Typhoon Preparedness Plan. They also conduct a Geohazard Assessment and Mitigation Management Plan for Extreme Precipitation. PGPC has instituted numerous safeguards and processes in a Resiliency Plan that is continuously updated by its technical teams, included in the annual budget, and reported annually to the Department of Energy.

Our real estate arm SMPH continually leads the ISO 22301 Certification of their key assets. They have 75 ISO Business Continuity Management- certified malls and will be working on two more certifications in 2024.

Metrics and Targets

Metrics used to assess climate-related risk and opportunities in line with its strategy and risk management process Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG), and the related risks.

Targets to manage climate-related risks and opportunities and performance against targets

What We Committed in the Short-Term (1-2 years)

We will expand our disclosure by providing methodologies and look into new climate metrics such as the Climate Action 100+ Benchmark Framework.

Our Current Practical Actions

While our CBPI engagement with WWF provided us with a working Science-based Target, our operating units will continue to work on practical, pragmatic reduction targets that they can commit to, achieve and communicate.

In the case of SM Prime which is responsible for 52.4% of SM Group’s overall emissions, this means committing to achieve net zero GHG emissions by 2040, ten years earlier than most corporates. Working with WWF-Philippines, SMPH has committed to Science-based Targets Initiative and has established its near- and long-term science-based targets for 2030 and 2035, respectively.

Moreover, we will also be looking at alternative targets such as SBT for Nature for PGPC as we need to take into consideration some of our investments’ already critical role in energy transition. Focusing on nature-positive solutions is more material, especially given inherent environmental impacts within the power sector.

Suggestion to also put the SM Climate Statement but it doesn’t need to take up as big a space as last year. Or may be a link or a QR code to where the reader can see/download the climate statement

Principles Of The UNGC

As a signatory of the UN Global Compact, we commit to upholding the Ten Principles, which advocate for human and labor rights, supporting anti-corruption, and protecting the environment.

UN Principles

Principles 1-2 : Human Rights

SM Policies and Guidelines

Human Rights Policy

SMIC respects and promotes human rights following the International Bill of Human Rights, the International Labor Organization Declaration on Fundamental Principles and Rights at Work, and the UN Guiding Principles on Business and Human Rights. We are committed to the principle that all persons should be treated with respect.

UN Principles

Principles 3-6: Labor Rights

SM Policies and Guidelines

Human Rights Policy

Child Labor
SMIC will not employ child labor, consistent with the provisions of the labor laws of the Philippines.

Freedom of Association and Speech
We promote open communication and forums that allow our employees to bring concerns, suggestions, and ideas forward to produce and facilitate improved methods and efficiencies.

Forced Labor and Human Trafficking
The company will not use slavery or involuntary labor, whether bonded, prison, military, or compulsory labor, including debt servitude or human trafficking concerning any aspect of its operations.

Discrimination and Harassment
SMIC believes that every employee has the right to be treated fairly and deserves a comfortable and safe working environment. SMIC prohibits discrimination based on age, race, color, religion, sex, nationality, marital status, disability, citizenship, sexual orientation, gender identity or expression, or other protected characteristic.

UN Principles

Principles 7-9: Environment

SM Policies and Guidelines

Sustainability Policy

SMIC is committed to complying to all applicable laws and regulations in all aspects of its operations about human and labor rights and environmental responsibility. It also aims to minimize the Company’s risks and impacts through the development of a robust and documented system of implementation, measurement, monitoring, dissemination and evaluation of globally accepted standards of social development and environmental sustainability performance both within its scope of operations and to the broader community.

UN Principles

Principle 10: Anti-Corruption

SM Policies and Guidelines

Anti-Bribery and Anti-Corruption Policy

SMIC is committed to conducting business ethically and honestly and implementing and enforcing systems that ensure bribery is prevented. We are committed to acting professionally, fairly, and with integrity in all our business dealings and relationships.

UN WEPS Progress Report 2023

We proudly uphold the UN Women Empowerment Principles (WEPs) as a signatory. As part of our commitment, we are undertaking a comprehensive Diversity, Equity and Inclusion (DEI) Roadmap across our organization to establish and maintain high standards and practices.

As a signatory, we are also reporting on our progress against the Essential Indicators of the WEPs Transparency and Accountability Framework based on our groupwide data as of December 31, 2023.

Baseline

Percentage of Women Employees

Between

51% - 80%

Percentage of Women at Management Level

Between

51% - 80%

Percentage of Women on Boards/Executive Team/Partners

Less than

30%

Progress 2023

Percentage of women and men employees

0 %

Percentage of women and men in senior management positions

0 %

Percentage of women and men on the company board

9,530

3, 2 pre-certified

10ha

9,434

Php 21.6bn

Php 49.6mn

1 Data corrected

2 2022 Includes SM Retail HQ, SM Prime, BDO, Tagaytay Highlands, Atlas Mining, NEO Group, Goldilocks. Restated to correct recycled water from Goldilocks.

3 2022 data updated

UN Arise Report 2023

We are a signatory of the UN ARISE, promoting resiliency as part of good business practices.

Focus Area

Climate
Change Resilience
Sustainability

SME
Gender

For more information, please see full report here

Also in September 2023, SMIC, in partnership with UN Global Compact Networks Philippines (GCNP), conducted a webinar entitled: Recover, Rebuild & Grow: A Webinar on Business Continuity for MSMEs with over 50 participants via Zoom and Facebook live.