Is the Philippines’ CSR Bill a Trojan Horse for corporate interests?

31 May 2021

Kristine Fonacier, Source: Eco-Business

Without the proper safeguards in place, a bill that incentivises CSR programs might instead open the door to highly regulated tobacco and allow corporations to whitewash their activities and exert political influence. Image: Eco-Business

A bill that financially incentivises businesses to make positive social change is close to becoming law in the Philippines. But some worry the legislation offers excessive incentives and could allow industries like tobacco to use donations to exert influence over government officials.

As the Philippines wrestles with the worst economic downturn since public records began in 1947, a piece of legislation that is designed to encourage corporates to plug holes in government services, is edging closer to being passed into law.

The Corporate Social Responsibility (CSR) Act of 2019 that aims to encourage good deeds by offering rewards and recognition to companies, has taken several attempts over the course of a decade to reach the senate (upper house), where it is currently being debated by Philippine politicians before it is signed into law by the president.

Its critics say that while the legislation could be used for good if governed properly, it could leave room for whitewashing by certain industries. The tobacco industry in particular has been singled out by the World Health Organisation (WHO) calling its involvement in CSR programmes as “an inherent contradiction”. 

Industry watchdogs argue that if the CSR policy is ratified into law, that it will remove a firewall around government officials, increasing the risk of big tobacco influencing policy and tampering with tobacco regulation.

Opening the gates to a Trojan Horse

In its present form, tobacco watchdogs and legal experts interviewed by Eco-Business, including the Southeast Asia Tobacco Control Alliance (SEATCA), say that the Corporate Social Responsibility Act of 2019 (filed as House Bill 6137 and Senate Bill 656) is contentious as it lacks the strict guidelines needed to prevent fiscal abuse.

The bill circumvents existing national policies, such as the Civil Service Commission-Department of Health (CSC-DOH) Joint Memorandum Circular (JMC-2010-01), which among others, prevents government officials from accessing donations from the tobacco industry that are considered a form of interference in tobacco control policies.

Meanwhile, some argue that the bill in its current form could be exploited by other tightly regulated, and controversial, industries. “The CSR Bill provides a legal and public relations cover for companies in highly regulated industries such as tobacco, infant formula, mining and, coal power. That is not an unfounded fear because it’s already happening even without CSR incentives,” law professor Antonio La Viña told Eco-Business. If passed, the legislation will also by-pass the Philippine Milk Code of 1986 which regulates the marketing of infant milk substitutes and products that humanitarian groups say risk displacing breastfeeding.

“In the Philippines, the CSC-DOH Joint Memorandum Circular protects the bureaucracy by limiting interactions with the tobacco industry to only those strictly necessary for regulation and control; this has frustrated the tobacco industry’s influence on the officials,” Dr. Ulysses Dorotheo, SEATCA executive director, told Eco-Business in an emailed response. “The proposed CSR bill will remove this firewall around government officials as was witnessed during the pandemic.”

Lawyer Karl Carumba from HealthJustice, a non-governmental organisation (NGO), described the CSR bill as “a battering ram that will be given to industries that produce unhealthy products, like tobacco, to weaken and bring down policies that insulate the bureaucracy from their interference and influence.”

The current bill includes a repealing clause that will overturn all laws inconsistent with it – including the Joint Memorandum Circular.  “Based on our analysis, HB No. 6137 (CSR Bill) seriously threatens the bastion of protection of public health policies against the influence of the tobacco industry,” Carumba told Eco-Business. 

“The unrestrained definition of CSR, removal of the existing restrictions and prohibitions on local government units to solicit and accept donations, and the compulsion on local government units to extend assistance to businesses that might conduct CSR, even if these businesses have clear conflict of interest with the health policies of the former, ensures the gutting of JMC No. 2010-01,” Carumba said.

The Philippines is a signatory of the WHO Framework Convention for Tobacco Control (FCTC), signed and ratified in 2005, to protect tobacco controls from commercial and vested interests from meddling with public health policies. The joint circular, say tobacco control advocates, is needed to fill in some gaps in local laws to fulfil treaty obligations.

The CSR bill could be used as a “vehicle for the tobacco industry to legally interact with local government officials, influence local policies, build grassroot support, and interfere in legislative policy development,” according to Carumba.  This could result in giving tobacco companies advantage in ensuring that public health policies are weakened or delayed at all levels of government, Carumba believes.

Incentivising CSR

The draft of the CSR bill currently being considered by the senate contains new sections outlining additional fiscal incentives that aim to actively encourage companies to engage in CSR. It suggests amending the Corporation Code of the Philippines to allow companies to “retain surplus profits in excess of 100 per cent of their paid-up capital in stock when justified by corporate social expansion or corporate social responsibility.”

position paper from the Department of Finance states that it does not support this provision as the broad definition of CSR may be used to circumvent the law by accumulating profits beyond the reasonable needs of a business, ultimately avoiding the payment of improperly accumulated earnings tax. The Securities Exchange Commission has also stressed the importance of building clear guidelines to prevent the abuse of the provision.

The CSR Bill provides a legal and public relations cover for companies in highly regulated industries such as tobacco, infant formula, mining and coal power. That is not an unfounded fear because it’s already happening even without CSR incentives.
Dr. Tony La Viña, law professor

Angelo (Jojo) Buenviaje, chief of staff for Sen. Manny Villar and part of the legislative team that drafted the bill in 2007, told Eco-Business that the provision is “helpful as there is a definite lure for corporations and entities to establish CSR”. However, when the bill was discussed by stakeholders, including private corporations, government agencies and other stakeholders at a forum in 2011, there were polarised views, recalls Buenviaje. Some had reservations that the tax expense deduction and benefits may be subject to abuse, he says.

“It is good that the CSR Bill now may well become a new law in the Philippines, with the need for resources in time of pandemic,” Manny Villar, who first filed the bill in 2007 during his term as the senate president, told Eco-Business in an email. “I am supportive of this policy measure because CSR is a form of bayanihan (community spirit). A good law is always a welcome development for the people,” he said.

However, tobacco-related CSR activities are considered a form of promotion under the WHO FCTC, according to Dorotheo of SEATCA. “The FCTC calls for these activities to be denormalised and banned,” he said. A gap analysis conducted by SEATCA using the comprehensive ISO 26000: Guidance on Social Responsibility standard shows that the tobacco industry fails to meet the requirements, and therefore cannot be considered a socially responsible industry.

It is good that the CSR Bill now may well become a new law in the Philippines, with the need for resources in time of pandemic. I am supportive of this policy measure because CSR is a form of bayanihan (community spirit). A good law is always a welcome development for the people.
Sen. Manny Villar

“Allowing tobacco companies to conduct CSR activities means the Philippines will be violating its international legal obligations. Rather than punishing tobacco companies, rewarding them for their CSR activities is like a bank manager awarding the robber who has robbed that bank and killed customers in the process,” Dorotheo said.

For others, the rationale of the bill is unclear. “The incentives provided in the bill—like awards or LGU (local government unit) support—are not meaningful to most companies. Companies already receive awards for their CSR and already have access to their partner LGUs, even without a law,” Bonar Laureto, executive director of Philippine Business for Sustainable Development, a non-profit, told Eco-Business. “More importantly, [this provision] seems to go against the very core principles of CSR,” he said. 

A family matter?

Despite numerous refilings in the past decade, the text of the CSR bill filed in both chambers of congress has barely changed over the years. No concessions have been made to address the points raised by stakeholders advising changes.

The CSR bill’s long history in congress has been largely driven by members of the same political family. The bill was first filed in the senate by senator Manny Villar in 2007; this early version was accompanied by another bill filed in the House of Representatives by Rep. Dato Macapagal Arroyo in 2009, but this was stuck in committee by the end of the 14th Congress in 2010.  Arroyo’s bill fared a little better a year later in front of a new House. This time, his CSR bill passed on the third reading, and was accompanied by counterpart legislation in the senate, again authored by senator Villar.

However, it failed to go any further. Its proponents attributed its premature failure to the fact that CSR wasn’t yet a priority for PNoy Aquino’s administration (2010-2016). Critics of the bill argued that a law mandating corporate social responsibility was antithetical to the nature of CSR, which was meant to be both voluntary and privately governed.

In subsequent years, the bill resurfaced a further three times in congress, with various members of the Arroyo family pushing for its passage each time. In 2013, the same text was filed as House Bill 306 again by Rep. Dato Arroyo. This time it was co-authored by his mother, Rep. Gloria Macapagal Arroyo (also referred to by her initials, GMA).

GMA’s two terms as president of the Philippines are marred by allegations of corruption and vote-rigging. She was placed under house arrest due to her alleged connection with the misuse of Philippine Charity Sweepstakes Office Funds, until she was elected to Congress in 2013.

The bill again resurfaced in 2016 as HB 698, backed by GMA. In 2019, Rep. Mikey Macapagal Arroyo, Gloria’s other son and Dato’s older brother, filed HB 1198. This 2019 version was consolidated with another piece of CSR-related legislation—the very similar HB 1225 authored by Reps. Mikee Romero and Enrico Pineda—into HB 6137, “An Act Encouraging Corporate Social Responsibility, and Providing Incentives Therefore”.  This is the version that Congress eventually passed on February 3, 2020 and subsequently transmitted to the senate, where it is now currently being discussed in committee. The Corporate Social Responsibility Act of 2019 (filed as House Bill 6137 and Senate Bill 656) passed without opposition in the House of Representatives on May 20, 2020.

CSR in the time of Covid-19

Tobacco control watchdogs and the WHO have raised red flags about tobacco companies using corporate social responsibility to interfere with policymaking during the Covid-19 pandemic. The WHO said that the tobacco industry was “taking advantage” of countries’ vulnerable situation by offering donations “in an effort to make the industry look good” and put the tobacco industry on notice as early as May 2020 for “taking advantage of the global pandemic to market directly to children and teens.”

 Allowing tobacco companies to conduct CSR activities means the Philippines will be violating its international legal obligations… Rewarding them for their CSR activities is like a bank manager awarding the robber who has robbed that bank and killed customers in the process.
Dr. Ulysses Dorotheo, executive director, SEATCA

The Covid-19 pandemic has dragged on the Philippines’ economy due to several long, strict lockdowns used to quell spikes in infections. A deep recession in 2020, with GDP contracting by 9.6 per cent year-on-year was the largest annual decline ever recorded. Escalating Covid-19 numbers in March and April this year has dampened near-term recovery prospects. Amid this hardship, the Philippine government has had to lean on the private sector to help deliver basic services to its citizens.

previous Eco-Business investigation revealed that tobacco linked entities, namely PMFTC (Philip Morris Fortune Tobacco Corporation) and the Jaime V Ongpin Foundation (JVOFI), partner of its local CSR programme – Embrace – donated ventilators, ambulances, polymerase chain reaction machines for Covid-19 testing, personal protective equipment, food and rapid test kits. Lucio Tan’s LT Group (LTG) – which owns Fortune Tobacco  — donated a biomolecular Covid-19 testing lab to the Philippine Red Cross (PRC) in May 2020 contravening its own guidelines from the International Federation of Red Cross and Red Crescent Societies (IFRC) to “refrain from accepting funds from the tobacco industry”. Richard Gordon, chairman and CEO of the Philippine Red Cross since 2004 and a senator, was pictured with LT Group President and Chief Operating Officer Michael Tan announcing the lab. Gordon did not respond to requests for comment.

Senator Dick Gordon, in his capacity as Philippine Red Cross Chairman and CEO, accepting the donation of a biomolecular laboratory from Michael Tan, Chairman and COO of the Lucio Tan Group, in this article from Business Mirror, May 26, 2020.

The 2020 Global Tobacco Industry Interference Report shows that the Philippines has dropped three places compared to the previous year. One of the key findings of the report was that tobacco companies worldwide “exploited the pandemic to engage with governments to an extraordinary level, with government receipt and endorsement of charitable contributions (CSR activities) being the industry’s key avenue to access senior officials…Even in countries where health departments/ministries have a policy to not accept donations from the tobacco industry, this was put aside during the pandemic.”

Eco-Business also reported on LTG’s other donations for Covid-19 relief, such as a donation to Cagayan de Oro City via its local government officials. The city’s mayor, Oscar Moreno, has argued that these donations do not constitute interference in the way he implements government policy stating that the donations were badly needed. “As long as these donations are transparent and open, I do not see any problem,” he said at the time.

Civil servants are prohibited by the joint memorandum from “solicit[ing] or accept[ing], directly or indirectly…anything of monetary value in the course of their official duties…from any person or business related to the tobacco industry.” Some lawmakers recently called for the memorandum to be scrapped amid the pandemic, saying that it is unconstitutional.

What would make companies more socially responsible and equitable to their stakeholders is a law that mandates all corporations to pay their direct and indirect employees at least a living wage and provide them social safeguards.
Bonar Laureto, executive director, Philippine Business for Sustainable Development

ImagineLaw, a non-profit in the Philippines, described donations from the tobacco industry to the Covid-19 crisis as a “wolf in sheep’s clothing” in a recent article published on 17 May, warning that the firms are using these as a tactic to interfere with the country’s health policies.

Donations from the tobacco industry during the Covid crisis coincided with the congressional debate about the Non-Combustible Nicotine Delivery Systems Regulations Act, which regulates the sale and manufacture of e-cigarettes. The controversial bill proposes, along with  guidelines limiting its sale and advertising, lowering the legal age for smoking to 18 years old. The act was recently passed by the lower chamber on 25 May. 

“This partnership with the government bureaucracy is very important for the tobacco industry to gain influence and credibility not only with government officials but also to project a benign image to the public.” Carumba said.

Critics of the CSR bill are calling for regulations that directly support poor workers. “What would make companies more socially responsible and equitable to their stakeholders is a law that mandates all corporations to pay their direct and indirect employees at least a living wage and provide them social safeguards, such as HMOs and hospitalisation insurance and require all their suppliers to do the same,” Laureto said.

“It’s unthinkable that companies make lots of profits while their own workers who are critical to their success do not make enough to live a quality life that they deserve. This has got to change if we want to address structural inequality and that’s what we need as a law.”

Embrace CSR, the CSR arm of the Lucio Tan Group, and senator Richard Gordon, chairman and CEO of the Philippine Red Cross since 2004, did not respond to requests for comment.

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