Transparency is our guide in an evolving ESG landscape

Transparency and accountability

To be recognized as a responsible corporate citizen, a company not only has to ‘do the right thing’, it also has to render account to the outside world by reporting in line with the expanding ESG disclosure requirements and best practices.

Philips has a strong track record in ESG reporting – the ESG statements included in our Annual Report are independently audited at highest (reasonable) assurance level, making us a front-runner in our industry. Transparency in tax reporting is one of our key ESG commitments. We see tax payments as a social value contribution to the local communities in which we operate, as detailed in the dedicated Country Activity & Tax Report we publish each year. And our annual ‘transparency cycle’ concludes toward the end of each year with the publication of our Philips Human Rights Report.

Driving the adoption of global standards

Historically, one of the things that has tended to hold back the wider adoption of ESG reporting has been the lack of global standards. Building on our extensive experience of environmental and social impact measurement and of providing transparency on governance, Philips has been playing an active role – in collaboration with, in particular, the International Financial Reporting Standards (IFRS) Foundation, the World Economic Forum (WEF) and the European Union – to help drive the evolution towards a standard ESG reporting framework.

Advent of EU CSRD a game-changer

Designed to bring about more complete, consistent and transparent sustainability reporting across Europe, the EU CSRD will take effect in January 2024 for listed European companies. CSRD will be mandatory for all large European companies and companies listed on the EU-regulated markets, including EU subsidiaries of non-EU parent companies; in total, this will affect some 50,000 companies.

In order to ensure companies report relevant and decision-useful information for investors, stakeholders, and society at large, CSRD and the 12 related European Sustainability Reporting Standards (ESRS) prescribe rules for organizations to report sustainability disclosures across several topics: not only metrics related to environmental performance, but also addressing social impact (the ‘S’ in ESG), for instance treatment of employees, respect for human rights, anti-corruption and bribery, and diversity. Organizations will be required to detail how their business strategy will mitigate the risks associated with these environmental and social issues and publish these disclosures – with independent auditing mandatory.

Clearly, we at Philips share the sense of urgency when it comes to protecting human health, as well as halting climate change and reversing biodiversity loss, without which the planet has no path to net zero. Accordingly, we support the rationale of increased transparency, enhanced accountability and improved risk management behind CSRD and other (voluntary) ESG disclosure initiatives. At the same time, reporting requirements need to be proportional, so that companies can provide their stakeholders with information that is meaningful, comparable and actionable.

Seeing CSRD as an opportunity, not a compliance exercise

Each year, we conduct an evidence-based materiality analysis to identify the Environmental, Social and Governance topics which we believe have the greatest impact on our business and the greatest level of concern to stakeholders along our value chain.

We do this through a multi-stakeholder process involving our customers, suppliers, investors, employees, peer companies, social partners, regulators, NGOs, and academics. Assessing these topics enables us to prioritize and focus upon the most material topics and effectively address these in our policies, programs and targets.

This year, in preparation for CSRD, after completing the regular materiality analysis, we completed a preliminary 'double materiality' analysis. The double materiality analysis addresses both financial materiality (the impact of society on Philips) as well as impact materiality (the impact of Philips on society).

These topics are all covered in more detail in the Annual Report 2022 and monitored regularly. And we will use the results of our double materiality assessment to further underpin and strengthen our preparations for CSRD. Because, ultimately, that will strengthen our ability to improve people’s health and well-being while acting responsibly towards the planet and society.

Not just a European matter

Traction for more exhaustive ESG reporting is increasing outside Europe too. Building on the work of the IFRS Foundation, the International Sustainability Standards Board (ISSB) has issued its inaugural global sustainability disclosure standards, and the US Securities and Exchange Commission (SEC) is developing a climate standard covering full value-chain emissions (Scope 3). Philips is well placed to comply with these new standards as we became the first health technology company to have its entire value chain CO2 emission-reduction targets approved by the Science Based Targets initiative (SBTi).

As a Dutch company with a US listing, we support the development – e.g. through the ISSB – of aligned global ESG metrics for consistent measurement and reporting of progress. And we strongly advocate interoperability between ISSB, SEC and ESRS standards.

Looking ahead

The many questions we receive from our Philips shareholders and other stakeholders on sustainability – what we’re doing to advance health equity and mitigate climate change and biodiversity loss – underscore the need for transparency in our ESG reporting.

As Philips’ Chief ESG & Legal Officer, I am very much taken up with the question of how to operationalize ESG at all levels in the company. Because that is how companies practically turn big aspirational pronouncements into action – it's how they go about making a real difference. I believe the ‘tone from the top’ is critical in ensuring sustainability is fully incorporated in companies’ risk approach and long-term strategy planning. In this respect, I follow with great interest the proactive efforts of the WEF Community of Chairpersons to map out what corporate boards, especially those of listed companies, need to know in order to keep pace with the fast-moving world of ESG reporting.

We will do everything we can to rally our industry peers, customers and partners around the tenet that transparency in ESG reporting can play a key role in driving long-term environmental sustainability and social impact.