Our Governance and Enterprise Risk Management Strategy

GRI 102-18

Governance 

Our commitment to strong corporate governance is borne out of our belief in its importance to our long-term success. Adopting leading practices in good governance provides a solid foundation for creating value for our stakeholders and nation. Moreover, it enables us to become resilient amid changing circumstances and in the event of a crisis such as the ongoing COVID-19 pandemic.

We invest in and manage companies that provide essential services and are regulated by the government to one extent or another. As such, we operate under intense government and public scrutiny. Our situation is different than most companies in developed markets because our business engagements are imbued with public interest.

Governance in MPIC is based on a framework that combines internal standards and external evaluation processes. This framework emphasizes transparency, accountability, and integrity.

 

Internal Standards
TR-RA-520a.1

  1. Long-term strategy is for the benefit of all stakeholders – with shareholders at the forefront
  2. Align the interests of management with shareholders
  3. Sufficient Board oversight of management’s tactical implementation

External Evaluation

  1. Clearly communicate strategy and business drivers to equity analysts and shareholders
  2. Join organizations to benchmark versus best practices and peers

 

Government and Regulation

All our dealings with the Philippine government are in the public domain. We provide the government and consumers with enough information to determine our performance versus service standards. Our companies stand behind their services and take proactive steps to rectify any performance issues. We are committed to upholding the highest ethical business conduct standards because we are invested in our country just as much as our companies.

We confirm full compliance with the Revised Manual on Corporate Governance as mandated by the Securities and Exchange Commission, the Philippine Stock Exchange, and other applicable government regulatory agencies. Details of our governance practice are available at the Integrated Annual Corporate Governance Report. No legal proceedings associated with charges of bribery, corruption, or anticompetitive practices have been made against the Company. However, certain subsidiaries are parties to certain lawsuits or claims arising from the ordinary course of business. The inherent uncertainty over the outcome of these matters is brought about by the differences in the interpretation and implementation of the relevant laws and regulations. More details on these are outlined in our 2021 SEC Form 17-A.

 

Shareholders and Information

MPIC keeps an open two-way dialogue with shareholders. We inform everyone, including minority shareholders, of any development or change in our strategy. We regularly conduct meetings to aggregate their concerns and bring them up to senior management and our Board when necessary. These concerns are also taken into consideration when we implement our strategy.

We provide consistent updates and the latest information to measure progress and quickly address any arising issue. Our website is always up-to-date, with relevant data on our finance and operations readily accessible. We have remove included the ability to download historical data from our website. We always look for ways to continuously improve access to information and strengthen processes for our shareholders.

 

Board and Structure

Our Board of Directors is responsible for overall corporate governance and ultimately controls all our businesses. The Board sets the Company’s policies and strategic direction, oversees management implementation, and ensures a robust governance framework. It is composed of fifteen directors with diverse backgrounds, four of which are independent. It includes leaders of each of our business lines to keep our Board in tune with developments in our portfolio.

The Board meets at least five times a year to monitor and review our business affairs. These meetings focus on the Company’s financial and operational performance, risk management, sustainability journey, and other matters that directly or indirectly affect our operations.

Various committees assist the Board in performing its duties and responsibilities. Each committee is chaired by a Non-Executive Director, with Independent Directors, to ensure impartial execution of each committee’s function. Each committee is guided by its own Board-approved Charter in performing its functions and formalizing applicable procedural mechanisms and oversights.

The Governance and Sustainability Committee ensures that our governance framework aligns with best-in-class practices. Integral to this is the annual review of the Revised Manual on Corporate Governance and the endorsement of any improvements subject to the Board’s approval. It also designs the comprehensive onboarding program of new directors.

The Audit Committee oversees our financial reporting and internal controls. It approves Internal Audit function and scope of work. It is responsible for recommending the external auditor and ensures that non-audit work does not compromise with this auditor’s independence. It reviews and pre-approves all audit services of our independent and external auditor Sycip Gorres Velayo & Co. (SGV) before these services are performed. In connection with this, the Committee approved the audit and non-audit related fees of P30.3 million for 2021 and P51.1 million for 2020, broken down as follows:

*Mr. Roxas and Retired Chief Justice Panganiban has attended all committee meetings after their election as members of the Audit Committee. The former Audit Committee member attended the meetings before the election of Mr. Roxas and Retired Chief Justice Panganiban.

The Risk Management Committee assists the Board in overseeing and executing our enterprise risk management policy, including regulatory and ethical compliance monitoring. It examines our risk exposure and the steps taken to manage and control such exposure through periodic assessments.

The Compensation Committee oversees the compensation of senior executives and the overall compensation framework for all employees. It sets targets as boldly as possible to motivate management to perform long-term. It exercises functional oversight on leadership development matters, including but not limited to succession.

The Nomination Committee assists in vetting and recommending new directors of the Board and membership in the various Board Committees. When searching for candidates, it exercises the authority to utilize third-party executive talent acquisition firms or other external sources. It reviews the qualifications of all individuals nominated as our directors, including the autonomy of those to be appointed as Independent Directors.

The Finance Committee reviews critical financial and investment strategies, as well as capital allocation decisions and investment performances. It advises the Board on any proposals for mergers, acquisitions, and disposals. It also reviews plans for raising capital and the liquidity, loan covenant compliance, and liability management program of the Company and its subsidiaries, joint ventures, and associates.

In compliance with the requirements set forth in SEC Memorandum Circular No. 1, series of 2014, Metro Pacific Investments Corporation submits the following information regarding the attendance of directors during Board Meetings of MPIC.

*Newly appointed independent directors. They attended all meetings of the Board of Directors from the time they assumed office. The former independent directors had also 100% attendance in Board meetings.

 

Board Independence

The Board is structured to provide an independent check on management. Each director contributes independent judgment to formulate sound corporate strategies and policies. Furthermore, our designated independent directors have all the qualifications and none of the disqualifications to sit as Independent Directors of the Company. They do not have any business or relationship with the Company that could, or could reasonably be perceived to, materially interfere with their exercise of independent judgment and in carrying out their responsibilities as an independent director.

 

Leadership Selection

We adhere to our Guidelines on the Search, Screening, and Selection of Directors to ensure that an efficient and effective process is made in electing suitable candidates for the Board. The Nomination Committee is responsible for this process, which includes using external sources such as talent acquisition firms, director databases, and other reputable sources, when necessary, to further enhance the search and widen the base of potential leaders.

The Guidelines outline procedures and safeguards in the director selection process to ensure that the composition of the Board is an effective and balanced mix of knowledge, expertise, experience, complementary skills, and talents that are mutually reinforcing. Nominees to the Board must also promote diversity in terms of gender and ethnicity, among others. The Guidelines also ensure that the selection of directors and independent directors is consistent with our mission, vision, and strategic directions and the Board’s duties and responsibilities.

 

Management and Remuneration

The Board, together with management, assesses annually the continuing appropriateness of our vision, mission, and strategic objectives. Long-term targets and the strategies to achieve them are discussed with key executives of each operating unit through regular briefings. Management is responsible for the specific day-to-day operations based on strategies outlined by the Board. They report to the Board during quarterly meetings to ensure that our Company’s performance aligns with the changing business environment and culture.

Our executives are incentivized to help push the Company forward. Compensation is competitive and set at a level meant to attract and retain talent and drive them to contribute to the Company’s long-term success. Management is compensated by a mix of core income progression targets and share price performance. Remuneration of key executives, including the President and Chief Executive Officer, is based on compensation plans approved by the Board.

 

Continuing Education and Best Practices

We continuously benchmark and improve our corporate governance against best practices by joining organizations such as the Institute of Corporate Directors (ICD), Ethics and Compliance Initiative (ECI), and the Good Governance Advocates and Practitioners of the Philippines (GGAPP). Our directors and employees also participate in training provided by these and similar institutions to equip them on current trends and the best approaches to corporate governance.

We have a professional development program that requires each Board member to undergo four hours of continuing education every year. Through our Annual Corporate Governance Enhancement Session (ACGES) accredited by the SEC, our directors are informed of developments in corporate governance, business and regulatory environments, emerging risks, audit and internal controls, sustainability, and strategy.

 

Business Ethics

All directors, officers, and employees of the Company uphold the highest standards of business ethics by following MPIC’s Code of Business Conduct and Ethics. This Code stipulates specific provisions on compliance, competition and fair dealing, confidentiality of information and proper use of property, conflicts of interest, corporate opportunities, disclosure, risk management, and relationships with shareholders and investors.

We respect and adhere to all applicable laws and regulations on the environment, employment (including laws prohibiting child or forced labor), health and safety, product responsibility (such as advertising and labeling), bribery, privacy, cybersecurity, and non-discrimination.

 

Policies and Procedures
IF-EN-510a.1, IF-EN-510a.2, IF-EN-510a.3, UNGC Principles 1, 3, 4, 5, 6, & 10

All directors, officers, and employees of the Company are informed about our policies and procedures to combat corruption, fraud, and other malpractices. Everyone undergoes ethics training to ensure that our business and conduct are of the highest ethical and corporate standards and follow Philippines laws and regulations.

Details of our policies are available on our website: https://www.mpic.com.ph/corporate-governance/company-policies/

 

Whistle-Blowing Policy encourages all of our personnel to notify the corporate governance team about any actual or potential improprieties and violations of the Code. This internal control mechanism provides a confidential channel to report any serious concerns about suspected misconduct, malpractice, or irregularity within the Company.

 

Conflict of Interest Policy ensures that the principles of integrity, transparency, accountability, and fairness are upheld in all Company transactions and official actions. The policy requires all Company personnel, including consultants, to carry out a decision, action, or inaction that is above board, based on sound judgment, and devoid of bias or impartiality.

 

Related Party Transaction Policy prevents any possible conflict of interest that may compromise the best interests of the Company and its shareholders. This policy complies with SEC’s MC No. 10, Series of 2019, and includes material related policy transactions following SEC rules.

 

Insider Trading Policy regulates the dealing or trading of Company shares while in possession of material, non-public information. Blackout notices are sent regularly to the whole organization to prevent transacting shares during an identified Blackout Period. This policy also requires directors and all covered officers to adequately disclose their dealings of shares of the Company under PSE and SEC rules.

 

Policy on Gifts, Entertainments, and Sponsored Travel provides guidelines on handling such from third parties dealing with the Company and prevents gaining undue advantage from or influencing the objectivity of our directors, officers, employees, or consultants.

 

Supplier Code of Conduct outlines the company’s principles in dealing with suppliers, such as conducting business responsibly and with integrity, honesty, and transparency; competing fairly without paying bribes or anything of value to secure improper advantage; and complying with all state laws and regulations.

 

Anti-Bribery and Anti-Corruption Policy embodies our zero-tolerance approach to any form of bribery and corruption. This policy defines and provides examples of these prohibitive acts and establishes disciplinary consequences for any violation committed by the Company’s personnel.

 

Business Development and Investment Policy provides the guidelines in the Company’s project development activities. The Policy also includes a list of Industry and Product Exclusions where the Company will not invest in.

 

Environment and Social Impact Assessment (ESIA) Policy indicates that the Environmental, social and governance factors are key considerations in MPIC’s investment decision making process and in guiding existing portfolio of companies. This ESIA Policy seeks to formalize ESIA as a mandatory item in MPIC’s M&A due diligence.

 

Respect for and Protection of the Rights of People Policy lays down the general framework by which the Company shall do business in a manner that respects and promotes human dignity.

 

Workplace Gender, Equality and Diversity Policy is designed to promote a diverse workforce and ensure that the Company’s employees are not discriminated against on the basis of their gender, sexual orientation, age, marital status, pregnancy, political beliefs, ethnicity, religious beliefs, disability or other distinguishing characteristics that are not relevant to their ability to work.

 

Environmental, Health and Safety Policy aims to enjoin the organization to adopt the highest standard on its Environmental, Health and Safety performance in accordance to the ESG principles.

 

Tax Policy ensures that all directors and employees of MPIC group have declared their commitment to complying with all laws and regulations, social standards, and internal company rules, whether in the Philippines or overseas, and acting in accordance with the highest ethical standards in both private and public activities.

 

Stakeholder Engagement
GRI 102-40, 102-42, 102-43, 102-44
MPIC’s long-term goal is to enable national progress through investments in infrastructure that enrich all Filipinos. We  combine business acumen with innovation to create  sustainable business models and approaches that bring positive and meaningful impact on people’s lives, many of whom have had to endure poverty for so long.

Achieving these ambitious targets requires an acute understanding of the local forces and macro-trends that may hinder our stakeholders from improving their lives or realizing their economic potential. In reporting our sustainability initiatives, we consider and address distinct interests of all our stakeholders to achieve clarity of context and vision, especially when making decisions that directly affect their lives, well-being, and livelihood. These stakeholders are identified and selected by carefully assessing which groups are most impacted by the topics that are material to us.

Stakeholder engagement is an integral element of our overall sustainability strategy and as such we utilize the same approach and steps as we do in our business. We listen and engage directly with stakeholders through frequent dialogues, information exchanges, consultations and collaborations, and through a variety of other channels and interactions. We regularly review how we work with them as we value their input, involvement, and trust in our business.

MPIC also recognizes the importance of transparency and the need to constantly communicate with regulators and other parties in order to improve reporting and compliance with laws and regulations. When possible and as deemed necessary, we participate in discussions to improve national policies that align with our business goals and vision.

Methods and Outcomes of Stakeholder Engagement
GRI 102-40, 102-42, 102-43, 102-44
Direct Stakeholders

Stakeholders of our Operating Companies

Enterprise Risk Management 

We adopt a pragmatic framework in identifying, analyzing, and managing risks and opportunities that may impact our ability to achieve our objectives. Through the Risk Management Committee, the Board approves our risk management system and oversees its adoption by management. Management is primarily responsible for designing, implementing, and maintaining risk management policies and procedures and their continuous improvement. Our ERM framework is based on ISO 31000:2018 Risk Management Guidelines.

The Chief Risk Officer (CRO) champions implementing ERM policies and procedures in MPIC’s operating companies. The CRO reviews these policies regularly to ensure consistency and alignment of risk management practices across the MPIC Group.

 

Entering New Investments 

Before making a new investment, any business to be acquired by the Company is subject to extensive due diligence. This process involves a thorough review of financial, operational, regulatory, and risk management of the investment as well as dispute resolution mechanisms. This also involves looking into a broad range of economic, environmental, social, and governance considerations, including what regulators in the Philippines and other markets consider as affordable by the public.

Risks to investment returns are calibrated, and specific measures to manage such risks are identified. We are highly selective in the investment opportunities we examine. Due diligence is conducted incrementally to minimize the cost of evaluating opportunities that may ultimately not be pursued.

In varying degrees, our investments involve a partnership approach, with the Company taking
a controlling position. Key operating partners provide operational and technological input, which mitigates the risks of investing in new business areas. These partners are equity partners who participate in the risks and rewards of the business alongside MPIC.

Financing new investments is made through a debt-equity combination with reference to the underlying cash flow strength of the target business and the company’s overall financial position.

The Philippines remains predominantly the Company’s geographic focus. Through equity investments, operations have expanded to other Southeast Asian markets such as Indonesia and Vietnam. The Company mitigates risks associated with foreign investments by partnering with reputable firms and engaging strong advisers.

 

Ongoing Management of Financial Stability 

We do not guarantee the borrowings of our operating companies. There are no cross-default provisions from one investee company to another. The Company’s financial stability, including its dividend commitment to shareholders, is managed based on any dividends remitted to MPIC by these companies to cover operating costs and service borrowings.

We avoid currency and investment cycle mismatches by borrowing only in the local currency using primarily long-term instruments with fixed rates. Our balance sheet’s debt level is set at a level that withstands variability of dividend receipts associated with certain risks that impact its operating companies. Beginning 2021, we have enhanced our Financial Governance policies to ensure that we always maintain positive free cash flow.

 

Risk Management in Operating Companies 

Risk management of operations is primarily managed within each portfolio company, with the most material risks reported to the Company’s Risk Management Committee. Each operating company has its own ERM unit and corresponding ERM policy under the oversight of its own Risk Management Committee.

Key risks in operating companies identified by the Group include political and regulatory risks,
as well as market and competition risks. We invest in businesses regulated by the state, and as such, we have established dedicated regulatory management groups to manage our relationship with regulators. We exercise strong discipline when bidding for Public-Private Partnership (PPP) projects offered by the government.

 

Financial Risk Management 

We have identified several vital financial risks across the Group, which each operating company essentially manages independently. Interest rate exposure is driven by a mix of fixed and variable rate debt. Foreign currency risk is handled through the regulated return mechanisms of each company. Each company monitors its cash position using a detailed cash forecasting system to manage liquidity risk. Equity price risk is managed whenever it becomes relevant.

 

Enhanced Enterprise Risk Management 

We began the process of improving and updating our Enterprise Risk Management strategy and plan in 2021. Reviewing our entire portfolio, we quantified all identified risks based on reasonable estimates of losses and gains and repositioned each risk’s rating and priority level based on the new findings. By doing so, we are able to allocate the right amount of focus and resources to each corresponding risk.

These risks have been grouped according to their specific category and are presented in the following table. However, with our increased focus on sustainability, climate-related risks required a more extensive analysis by a third-party consultant and the results of which are presented separately.

Right after signing up as one of pioneer TCFD supporters in the country, we immediately started the groundwork and conducted our climate risk assessment. We present to our stakeholders our climate disclosures aligned with the TCFD Framework:

 

Climate Governance
GRI 102-11

Climate-related risks are managed by the Group’s Risk Management Committee, which
advises the Board on key climate-related matters. Oversight guidance is also provided by the Governance and Sustainability Committee as it is primarily responsible for all ESG issues. The MPIC Group Sustainability Council plans and harmonizes climate-related sustainability initiatives of the Group for a wider positive impact on all stakeholders.

The Chief Finance, Risk and Sustainability Officer, the highest management-level sustainability champion, is responsible for pushing our sustainability agenda, managing climate-related risks and opportunities, and updating the Board on progress, plans, and strategies on a quarterly basis. Each operating company’s Risk Officer is responsible for identifying, assessing, quantifying, and managing their specific climate-related risks, updating the Chief Finance, Risk and Sustainability Officer on risk strategy and progress on a quarterly basis as well.

Risk Management and Strategy 

The combined risk assessment is as follows:

Metrics and Targets 

In 2021, we sharpened the MPIC Group sustainability roadmap. We aspire to become the catalyst for sustainability in the Philippines while providing essential services to improve lives and livelihoods of Filipinos. We plan to decarbonize our existing operations and improve resource efficiency by reducing our emission intensity by 30% vs. 2019 baseline in 2030. We will also increase our renewable energy share in our energy mix by 30% and our waste diversion rate by 35%. As we transition to clean energy, our power arm, Meralco, committed to secure 1,500 MW of our power requirements from renewable energy sources in the next five years. We are also accelerating our renewable energy build-out plan of up to 1,500 MW of clean energy capacity in the next 5-7 years. MGreen, Meralco’s subsidiary, started the operations of its maiden solar project, BulacanSol, a 50-MW solar farm, in 2021.

We are also fortifying our business model resilience by scaling value-unlocking sustainable businesses, especially green mobility and waste management. In 2022, we are poised to start the commercial operations of our biogas plant in Mindanao, which is expected to expected to provide 5.7 MW clean energy for Dole Philippines. MPT Mobility plans to install electric vehicle charging stations in all of its expressways next year.

 

Climate-related Risks and Opportunities 

GRI 102-11

The Philippines ranked 17th in the 2021 Global Climate Risk Index (CRI) based on 2019 data of how the country was affected by extreme weather events. It ranked 2nd in the 2020 Index
and 4th during the last 20 years. The CRI indicates a level of exposure and vulnerability to climate-related extreme weather events, which countries should interpret as warnings to prepare for more frequent and more severe future events. Meanwhile, in the 2021 Climate Risk Country Profile released by the World Bank, the Philippines ranked 114th out of 181 countries based on the 2020 ND-GAIN Index, which scores a country’s readiness to climate change vis-à-vis readiness to improve resilience given the combination of political, geographic, and social factors. The ND-GAIN Index aids businesses in prioritizing investments in response to climate-related challenges.

For MPIC, the continued rise in temperature and the intensifying typhoons that now frequent the Philippines as a result of climate change present immense risks to our business and the essential services we deliver to the Filipino people. These include:

  • Damage to infrastructure and facilities from severe storms and floods
  • Disruption of services and transport networks
  • Vulnerability to water scarcity due to extreme heat
  • Risk  to general population influencing consumption patterns
  • Increased health risk that will overwhelm healthcare system
  • Disruption to supply chain, livelihood, and economies
  • Social and economic constraints on  available resources
  • Reputational risk based on climate response and action

 

TCFD climate risk scenario analysis 

We have sought a third-party assessment to analyze our climate- related transition and physical risks and quantify our Climate- Value-at risk (CVar) for our six major operating companies. We also identified opportunities to improve processes to address climate- related risks, enhance disclosure, and respond to recognized gaps. To cover a wide range of transition and physical risk, a total of five scenarios, were used to calculate the aggregated CVar.

Having quantified the CVar for our major operating companies, we further enhanced our analysis by subscribing to a climate risk analytics platform to perform our own assessment. It helped us to take a more proactive approach in managing the impacts of climate risks and make our strategies more robust across a range of plausible impacts, guiding us to come up with better business decisions.