(April 13): Money managers led by BNP Paribas Asset Management and Robeco Institutional Asset Management BV are putting pressure on the Philippine government to introduce stricter reporting standards for state-backed projects, following a corruption scandal tied to flood infrastructure.
The group of 11 fixed-income investors sent a letter to the Philippines’ Securities and Exchange Commission and government treasury at the end of March calling for tighter rules around use-of-proceeds disclosures, according to people familiar with the matter. The group is also asking for greater transparency around infrastructure spending, the people said, asking not to be identified as the matter is confidential.
Representatives for the investment managers — a group that includes Amundi SA and Fidelity International — didn’t provide comment when approached by Bloomberg. Superannuation fund Australian Ethical, also among the investors behind the letter, declined to comment.
SEC Commissioner McJill Bryant Fernandez, who oversees markets and securities regulation, said the agency had received a letter from Robeco and other investors and is “already in close communication with them".
“While our regulations adopted global standards, we welcome continuous feedback from the market and remain committed to upholding integrity and investor confidence alongside the national government,” Fernandez said in response to a Bloomberg News query.
National Treasurer Sharon Almanza, in a text message, acknowledged receipt of the letter and said the agency is planning to respond.
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The investor group includes asset managers who are willing to withhold financing until they’re assured the government has taken adequate steps to address their concerns, the people said.
The group also includes existing investors in sustainable bonds issued by the Philippine government who are now worried they may inadvertently have financed flood-control projects tainted by the misappropriation of roughly US$2 billion of public funds.
The scandal centres on the alleged failure of public authorities to dedicate the funds at their disposal to the declared goal of building defences against flooding. Some flood infrastructure projects such as dikes either weren’t built or collapsed as soon as storms hit, possibly contributing to hundreds of deaths.
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The revelations of corruption have triggered mass protests across the country, with subsequent investigations resulting in more than US$200 million worth of assets being frozen. Three government ministers quit and several public officials have been arrested.
After the illicit dealings came to light last year, Robeco, Mirova SA and Neuberger Berman Group LLC separately told Bloomberg News they were liaising with the government to understand their exposure. Robeco had said it may divest if it didn’t receive “a robust answer".
Investors are now hoping a coordinated pressure campaign will force the government to act, the people familiar with the matter said. They’re also seeking clarity on how the government plans to strengthen the power and independence of institutions as part of the corruption crackdown and how it will improve standards for the selection and evaluation of projects, one of the people said.
About 168 billion pesos of the proceeds of the Philippines' sustainability bonds have been allocated to flood-control projects, according to Bloomberg calculations based on government reports. That’s roughly 39% of all proceeds. Over US$7 billion of sustainable bonds have been issued by the Philippine government since 2022 and sold in US dollar, euro and Japanese yen capital markets.
The scandal involves the alleged collusion of politicians and contractors to receive kickbacks, with up to 70% of government funds for flood-control projects lost to corruption. Philippine President Ferdinand Marcos Jr brought attention to the issue in a State of the Nation Address in July, after typhoons flooded many parts of the country’s north.
The government hasn’t issued any bonds with environmental, social or governance labels since August, according to data compiled by Bloomberg Intelligence.
“It’s quite telling that since 2021, the government has only issued sustainability-labelled debt and this year in January they came to the market with a non-labelled bond,” said Rose Choy, research director for Asia Pacific at the Anthropocene Fixed Income Institute, a non-profit that looks at how debt markets can help mitigate climate change.
“Most people are concerned about transparency, as they should be,” she added. “So if and when they plan to issue more labelled use of proceeds debt, the allocation and governance of this will be scrutinised."
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