Are you familiar or at least aware of the Philippine Action Plan for Sustainable Consumption and Production (PAP4SCP)? Taking off from our first article on Extended Producer Responsibility (EPR) Act of 2022 (the EPR Act) last week, let us deep dive into the EPR Act and see how it aligns with PAP4SCP.
Overview of PAP4SCP
If the 17 United Nation Sustainable Development Goals (UN SDGs) were our children, today we would already have 17 eight-year-old third graders in school. This September marks the “eighth birthday” of the adoption of the UN SDGs, a blueprint for sustainable living that consists of 17 goals unanimously adopted by all nations in 2015. These goals encompass hundreds of targets and indicators combined aimed at fostering global sustainability.
In the context of the Philippines, a significant step toward achieving the UN SDGs happened in 2018 when the Asian Development Bank technical assistance and the National Economic and Development Authority started formulating the PAP4SCP. This plan aligns with the country’s long-term vision, AmBisyon Natin 2040 – for the average Filipino to have a strongly rooted, comfortable, secure and peaceful life by 2040.
According to National Economic and Development Authority in its website for SDGs, PAP4SCP seeks to influence and steer sustainable behavior across various sectors and governmental levels. It does so by implementing programmatic policy reforms and set of actions over the short- (2020-2022), medium- (2022-2030), and long-term (2030-2040). PAP4SCP would address SDG 12 which covers responsible consumption and production.
By accessing PAP4SCP, companies can anticipate and foresee potential future legislation that might impact their business operations. To provide insight into some of the proposed action plans within the Policy and Regulation framework, PAP4SCP's prioritized legislations are focused on the following areas: (1) food waste management to establish more composting facilities and enable safe food redistribution; (2) electronic waste management to address the problem of increasing waste from gadgets and digital appliances; and (3) green public procurement to enhance compliance of procuring entities in integrating green criteria in procurement guidelines, bidding documents and technical specifications.
PAP4SCP takes a proactive approach in aligning the nation's trajectory with the UN SDGs and presents an opportunity for responsible business practices and sustainable development. Among recent developments related to this is the lapsing into law of the EPR Act of 2022 which is one of the measures aligned with the goals of PAP4SCP.
In-dept details of EPR: A Game-Changer Regulation
As already highlighted in part 1 of this three-part article, plastic pollution is one of the most pressing environmental challenges facing the Philippines today. According to the World Bank, an enormous 2.7 million tons of plastic waste are produced in the Philippines every year, and an estimated 20% ends up in the ocean. This has far-reaching impacts on the environmental, public health, and the economy. Fortunately, we now have the EPR Act of 2022 to address this problem head-on.
The EPR Act institutionalizes a policy approach that encourages plastic waste reduction by placing the responsibility on producers to manage the waste generated by their products. Let us now explore the key features of this new law, i.e., what it means for the future of plastic waste management in the Philippines, and its implications for businesses. This will also allow us to see why it came to be considered a game-changing regulation.
Impact on Stakeholders
The EPR Act requires obliged large enterprises (OEs), or businesses with total assets worth more than
Php100.0 million to recover their plastic packaging waste through their EPR programs to achieve plastic neutrality. OEs are product producers which include: (1) brand owners who sell or supply any commodity under a brand, label, or identify using a product they produced, or a material supplied to them by another manufacturer or supplier; and (2) product manufacturers or importers that supply their commodities for the use of the general consumer or distribute the same product as a material product of the brand owner. They may opt to implement their own EPR programs or decide to work with other OEs, i.e., Collectives, or with Producer Responsibility Organizations (PROs).
Key Dates for Compliance
The EPR Act provides that OEs, Collectives, or PROs shall, within six months following the effectivity of the law, establish or phase-in EPR programs for plastic packaging, hence, by February 2023 their programs must have already been established. By June 2024, they shall have engaged their independent third-party auditors. The independent auditors shall issue an EPR Act Compliance Audit Report or ECAR after conducting a compliance audit. Accordingly, OEs, Collectives and PROs should already be coordinating with independent auditors. Part 1 of this three-part article provides a bit of guidance on this matter.
Plastic Packaging Covered
Plastic packaging based on the law shall refer to products utilized to carry, protect, or pack goods for transportation, distribution, and sale. This includes: (1) rigids, such as containers for beverages, food and others; (2) flexibles, such as sachets, labels and laminates; (3) plastic bags, e.g., single-use plastic bags; and (4) polystyrene.
EPR Program
A program on EPR shall be submitted and registered to the National Solid Waste Commission through the Department of Environment and Natural Resources (DENR). It shall include the following components: (a) specific type of plastic packaging materials and product brands; (b) verifiable volume or weight of the plastic packaging brought into the market within a specified period; (c) target volume or weight of plastic packaging waste for recovery, reuse, and recycling; (d) other EPR programs, such as the redesign of plastic packaging to improve reuse or recyclability; (e) labelling of packing materials to facilitate recovery, reuse, recycling or proper disposal of packing materials; (f) status of implementation of the EPR mechanisms; and (g) status of compliance.
Timeline of Recovery Targets
Targets for the recovery of plastic product footprint generated during the immediately preceding year have been set from 20% by December 2023, 40% by December 2024, 50% by December 2025, 60% by December 2026, 70% by December 2027, to 80% by December 31, 2028. It is important to note, however, that said percentage per year is just the minimum and companies can target to recover above the minimum percentage.
Penalty for Failure to Meet Recovery Targets
Covered entities that fail to meet recovery targets will be penalized, i.e., they will have to pay twice the cost of recovery and diversion of their plastic footprint or its shortfall, or the appreciation fine, whichever is higher. Appreciation fine ranges from:Php5.0 million – Php10.0 million, first offense; Php10.0 million – Php15.0 million, second offense; and Php15.0 million – Php20.0 million, third offense. The penalty for the third offense includes automatic suspension of business permits until the requirement of the EPR Act is complied with. The same fines will apply for an entity’s failure to register its EPR program on time.
Tax Incentives
OEs or PROs acting on their behalf can apply for tax incentives for their EPR activities. Provided, however, that such activities shall undergo the standard processes in the identification of qualified activities under the Strategic Investment Priority Plan. The EPR expenses of OEs, PROs, and private enterprises shall be considered as necessary expenses deductible from gross income subject to the substantiation requirements for necessary business expenses deductible from gross annual income in accordance with Section 34(A)(1) of the National Internal Revenue Code of 1997.
P&A Grant Thornton’s Insights
In the recent DENR’s launch of its EPR campaign, an interesting statistic was presented, i.e., there were only 622 EPR program implementers, which is a combination of OEs, Collectives, and PROs, that have so far submitted their EPR Programs as of July 2023. Meanwhile, it was mentioned during the recent American Chamber of Commerce of the Philippines’ webinar on EPR implementation that there are over 3,000 expected OEs. Thus, only less than 25% of said OEs have so far complied with the requirements and a huge percentage are yet to comply.
P&A Grant Thornton understands that EPR is a remarkable leap forward to a more sustainable Philippines, however, it also presents challenges for the OEs or PROs. Based on our discussions with companies navigating this landscape of EPR implementation, they are faced with multifaceted issues ranging from operational adjustments to strategic considerations.
It is important to note that although there are many challenges in the EPR implementation, it cannot be denied that it has already disrupted the operational landscape of companies, and it will continue to do so. This recent regulation could potentially be seen as a form of “growing pain.” Hence, it becomes imperative for companies to wholeheartedly embrace and embed this legislation together with the principles of sustainability into their operations moving forward. After all, it is for the greater good.
In P&A Grant Thornton, we have been diligently working to integrate UN SDGs into our operations since 2021. With these developments and the upcoming execution of strategies outlined in the PAP4SCP, harmonized with the UN SDGs, P&A Grant Thornton recognizes the critical role that professional firms can play in easing this transition and transforming these challenges into opportunities for growth. P&A Grant Thornton will continue to support and help actualize these strategic plans.
Let’s reflect on our opening statement, i.e., “If the 17 UN SDGs were our children, today we would already have 17 eight-year-old third graders in school.” We should be reminded of the journey we embarked upon eight years ago as a nation. Just as these goals have grown, so as our role in nurturing them. Much like responsible parents, it is our duty to provide unwavering support to these goals as years go by. Complying with the EPR Act, which, as we have highlighted, is a vital component of PAP4SCP, is one of the many ways to show such unwavering support. However, are the OEs or their PROs solely responsible in achieving plastic neutrality through their compliance with the EPR ACT? What about the many other stakeholders?
As published in The Manila Times, dated 20 September 2023
