Ayala 2012 Sr

8/9/2019 Ayala 2012 Sr

1/88

8/9/2019 Ayala 2012 Sr

2/88

0 2 2 0 1 2 S U S TA I N A B I L I T Y R E P O R T

8/9/2019 Ayala 2012 Sr

3/88

0 3S E C T I O N T I T L E

8/9/2019 Ayala 2012 Sr

4/88

ABOUT THE COVER

BETTER

At Ayala, doing better for our companies and for our stakeholders has always beencrucial to the way we do business. We believe that pushing ourselves further—financially,environmentally, and socially—allows us to become the kind of company we have alwaysenvisioned ourselves to be: a company that does not rest on past achievements,but continues to innovate and respond to the changing needs of its stakeholders.

A strong and sustainable business means going beyond simply doing well for ourselves.It means making life better for all.

8/9/2019 Ayala 2012 Sr

5/88

TABLE OF CONTENTS

ABOUT THE COVER .......................................................................................2

ABOUT OUR REPORT ....................................................................................4

ABOUT AYALA ...............................................................................................6

JOINT MESSAGE FROM THE CHAIRMAN AND THE PRESIDENT .......................8

ONE GROUP ...............................................................................................10

CREATING SHARED VALUE ..........................................................................12

LISTENING AND ENGAGING ........................................................................18

CORPORATE GOVERNANCE.........................................................................22

ONE COMMUNITY.......................................................................................32

ONE TEAM .................................................................................................42

ONE PLANET ..............................................................................................52

LEADING BY BEING BETTER .......................................................................62

LOOKING FORWARD ...................................................................................64

G3.1 CONTENT INDEX ................................................................................66

EXTERNAL ASSURANCE .............................................................................79

GRI APPLICATION LEVEL CHECK STATEMENT ..............................................81

ACKNOWLEDGEMENT AND CONTACT DETAILS ............................................82

2012 SUSTAINABILITY REPORTS ................................................................84

8/9/2019 Ayala 2012 Sr

6/88

4 2 0 1 2 S U S TA I N A B I L I T Y R E P O R T

ABOUT

OUR

REPORT

Welcome to Ayala Corporation’s2012 Conglomerate SustainabilityReport.

Transparency and accountability are integralto the way we do business, and this beliefextends to our sustainability practices.

We began our yearly reporting from agroup perspective in 2008 to engageour stakeholders by communicating oursustainability commitments and obtaining

feedback on our performance. We do this sowe can do better year after year. (3.3)

Ayala Triangle Gardens is an urban oasis in the middle of the

Philippines’ premier business district

8/9/2019 Ayala 2012 Sr

7/88

5A B O U T O U R R E P O R T

Reporting Period and Framework

This report covers the Ayala group’ssustainability performance data fromJanuary 1 to December 31, 2012. Thereport has been prepared according to theGlobal Reporting Initiative (GRI) Guidelinesbased on a B+ Level. To comply with thislevel’s requirements, we report on 71indicators across the economic, social, andenvironmental categories, an increase of 29indicators from last year’s report. As partof our standard reporting, we also referredto the AA1000 AccountAbility PrinciplesStandard 2008 on inclusivity, materiality,and responsiveness. In our effort to report

according to international best practices, weimplemented the following key sustainabilityinitiatives for the 2012 report:

• Commissioned TÜV Rheinland for externalassurance in addition to obtainingverification from the GRI on the ApplicationLevel. The GRI statement and assurancereport are found star ting on page 79;

• Implemented a more systematic datagathering and verification system;

• Conducted a formal stakeholder

engagement focused on sustainabilityissues; and

• Began the transition to the newlylaunched GRI version, with this reportcontaining Standard Disclosures from theGRI Sustainability Reporting GuidelinesVersion 4.

To assess our performance, we include 2011data, where available. Comparing data allowsus to see how we can improve on our targetsand helps us manage the impacts of ourgrowth. (3.1, 3.5, 3.13)

Reporting Scope and Boundaries

The report includes highlights from AyalaCorporation and its subsidiary companies andcovers Philippine operations only. Specifically,

• Ayala Corporation (Ayala) — covers ouroperations as a holding company;

• Ayala Land, Inc. (Ayala Land) — coversperformance data of the parent companyand its subsidiaries namely Alveo LandCorporation, Ayala Property Management

Corporation, Cebu Holdings, Inc., andMakati Development Corporation;

• Bank of the Philippine Islands (BPI) — includes the performance of the parent

company and its subsidiaries;

• Globe Telecom, Inc. (Globe) — covers thehead office and operations nationwide;

• Manila Water Company, Inc. (Manila

Water) — covers the East Zone operationsonly;

• Ayala Automotive Holdings Corporation

(Ayala Auto) — includes 19 Ayala-ownedHonda and Isuzu dealerships;

• LiveIt Investments, Ltd. (LiveIt) — includes

the operations of LiveIt and its investeecompanies namely Affinity Express,Integreon, Stream Global Services, andHRMall;

• Integrated Micro-Electronics, Inc. (IMI)

— covers its Philippine-based operations,specifically its manufacturing site in LagunaTechnopark; and

• Ayala Foundation, Inc. (Ayala Foundation)

— covers the operations of the head officeand its activities nationwide.

Detailed discussions are in the sustainability

reports of each of these companies and maybe downloaded from their respective websites.Reported financial economic performanceconsolidates all Ayala subsidiaries and theirsub-subsidiaries. For the social performance,only Ayala Land and LiveIt report on theirsub-subsidiaries’ data. For the environmentalperformance, only Ayala Land reports on itssub-subsidiaries’ data. We also includedhighlights of AC Energy and AC Infrastructureto give our readers a more comprehensivepicture of Ayala’s contributions to keynational development goals on infrastructure

development and energy security. (3.6, 3.7)Moving forward, we aim to expand thecoverage of our future reports to includeoperations outside the Philippines.

Reporting Feedback

We welcome your feedback on this report andon Ayala’s sustainability performance. Pleasecontact us at [email protected].(3.4) ■

8/9/2019 Ayala 2012 Sr

8/88


ABOUT

AYALA

Tower One and Exchange Plaza,

Ayala’s headquarters in Makati Cit y

Ayala Corporation is one of the oldestand most respected business groupsin the Philippines. It has a diversified

business portfolio that includes realestate development, banking and financialservices, telecommunications, water andwastewater service infrastructure, electronicsmanufacturing services, automotivedealership, international real estateinvestments, business process outsourcing,transport infrastructure, and power. (2.2)

A public company listed in the Philippine StockExchange (PSE:AC), Ayala ended 2012 witha market capitalization of more than P300billion, making it the second-largest listedPhilippine conglomerate. With headquarters inthe Makati Central Business District, Ayala has

established presence nationwide and employsmore than 42,000 people in its groupwideoperations. Its subsidiaries are membersand partners of various relevant industryassociations and these are identified in theirrespective 2012 reports. (2.4, 2.8, 4.13, LA1)

8/9/2019 Ayala 2012 Sr

9/88

7A B O U T A Y A L A

Institute of Corporate Directors

• Platinum Plus Awardee, 7th Corporate GovernanceScorecard

FinanceAsia (Best Managed Companies Poll

– Philippines)

• Ranked 1st – Best Managed Company

• Ranked 1st – Best Corporate Governance

• Ranked 1st – Best Corporate Social Responsibility

• Ranked 2nd – Best Investor Relations

Alpha SouthEast Asia Magazine

• Ranked 1st – Strongest Adherence to CorporateGovernance

• Ranked 1st – Best Strategic Corporate Social

Responsibility • Ranked 1st – Best Annual Report

Philippine Dealing System Group

(7th PDS Awards Night)

• Innovative Corporate Bond Issue of the Year –P10-Billion Fixed-Rate Multiple-Put Bonds Due 2021(The country’s first listed multiple-put bond issue)

WWF Philippines

• 2012 Environmental Leadership Award

Our operating companies are also recognizedfor their significant achievements in

numerous areas of their business, includingcorporate governance, management, financialperformance, investor relations, businessinnovation, product and service excellence,people management, and environmentalsustainability programs. Theirspecific awards can be foundin their sustainability andannual reports. (2.10) ■

Ayala enhances its position of leadership inkey lines of business by leveraging its portfolio

of assets, brand equity, and competitiveadvantages:

• Ayala Land is the Philippines’ largest fully integratedproperty developer and one of the most successfuldevelopers of prime commercial spaces in the country.

• BPI is one of the largest Philippine banks and has alead position in intermediation capacity, corporate andconsumer lending, remittances, and electronic banking.

• Globe is a major provider of telecommunications servicesin the Philippines, formed out of a partnership betweenAyala and Singapore Telecom.

• Manila Water is the sole provider of water and

wastewater services in the East Zone of Metro Manilaand now has existing operations in other parts of thePhilippines and the Asian region.

• IMI is a leading electronics manufacturing servicesprovider in the Asian region and has operations in Europeand North America.

• Ayala Auto is a leading vehicle dealership network ofboth Honda and Isuzu brands in the Philippines. Recently,it was appointed as the local distributor of VolkswagenAG passenger vehicles.

• LiveIt is the holding company for Ayala’s investments inthe business process outsourcing (BPO) sector.

• AG Holdings, Ltd. is the holding company fo r the Ayala

group’s property investments in the United States andAsia.

• AC Energ y Holdings, Ltd. and AC Infrast ructureHoldings Corporation are Ayala’s holding companies f orinvestments in the power and renewable energy sectorand in transport infrastructure projects, respectively.

• Ayala Foundation is the social development arm ofAyala with programs in education, youth leadership,sustainable livelihood, and arts and culture.

Ayala’s Ownership Structure

Ayala's current principal shareholders areMermac, Inc. and Mitsubishi Corporation. As

of December 31, 2012, 70.19% of the totaloutstanding shares of the company was heldby Philippine entities.

We continue to strive for sustainable growth.Our subsidiaries are at the forefront ofour efforts: expanding into underservedmarkets, contributing to community economicdevelopment, and innovating solutionsthat respond to the evolving needs of ourcustomers. (2.3, 2.6)

Awards and Recognitions of Ayala

Throughout the years, Ayala has beenconsistently recognized for its efforts touphold sound and ethical business practices.In 2012, it received awards and citationsfrom prestigious local and internationalorganizations and publications:

Equity ownership of Ayalaas of YE 2012

▼

8/9/2019 Ayala 2012 Sr

10/88


JOINTMESSAGE

FROM THE

CHAIRMAN

AND THEPRESIDENT

DEAR FELLOW STAKEHOLDERS:

Over the past few years we have reiterated our

overarching philosophy within our group companies

to align our business strategies and objectives withnational development goals. This is of strategic

importance to us because we believe businesses

simply cannot prosper in a deteriorating society, much

less in an environment that is constantly degraded.

As a group of companies operating across various

sectors of our economy, we realize the imperative to

create value not just for our businesses, but also for

the communities where we operate and the broader

environment that we impact.

This fundamental philosophy lies at the center of our

sustainability initiatives. It anchors our journey towards

establishing a holistic framework for measuring the

economic, social, and environmental dimensions of

our businesses. It is this framework that will ultimately

guide us in developing long-term sustainability

programs and practices that will be more deeply

embedded in our operations and our business models.

Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala

8/9/2019 Ayala 2012 Sr

11/88

9J O I N T M E S S A G E F R O M T H E C H A I R M A N A N D T H E P R E S I D E N T

Refining Our Groupwide Sustainability Policy

Essential to the development of this framework is ourunderlying policy towards sustainability. This year we took a

more vigorous review of our groupwide sustainability policyacross seven key components. These covered our currentoperations, our products and services, the supply chain,our human resource pract ices, our community involvement,our overall management approach, and our approach toexpanding our businesses.

As we refined our sustainability commitment in each of

these components, we identified several sustainabilityfocus areas.

On the environmental front, we are putting greater focus

on optimizing our energy and water consumption andcontrolling our solid waste and greenhouse gas emissions.We endeavor to move beyond mere regulatory compliancetowards global best practices and standards.

Our sustainability focus areas involving the social dimensioncenters on taking more innovative approaches to increase

customer value and enhance customer experience, aswell as engaging communities and customers part icularlythose with limited access to essential goods and services.A vital component of this is ensuring the well-being of ourown employees as we strive to create an environment thatpromotes their professional and personal growth.

Finally, as we align our sustainability efforts along thesesocial and environmental dimensions, we remain focused

on ensuring we achieve our financial targets as defined byour business plans and strategies.

The disc iplined rev iew of our sustainability policy hasenabled us to measure the current trajector y of ourperformance across the tr iple bottom line metrics. Itlikewise set a baseline from which we can set morespecific and measurable targets and further improve on our

monitoring and reporting standards.

Improvement in Reporting Standards

This year, we are encouraged to see the significantimprovement in reporting standards across all our businessunits. At the conglomerate level, we increased our reportedindicators by 69%, from 42 to 71 indicators. This is also

the first time we are reporting an externally assured reportwhich was obtained from the TÜV Rheinland Group, a globalleader in independent testing and assessment ser vices,and a Global Report ing Initiative (GRI) Application LevelChecked report rated B+. This year as well, we have takenthe required initial steps to transition fully to the GRIVersion 4, the newest reporting guidelines.

Over time we aim to constantly improve our reporting

by increasing the number of performance indicators,particularly when these are mater ial to our companies. Transparency is impor tant to us and practicing this typeof reporting allows us to discuss our progress on oursustainability goals with our stakeholders in a systematicmanner.

The Way Forward

In the coming year, we look to make greater strides on oursustainability initiatives. We aim to establish measurable

targets for each of our business units' environmental and

social performance, which should in turn complement

our financial targets and growth plans. The entire Ayala

group is also working on the integration of environmental

and societal risks as part of the ex isting Enterprise Risk

Management system to ensure that we manage broader

sustainability risks in our business processes. We also

aim to develop a unified strategy for improved internal

and external stakeholder participation and engagement

to ensure that we implement improvements in innovation,

learning, and sustainability performance.In order to further leverage on group synergies and widen

the reach and benefits of Ayala’s sustainability programs,

we will undertake initiatives that engage our supply chain in

developing sustainable solutions. At the holding company

level, we will provide impetus for our subsidiaries to create

more strategic community development initiatives that

mutually capitalize on our subsidiaries’ strengths and

expertise.

We are excited by the developments on our sustainability

initiatives and commitments, and look forward to the

achievements and opportunities that will come with

embedding sustainability further in our businesses.

The progress of these sustainabili ty init iatives would

certainly not be possible without the collaborative efforts of

our Sustainability Council. We thank them for the leadership

and guidance they continue to provide the group. We also

thank our customers, suppliers, and business partners and

all our stakeholders across the group for their cont inued

engagement and support in achieving our common vision of

creating shared value. ■

Jaime Augusto Zobel de Ayala

Chairman and Chief Executive Officer

Fernando Zobel de Ayala

President and Chief Operating Officer

8/9/2019 Ayala 2012 Sr

12/88


Clockwise from top left:

A Globe “tech coach” assists a customer; an LED engine

designed by IMI subsidiary PSi Technologies; a Stream

call center agent; Evoliving center in NUVALI; the

Honda emblem; a BPI Express Assist machine;

scholars of the Center of Excellence in

Public Elementary Education; Manila

Water meters; wind turbines in

Bangui, Ilocos Norte

8/9/2019 Ayala 2012 Sr

13/88

AYALA’S SUCCESS IS THE RESULT OF TRUST that has been built and nurtured overtime. Given the size, scale, and diversityof our businesses, Ayala has the unique

position of being able to truly createlong-term value for a greater number ofstakeholders. Moving as one, we respondbetter to the evolving demands of theFilipino public and support nationaldevelopment.

Ayala is guided by a vision of asuccessful business that contributesto the improvement of all aspectsof society. Integrating the goals ofeconomic advancement, environmentalresponsibility, and social inclusivity, we

strengthen our legacy of leadership,promote responsible business, and remaincommitted to the Filipino people.

8/9/2019 Ayala 2012 Sr

14/88


CREATING

SHARED

VALUE

e developed our SustainabilityPolicy in 2008 to address growingconcerns for the environment,

human resource management,supply chain, and social performance. In doingso, we incorporate sustainability practices inour operations and business strategies, andimprove them as we enter new and evolvingmarkets and growth areas.

In 2012, we reviewed our Sustainability Policyto further improve its appropriateness andrelevance while ensuring business viability andaccess to new markets. We also conductedour Sustainability Summit to bring to foreopportunities for the conglomerate to respondto the economic, environmental, and socialdevelopment challenges of the country whilestrengthening our operations.

Close to a hundred Ayala officers—includingmembers of the Sustainability Council and theManagement Committee—and representativesfrom partners Mitsubishi Corporation and

Tubig Para sa Barangay (Water for the Community) improves

quality of life by providing access to potable, reliable, and

affordable water service

W

8/9/2019 Ayala 2012 Sr

15/88

1 3C R E A T I N G S H A R E D V A L U E

NorthWind Development Corporation attendedthe event. Climate change adaptation andrisk mitigation were key topics given thevulnerability of the country to climate-relateddisasters and the need for local responses.The best practices of a global brand were also

presented at the summit.

The Summit encouraged greater synergy withinthe Ayala group of companies for better reach,productivity, and impact. We are in the processof developing sustainability performancetargets to discuss in detail next year’s report.(4.8)

Enhancing Lives, Building a Nation

Our focus on sustainability drives oursubsidiaries to innovate and build theirsuccesses on models that empower more andmore Filipinos, including traditionally unserved,

underserved, and marginalized markets andcommunities.

Ayala Land continues to lead in sustainableland use and development as it successfullycreates communities that stimulate economicactivity and catalyze inclusive growth. Its richhistory of building large-scale, master-planned,mixed-use, and sustainable communitiesallows it to develop land in a manner thatprotects the environment and fosters socialcohesion.

In 2012, Ayala Land launched 67 projectswith a total value of P100 billion, a 17%

increase from 2011, and acquired more than800 hectares of land in key areas such asTaguig, Valenzuela, Alabang, Tarlac, Bulacan,Pampanga, Cavite, and NUVALI. It continuedto increase income distributed to suppliers,partners, employees, government, community

and stockholders by 23% from P39 billion in2011 to P48 billion in 2012. In 2012, Ayala

Land published its first A+ Integrated Annualand Sustainability Report and received theAsian CSR Award in Environment and ValueChain Management from the Asian Institute ofManagement.

As one of the leading and oldest financialinstitutions in the country, BPI continues tocontribute to the growth of the Philippineeconomy, especially at the grassroots level.Because it operates in an emerging market,BPI considers greater financial inclusion anintegral part of its business strategy. Through

BPI-Globe BanKO, the bank granted 55 loansworth P2.5 million to microfinance institutionsin 2012, and increased the BanKO cardholderbase to 280,000. BPI also supports and buildslocal businesses through BPI Ka-Negosyo,increasing its accredited franchisors to 61 in2012 from 19 in 2011. Loans in the franchiseportfolio grew by 309%.

The bank’s partnership program with theInternational Finance Corporation known asthe Sustainable Energy Finance Fund grantedloans worth P4.2 billion in 2012 and saved645,774 tons of carbon emissions. BPI also

enhanced its services to overseas Filipinos(OFs) through branch and representativeoffice openings in Milan and the UnitedArab Emirates, partnerships in East Asia,and an alliance with Remitly.com in NorthAmerica. This gives OFs more options to sendtheir hard-earned money to families in thePhilippines. The bank also reported P36 billionin total economic contributions to society,with 69% to suppliers, government, charitablecontributions, and employees’ salaries.

Backed by its commitment to competitivenessin a dynamic, aggressive telecommunications

industry, Globe continues to invest intechnology that transforms the lives of its35.5 million subscribers. The companyfocuses on innovative solutions for a betterand faster mobile and data experience,enhancing everyday communications that meetdiverse lifestyles and needs.

The launch of the Long Term Evolution service, its Network Modernization and ITTransformation Program, and the customizableMy SuperPlan were among the major effortsto provide customers with better service

and value. It laid out an additional 12,000kilometers of fiber optic cables nationwide toboost current capacity, completed the change-out of close to 90% of cell sites all over thecountry, and published its second B+ Annualand Sustainability Report in 2012.

Ayala has a legacy of

leadership that continues

to shape industries while

remaining relevant and

committed to the national

development agenda of

the country.

8/9/2019 Ayala 2012 Sr

16/88


In our operations, we are committed towards optimizingenergy and water consumption and controlling solid wasteand greenhouse gas (GHG) emissions. We integrateenvironmental parameters into business operationsand establish green practices in the workplace andfacilities. As a step forward, we move beyond regulatorycompliance, applying best practices and adoptingglobal voluntary standards on environmental and socialresponsibility.

In our products and services, we implement innovativeapproaches to increase customer value and enhancecustomer experience; empower more customers,including those who do not have access to essentialgoods and services; and improve the quality of life ofpeople, businesses, and communities. Our productdevelopment will explicitly address environmental andsocial factors and we will continuously look for ways todesign our products and services for lower environmental

impact.

In our supply chain, we will ensure that our suppliersare aware of our Sustainability Policy. We will establishsocial and environmental parameters in the accreditationof our suppliers and will prefer suppliers that observesustainability practices. We will also use our buyingvolume to aid community development by providingopportunities to entrepreneurs and cooperatives.

In our human resources practices, we will continueto put prime importance on our employees’ well-being.We will ensure that our employees work in the safest

and healthiest environments and create a vibrant workenvironment that encourages professional and personalgrowth. We will actively promote sustainability initiativesin the workforce to create a positive momentum forsustainable business practices.

In our community involvement, we will provide,with our best capacity, the resources needed topromote quality education, vibrant micro-enterprises,cultural rootedness, and a healthy environment for ourcommunities to foster economic advancement andnation-building.

In our management approach, we will continue topromote sustainability in our business operations byimproving our economic value while managing our impacton the environment and society. We will practice goodgovernance and be responsive to stakeholders’ inputsand expectations on sustainability. We will continuouslypursue opportunities to improve our operating efficienciesand satisfy our shareholder requirements.

In our business viability, we will keep broadening ourpresence in the local market while diligently exploringnew business opportunities. We will undertake value-enhancing initiatives by leveraging on synergies within theAyala group or through strategic partnerships to achievebetter margins, reduce costs, and increase efficiency.We will continue to make value-accretive investments insectors critical to economic development.

We are committed to creating shared value.

Adopted by the Ayala Group Management Committee on

the 28th day of September 2012 at the Tower One,

Ayala Triangle, Ayala Avenue, Makati City, Philippines.

Ayala’s Policy on SustainabilityWe commit to creating shared value and improving the impact of our businesseson society and the environment in the following ways: (4.8, 4.1-1)

Above photos, left to right: An Amaia housing unit; BPI opens the country’s

first solar-powered branch; the North Rizal Water System Project;

a livelihood project in NUVALI; GNPower plant in Bataan

8/9/2019 Ayala 2012 Sr

17/88

1 5C R E A T I N G S H A R E D V A L U E

Globe aligned its Bridging Communities program into five pillars and initiated programson good governance, social entrepreneurship,environment conservation, education, andvolunteerism. Its employee-volunteers were

especially lauded by the Department of SocialWelfare and Development and PhilippinePresident Benigno Aquino III for their effortsin relief operations during Typhoon Pablo inMindanao.

The country’s growing population placesgreater demands on limited water sources andhighlights the need to manage the increasingvolume of wastewater. In 2012, Manila Waterextended its distribution network with a totalof 38,167 new water service connections.It delivered 427.3 million cubic meters to itscustomers, treated 77.39 million liters per dayof wastewater, and desludged 52,514 septictanks.

Emphasizing an inclusive and cooperativeapproach to business, Manila Water upliftsthe lives of over 6.2 million Filipinos, 30%of which are at the base of the pyramid. TheTubig Para Sa Barangay program (TPSB) is asustainable model of water service deliveryfor the urban poor. In 2012, a total of 9,776new water service connections under TPSBprogram were installed to benefit 15,578families. This brought total water serviceconnections to 204,421 and total urban poorresidents beneficiaries to 1.7 million. Thecomplementary Lingap program helped ninepublic institutions and 322 beneficiaries.

Manila Water expects its subsidiaries to alsoembed sustainability into their operations. Thisyear, Boracay Island Water Company, Clark

Water Corporation, and Laguna AAAWaterCorporation launched their sustainabilityreports and are developing their sustainabilityframeworks. This is also the second yearof the company’s reporting according to

ISO26000 guidelines, an internationalframework on integrating CSR into thebusiness. In 2012, the company grew itseconomic contribution to the Philippineswith an increase of 48% in taxes, licenses,and concession fees to the government toP119.31 million and a 17% rise in wages andbenefits paid to employees to P1.36 billion,while community contributions were up five-fold to P13.68 million.

As one of the top 30 electronic manufacturingservices providers in the world, IMI iscommitted to providing high quality, innovative,and sustainable solutions in the electronics

industry. Its performance continues to improvedespite uncertainties in the global economywith products that are relevant, cost efficient,and regulatory compliant. Operations striveto minimize impact on the environment andprotect its employees and contractors. IMIsteps up its sustainability practice throughenvironment, health, and safety programs,green manufacturing technologies, and cleantechnology business ventures.

IMI’s presence in the Philippines, China,Singapore, the United States, Mexico, Bulgaria,and the Czech Republic enables the company

to respond to customer needs in regional andinternational markets. As a member of theUnited Nations Global Compact, IMI submitteda Communications of Progress report inNovember 2012 along with a re-commitmentletter to the United Nations Secretary General

▲WWF Philippines CEO Lor y Tanspeaks at Ayala’s SustainabilitySummit in 2012

Ayala Foundation

commits to creating

communities where

people are productive,

creative, self reliant, and

proud to be Filipinos.

8/9/2019 Ayala 2012 Sr

18/88


signed by its company president Arthur R. Tan.

It states that “IMI is committed to making the

Global Compact and its 10 principles part of

the strategy, culture, and day-to-day operations

of the company and engaging in collaborative

projects which advance the broader

development goals of the United Nations.”

IMI follows the guidance and requirements

stipulated by international standards such as

the Electronic Industry Citizenship Council,

ISO 26000, GRI, and the Social Accountability8000 in its operations.

LiveIt supports the gains that the business

process outsourcing (BPO) sector contributes

to the national economy by investing in

innovative global BPO companies with thepotential for industry leadership. Its investee

companies—Stream, Integreon, Affinity

Express, and HR Mall—grew their revenues

within range of 2% to 49%, or US$9 to

US$860 million, in 2012. Through the GlobalServices Management Institute Inc., it invests

in the education sector and helps enhanceemployability of the Filipino workforce. It

provides high quality, affordable education and

addresses the growing demand for skilled andhighly qualified professionals.

Ayala Auto, collaborating with Isuzu and Honda,continues to demonstrate the importance

of engaging customers through focused

programs that educate and empower motorists

and vehicle owners. Ayala Auto offers

technical support and training on preventive

maintenance and basic troubleshooting and itseducation campaigns on road safety.

As the corporate social development arm of

Ayala, Ayala Foundation commits to creating

communities where people are productive,

creative, self reliant, and proud to be Filipinos.

Its program pillars are Education, YouthLeadership, Sustainable Livelihood, and

Arts and Culture. In 2012, it integrated the

culture and arts division of Ayala Museum

with the Filipinas Heritage Library, and began

implementation of a three-year USAID-fundedproject Strengthening the Capacity of Civil

Society Organizations in the Philippines, which

is designed to “strengthen local civil society

and private sector capacity to improve aid

effectiveness and sustainability.” It supportedThe Entire Nations (TEN) Moves program

by serving as its secretariat and raising

P49.2 million to fund for the construction of

public elementary classrooms.

▲Ayala’s Board of Directors meetswith shareholders to discuss thecompany’s performance in 2012

8/9/2019 Ayala 2012 Sr

19/88

1 7

is also focused on new growth platforms, witha target US$1 billion in equity investments inpower and transport infrastructure businessesover the next five years. It established apipeline of power platforms in conventionaland renewable technologies, and is exploringopportunities in the road, rail, and airportspaces. These investments have the potentialto generate group synergies and enhance thevalue of the group’s businesses.

A full discussion of our financial performance

can be found in the Ayala Corporation 2012Annual Report. ■

C R E A T I N G S H A R E D V A L U E

Financial Highlights

In 2012, Ayala strengthened its core

businesses, enhanced the profitability

of international ventures, and made new

investments as a platform for continued

growth.

Ayala posted a consolidated net income of

P10.6 billion in 2012. The 13% growth over

2011 reflects the robust performance of the

Ayala group of companies and reinforces

Ayala’s aggressive growth agenda.

The Ayala group spent P149 billion in

capital expenditures, reflecting a 127%

annual increase over figures in 2011, and

is the highest capex on record. The group

took advantage of the opportunity to invest

aggressively in areas that are high value

and strategic over the long term. Majority

of its investments supported growth in its

real estate, telecommunications, and water

and wastewater businesses. At the holding

company level, Ayala continued to fine tune its

portfolio to maximize profit and actively pursuevalue-creation opportunities.

Investments grew to P108.6 billion, in line

with initiatives in the power sector and the

increased stake in BPI from 33% to 44%. Ayala

FINANCIAL HIGHLIGHTS (EC1)

Company

Net Income % Y-O-Y Net Income Revenues % Y-O-Y Revenues

2011 2012 2011 2012 2011 2012 2011 2012

Ayala 9.4 10.6 (16) 13 107.5 125.1 10 16

Ayala Land 7.1 9 31 27 44.2 54.5 17 23

BPI 12.8 16.3 13 27 41.76 47.4 9 14

Globe 9.8 6.86 1 (30) 77.76 82.7 9 6

Manila Water 4.3 5.4 7 26 12 14.6 9 22

Ayala Auto 0.095 0.213 (68) 124 8.8 9.99 (23) 14

IMI 3.3 5.4 (31) 64 575.5 661.8 40 15

Values in billion pesos, except IMI in million US$

Company

Share of EBITDA % Y-O-Y Share of EBITDA Share of Revenues % Y-O-Y Share of Revenues

2011 2012 2011 2012 2011 2012 2011 2012

LiveIt 23.5 31.9 54 36 317.7 343.3 16 8

Values for LiveIt in million US$

8/9/2019 Ayala 2012 Sr

20/88


LISTENING

AND

ENGAGING

e have a responsive approach tobusiness. Our stakeholders areour partners; thus, stakeholder

engagement and materialityassessments are critical components of oursustainability agenda.

Stakeholder Engagement

Ayala conducts regular engagements tounderstand and address stakeholders' needsand expectations. Insights gained from theseengagements shape the development andprovision of better products and services,strengthen business strategy, enhance marketposition, and improve performance.

In line with international best practices,

we commissioned a third-party, nonprofitorganization, Philippine Business for theEnvironment (PBE), to perform a formalstakeholder engagement on sustainabilityissues. We used one -on-one interviews andfocus group discussions. We aim to continue

W

Manila Water conducts “Lakbayan” tours with various stakeholders

to educate them on the processes involved in

water treatment and distribution

8/9/2019 Ayala 2012 Sr

21/88

1 9L I S T E N I N G A N D E N G A G I N G

assurance process to ensure accuracy andconsistency.

The group refers to and is guided byinternational standards such as the WorldResources Institute and World BusinessCouncil for Sustainable Development’sGreenhouse Gas Protocol, the InternationalEnergy Agency, the Philippines' Department ofEnergy, and the Global Reporting Initiative inthe calculation of environmental performancedata. We are committed to implementingbest practices and international standards toimprove our reporting.

Stakeholder inputs were gathered mostlythrough telephone interviews and focus group

discussions, and answers were carefullyrecorded and analyzed.

Materiality Assessment

Materiality study plays a similarly significantrole in Ayala’s sustainability. It assists us indeveloping our strategic roadmap, helps alignstakeholder expectations, and prioritizes thoseconcerns that are significant to the business.

In developing the 2012 report, we linked andanalyzed material aspects of our businesseswith the outcomes of our stakeholderengagement. We defined material issues

as those that could substantially influencethe company’s ability to give added value,potentially erode our reputation, and poserisks if not addressed proactively. Thiscombined process revealed the top fivecommon priority areas among our diversifiedbusinesses and stakeholder views:

• Environmental Responsibility,

• Product Quality,

• Economic Development,

• Community Development, and

• Overall Compliance with Labor, Health

and Safety, and Corporate Governancestandards.

These findings are consistent with ourSustainability Focus Areas identified in our2012 Sustainability Policy. We then aligned ourreporting and sustainability strategy with thefocus areas. ■

this engagement on a yearly basis as astandard process to check on feedback andcomments from various stakeholders, and toensure inclusivity and responsiveness. Thisyear, we did not engage with suppliers throughthis exercise but our subsidiaries have regular

engagements with them using other means.

For this report, we identified our stakeholdergroups to include:

• customers

• government

• employees

• shareholders

• benefactors

• local communities

• joint venture partners and suppliers

Their feedback is summarized in the tableon page 21. Detailed discussions of eachsubsidiary’s stakeholder engagement plansare available in the individual reports.

The Investor Relations Team engagesseparately with our shareholders. For moreinformation, please refer to the CorporateGovernance section. (4.14, 4.15, 4.16, 4.17)

Data Collection and Analysis

Data disclosed by Ayala in this report werecollected and monitored by the relevantmanagers and teams within the Ayala group

of companies led by the sustainability headsof each company, using database forms andspreadsheet questionnaires. Data sourcesmay come from actual counts, monitoringprograms, and utility bills where appropriate.This data is pre-verified before the external

Our stakeholders are

our partners in our

sustainability agenda;

thus, we constantly

listen to their feedback

and engage them in our

initiatives.

8/9/2019 Ayala 2012 Sr

22/88


Materiality Assessment: Sustainability Focus Areas

8/9/2019 Ayala 2012 Sr

23/88

2 1L I S T E N I N G A N D E N G A G I N G

Stakeholder GroupSustainability

PrioritiesInterest Areas

Stakeholder Engagement

• Stability of the company • Service quality and protection • Product safety • Employee welfare

• Develop products for the bottom of the pyramid • Serve as a model of an environmentally responsible business,

specifically in solid waste management practices

• Collaborate with local government units and assist in

environmental protection activities at the grassroots level

• Develop infrastructure in far-flung communities• Implement more community development programs

• Improve on communicating issues in community development to

keep the top-level management informed

• Health and safety • Job creation/local employment • Environmental responsibility • Compliance with local and

national laws, standards, and

regulations

• Influence supply chain by helping them address compliance issues • Collaborate with related industrie s for more impactful and more

responsive community programs, including educational campaigns

on environmental protection

• Prioritize local hiring • Go beyond compliance especially where community development

is concerned

• Job security • Professional advancement

• Compliance with local andnational laws, standards, and

regulations

• Engage more deeply with staf f and the community on

environmental and social issues • Create and emphasize employee volunteer programs that are

sustainable and not one-time engagements

• Educational programs • Social impact measurement • More environmental programs • Compliance with local and

national laws, standards, and

regulations

• Remain compliant with laws and regulations • Benefactors provide Ayala the flexibility to choose programs to

implement in order to create the best impact to as many

beneficiaries as possible

• Educational, livelihood, and

leadership development

programs

• Poverty alleviation

• Increase environmental programs • Improve performance metrics • Provide more capacity-building programs to the residents of our

partner communities

• Explore creative and innovative ways to help the small producers

that we have trained to enter the mainstream market, in particular

by connecting them to the supply chain of our subsidiaries

• Good corporate governance • Business responsiveness to

issues and incidents

concerning operations

• Succession planning • Service quality

• Ayala has a strong environmental focus but, moving forward, the

company should transform this into environmental advocacy given

its size and capability to execute

BENEFACTORS

CUSTOMERS

GOVERNMENT

EMPLOYEES

LOCALCOMMUNITIES

JOINT VENTUREPARTNERS

8/9/2019 Ayala 2012 Sr

24/88


CORPORATE

GOVERNANCE

As a responsible corporate citizen,Ayala is committed to the principlesof risk management, integrity,

fairness, accountability, andtransparency. Good corporate governance isfundamental to Ayala’s business approach, tothe creation of value for all our stakeholders,and to our long-term growth.

Delivering on Our Commitments

Ayala’s governance framework is based onthe Philippine Corporate Code, the SecuritiesRegulation Code, the Revised Code ofCorporate Governance, and the requirementsof the Securities and Exchange Commission(SEC). The Company fully complies with theCode of Corporate Governance.

Independent reviewing bodies haveconsistently recognized Ayala’s commitmentto good governance. In 2012, the Ayala groupgarnered top citations in the 7th CorporateGovernance Scorecard Project of the Institute

AYALA’S BOARD OF DIRECTORS (Left to right):

Yoshio Amano, Antonio Jose U. Periquet,

Jaime Augusto Zobel de Ayala, Fernando Zobel de Ayala,

Xavier P. Loinaz, Ramon R. del Rosario, Jr., and Delfin L. Lazaro

8/9/2019 Ayala 2012 Sr

25/88

2 3C O R P O R A T E G O V E R N A N C E

of Corporate Directors in partnership with theSEC and the Philippine Stock Exchange (PSE).Ayala, together with Ayala Land and ManilaWater, received the Platinum Plus Award givento companies who have been part of the GoldCircle for four consecutive years. Over the

years, readership polls of regional publicationsincluding FinanceAsia, Asiamoney , Euromoney ,and Corporate Governance Asia have rankedcorporate governance in Ayala and subsidiariesas among the Philippines’ best.

Ayala executives were also recognized for theirleadership qualities and achievements. TheAsian Corporate Director Recognition Awardsrecognized Jaime Augusto Zobel de Ayala as anoutstanding corporate director for promotinghigh standards of business ethics whilemeeting the expectations of our shareholdersin growing Ayala’s business. Aurelio Montinola

III received the Management Association ofthe Philippines’ Management Man of the Year2012, while Antonino Aquino was identified asBest Executive by AsiaMoney .

Board of Directors

The Board of Directors serves a vital role incorporate leadership and in establishing andmaintaining high standards of governancefor Ayala. They hold a position of trust andrepresent the best interests of the company,our shareholders, and other stakeholders.

Specific duties of the Board include:

• Setting the vision and overseeing theimplementation of the company’s strategicobjectives, risk management strategy, corporategovernance, and corporate values;

• Ensuring growth of the business in a sustainableway and the creation of long-term value for all ourstakeholders;

• Exercising prudent leadership and upholdingthe company’s integrity as it continues to makeprogress toward it s long-term business goals;

• Establishing mechanisms for performance

monitoring and evaluation;

• Establishing internal control mechanisms andeffective risk management as cr itical componentsof the corporate governance strategy; and

• Ensuring compliance with all relevant laws,regulations, and as far as possible best businesspractices.

The nature of the Board’s responsibilitiesrequires that directors have a broad rangeof competencies, experience, and skills. Adirector must own at least one share of the

capital stock of the company, must haveattained a college degree or its equivalent,or must have adequate understanding andsufficient experience and competence inmanaging a business.

The Board is composed of seven directorselected by stockholders during the annualmeeting. A director serves on the Board forone year, or until a successor is elected andqualified according to the company’s By-Laws.(4.10)

Ayala has three independent directors,comprising 43% of the Board’s membership:

Ramon R. del Rosario, Jr., Xavier P. Loinaz, andAntonio Jose U. Periquet. This exceeds theSEC requirement of two independent directors,or 20% of Board membership.

In order to fulfill their responsibilities, Boardmembers are given access to accurate,relevant, and timely information. All papersfor Board meetings are provided to the Boardat least five business days in advance of themeeting.

The Board of Directors

plays a key role in

integrating sustainability

into the governance

framework of the

company.

8/9/2019 Ayala 2012 Sr

26/88


Ayala Corporation Board of Directors Profile

JAIME AUGUSTO ZOBEL DE AYALA

Filipino, 53, director of Ayala Corporation since May 1987. He has beenthe Chairman and CEO of Ayala Corporation since April 2006, and alsoholds the following positions: Chairman of Globe Telecom, Inc., Bank of thePhilippine Islands, and Integrated Micro-Electronics, Inc.; Co-Chairman ofAyala Foundation, Inc.; Vice Chairman of Ayala Land, Inc. and Manila WaterCompany, Inc.; Co-Vice Chairman of Mermac, Inc.; Director of AlabangCommercial Corporation, Ayala International Pte Ltd., and AC Energy Holdings,Inc.; Chairman of Harvard Business School Asia-Pacific Advisory Board, andChildren’s Hour Philippines, Inc.; Vice Chairman of t he Asia Business Council,Makati Business Club, and Asia Society Philippine Foundation, Inc.; Memberof The Asia Society, Eisenhower Fellowships, Harvard University Asia AdvisoryCommittee, Harvard Business School Social Enterprises Initiative Advisor yBoard, Harvard Global Advisory Council, Mitsubishi Corporation InternationalAdvisory Committee, JP Morgan International Council, International BusinessCouncil of the World Economic Forum, Asia Pacific Basin Economic Council,Philippine Economic Society, World Wide Fund for Nature Philippine Advisory

Council, Pacific Basin Economic Council, and Toshiba International AdvisoryGroup; and Philippine Representative for APEC Business Advisor y Council.

YOSHIO AMANO

Japanese, 55, director of Ayala Corporation s ince Apri l 2012. He is the GeneralManager of Mitsubishi Corporation-Manila Branch; Chairman of InternationalElevator & Equipment Inc., and MCPL (Philippines) Inc.; Director of IsuzuPhilippines Corporation, Imasen Philippines Manufacturing Corp., Kepco IlijanCorporation, UniCharm Philippines Inc., Trans World Agro-Products Corp.,Philippine Resins Industries, Inc., PhilNewEnergy, Inc., Philippine IntegratedEnergy, Inc., Japanese Chamber of Commerce & Industry of the Philippines(JCCIPI), The Japanese Association Manila Inc., and Manila Japanese School.

RAMON R. DEL ROSARIO, JR.

Filipino, 68, independent director of Ayala Corporation since April 2010. He isthe President and Chief E xecutive Officer of Philippine Investment Management(PHINMA), Inc.; President, Chief Executive Officer and Vice Chairman ofPHINMA Corp.; Chairman of Araullo University, University of Iloilo, Universityof Pangasinan, Cagayan de Oro College, United Pulp and Paper Co., Inc.,Microtel Inns and Suites (Pilipinas), Inc., Microtel Development Corp., Trans-Asia Oil & Energy Development Corporation, CIP II Power Corp., Fuld & Co.,Inc., Fuld & Co (Philippines),Inc., PHINMA F&A Outsource Corp., and Toon CityAnimation, Inc.; President of Atlas Holdings Corp.; Vice President of Trans-AsiaOil & Energy Development Corporation, PHINMA Propert y Holdings Corp., andPHINMA Foundation; Director of Holcim (Philippines), Inc., Trans-Asia PowerGeneration Corp., Union Galvasteel Corp., and South Luzon Thermal EnergyCorp.

FERNANDO ZOBEL DE AYALA

Filipino, 52, director of Ayala Corporation since May 1994. He has been thePresident and Chief Operating Officer of Ayala Corporation since April 2006.He is also: Chairman of Ayala Land, Inc., Manila Water Company, Inc., ACInternational Finance Ltd., Ayala International P te Ltd., Ayala DBS Holdings,Inc., Alabang Commercial Corporation, AC Energy Holdings, Inc., and HeroFoundation, Inc.; Co-Chairman of Ayala Foundation, Inc.; Co-Vice Chairmanof Mermac, Inc.; Director of Bank of The Philippine Islands, Globe Telecom,Inc., Integrated Micro-Electronics, Inc., LiveIt Investments, Ltd., AsiacomPhilippines, Inc., AG Holdings Limited, Ayala International Holdings Limited,AI North America, Inc., Vesta Proper ty Holdings Inc., Honda Cars Philippines,Inc., Isuzu Philippines Corporation, Pilipinas Shell Petroleum Corp., and ManilaPeninsula; Member of The Asia Society, World Economic Forum, INSEAD EastAsia Council, and World Presidents’ Organization; Chairman of Habitat forHumanity’s Asia-Pacific Capital; Campaign Steering Committee; Vice Chairmanof Habitat for Humanity International; and Member of the Board of Trusteesof Caritas Manila, Pilipinas Shell Foundation, Kapit Bisig para sa Ilog Pasig

Advisory Board, and National Museum.

DELFIN L. LAZARO

Filipino, 66, has served as member of the Board of Ayala Corporation since January 2007. He also holds the following posi tions: Chai rman of PhilwaterHoldings Company, Inc., Atlas Fertilizer & Chemicals, Inc., and AYC Holdings,Inc.; Chairman and President of Purefoods International Ltd., and A.C.S.T.Business Holdings Inc.; Director of Ayala Land, Inc., Globe Telecom, Inc.,Integrated Micro-Electronics, Inc., Manila Water Company, Inc., Ayala DBSHoldings, Inc., AC Energy Holdings, Inc., Ayala International Holdings,Ltd., Bestfull Holdings Limited, AG Holdings, AI North America, Inc., ProbeProductions, Inc., and Empire Insurance Company.

XAVIER P. LOINAZ

Filipino, 69, independent director of Ayala Corporation since April 2009. He isan independent director of Bank of the Philippine Islands, BPI Family SavingsBank, Inc., BPI Capital Corporation, BPI Direct Savings Bank, Inc., BPI/MSInsurance Corporation, and Globe Telecom, Inc.; Chairman of XPL ManitouProperties, Inc. and Alay Kapwa Kilusan Pangkalusugan; Vice Chairman of XPL MTJL Proper ties, Inc.; Trus tee of PETA, BPI Foundat ion, Inc., and E. ZobelFoundation.

ANTONIO JOSE U. PERIQUET

Filipino, 51, independent director of Ayala Corporation since September 2010.He is the Chairman of Pacific Main Holdings, Inc., Campden Hill Group, andRegis Financial Advisers; Director of Strait Wine Company, Inc. and ABS-CBNHoldings; Independent Director of BPI Capital Corporation, DMCI Holdings,Inc., Philippine Seven Corp., Bank of the Philippine Islands, and BPI FamilyBank; and Trustee of Lyceum of the Philippines Universit y.

BOARD OF DIRECTORS COMMITTEE MEMBERSHIP AND MEETINGS HELD

DIRECTOR EXECUTIVEPERSONNEL ANDCOMPENSATION

NOMINATION FINANCE AUDIT AND RISK

Jaime Augusto Zobel de Ayala CHAIRMAN MEMBER MEMBER

Fernando Zobel de Ayala MEMBER MEMBER

Yoshio Amano °° MEMBER MEMBER MEMBER

Ramon R. Del Rosario, Jr. ° CHAIRMAN CHAIRMAN MEMBER

Delfin L. Lazaro MEMBER CHAIRMAN

Xavier P. Loinaz ° CHAIRMAN

Antonio U. Periquet ° MEMBER MEMBER

Number of meetings in 2012 0 3 4 2 4

° Independent Director, °° Non-executive Director

Note: Six Board meetings, with average attendance of more than 90%, were held in 2012.

8/9/2019 Ayala 2012 Sr

27/88


Board Committees

The Board has established committees toprovide support in the performance of itsfunction and to aid in good governance. Whilewe do not have specific committees on the

environment and society, all Board membersare actively engaged in the identification andmanagement of triple bottom line impactsgiven the alignment of the company’s strategicobjectives to national development goals.

EXECUTIVE COMMITTEE Chaired by JaimeAugusto Zobel de Ayala, the ExecutiveCommittee supports the Board of Directorsin the review and approval of resolutions thatdrive business strategy and operations of thecompany.

In accordance with the authority granted

by the Board, or during the absence of theBoard, the committee acts by majority voteof all its members on specific matters withinthe competence of the Board of Directors asmay from time to time be delegated to theExecutive Committee in accordance with thecorporation’s By-Laws, except with respect to:

i. approval of any action for which shareholders’approval is also required;

ii. the filling of vacancies on the Board or in theExecutive Committee;

iii. the amendment or repeal of By-Laws or theadoption of new By-Laws;

iv. the amendment or repeal of any resolution of theBoard of Directors which by its express terms isnot so amendable or repealable;

v. the distribution of cash dividends; and

vi. the exercise of powers delegated by the Boardexclusively to other committees, if any.

NOMINATION COMMITTEE Chaired byindependent director Ramon R. del Rosario, Jr.,the Nomination Committee supports theBoard in the management of the process ofnominating individuals to the Board.

Members of the Nomination Committee areresponsible for ensuring that only qualifieddirectors are nominated for election duringthe annual stockholders’ meeting. They arein charge of selecting nominees for Boardpositions, and must guarantee that theychoose a mix of competent individuals whoare able to exercise independent judgmentand add value to the Board in the exerciseof its functions. Because of the company’sinvestments in strategic economic,environmental, and social sustainability,the Nomination Committee ensures thatnominated directors have the experience andexpertise that will allow them to provide directoversight on these major initiatives. (4.7, 4.10)

In 2012, the Nomination Committee wastasked with evaluating the qualificationsof all persons nominated for positions inthe company requiring Board appointmentand approved the final list of nominees fordirectors for election at the 2012 annualstockholders’ meeting.

PERSONNEL AND COMPENSATION COMMITTEE

Ramon R. del Rosario, Jr. also chairs thePersonnel and Compensation Committee,which supports the Board in the determinationof executive compensation and remuneration.

This committee establishes formal andtransparent policies and procedures fordetermining the salaries of officers anddirectors and oversees the pay for senior

▲The Board of Directors meetsregularly to decide on criticalissues concerning the company

8/9/2019 Ayala 2012 Sr

28/88


management and other key personnel. Thecommittee is also responsible for reviewingand strengthening the policy provisions onconflict of interest, and salaries and benefits.(DMA-LA)

In 2012, the Committee approved theperformance bonus and merit increasesfor the year, as well as the Executive StockOwnership Plan.

FINANCE COMMITTEE Delfin L. Lazaro chairsthe Finance Committee, which is responsiblefor reviewing and evaluating the financialaffairs of the corporation from time to time.

The committee oversees the company’sfinancial policy and strategy, including capitalstructure, dividend policy, acquisitions, anddivestments, and makes the appropriaterecommendations to the Board of Directors.The committee also has oversightresponsibility over the company’s Treasuryactivities, and reviews and approves changesin Treasury policies. It is responsible forevaluating the financial affairs of the Companyon a regular basis and carrying out such otherduties as may be delegated to it by the Boardof Directors. (DMA-EC)

AUDIT AND RISK COMMITTEE Chaired byindependent director Xavier P. Loinaz, theAudit and Risk Committee assists the Boardin the oversight of the integrity of the financial

statements of the Company and the financialreporting process, the effectiveness of internalcontrols and risk management process, theperformance of the internal audit function andthe independent auditors, and the compliancewith legal and regulatory requirements.

The committee has primary responsibilityfor making a recommendation on the

appointment, reappointment, and removal ofthe independent auditors, and the appropriateaudit fees. It also recommends theappointment and dismissal of the chief auditexecutive to the Board. The committee ensuresthe quality, integrity, and independence of theaudit process and, as such, maintains freeand open communications with the company’sindependent auditors, internal auditors, andmanagement.

In 2012, the committee recommended theappointment of Sycip Gorres Velayo & Co.(SGV) as Ayala’s independent auditor and

approved SGV’s audit fees. It reviewed andapproved the 2012 consolidated auditedfinancial statements as well as the 2012 SGVand Internal Audit workplans.

Board Meetings

Board meetings are held quarterly or morefrequently if circumstances or decisionsrequire. Six meetings were held in 2012and the average attendance was more than90%, the details of which are in the AnnualReport. Non-executive directors are Boardmembers who are not officers or consultants

of the company. The remuneration packagefor non-executive directors includes aretainer fee and per diem for every Board andcommittee meeting attended: 1) retainer feeof P1.2 million; 2) per diem of P200,000 foreach Board meeting attended; 3) per diemof P100,000 per Audit and Risk Committeemeeting attended; and per diem of P50,000for other committee meetings attended.None of the non-executive directors has beencontracted and compensated by Ayala forservices other than those provided as director.Directors holding executive or managementpositions do not receive director’s fees. (4.5)

Management

Management is accountable to the Board ofDirectors for the effective overall managementand all operations of the company.

Jaime Augusto Zobel de Ayala currently servesas Chairman and Chief Executive Officer (CEO)of the parent company. Fernando Zobel deAyala is the President and Chief OperatingOfficer (COO). He also serves as Vice Chairmanof the Board. The roles of Chairman and CEOand President and COO are complementaryand help ensure greater accountability and

balance of power. Both the Chairman/CEO andthe President/COO are executive directorsof the Company, and are members of theManagement Committee as well. Among thechecks and balances laid down to ensure thatthe Board gets the benefit of independent

▲Members of the ManagementCommittee oversee thebusiness performance of theAyala group

8/9/2019 Ayala 2012 Sr

29/88


views are: (1) the powers and responsibilitiesof the Chairman and of the CEO are specified

and separate in the By-laws; (2) only two of theseven directors are executive directors andthe powers and responsibilities of directorsare clearly delineated from the powers andresponsibilities of management; and (3)three of the seven directors are independentdirectors. (4.2)

In addition to the various Board-levelcommittees, Ayala has put in place aManagement Committee to guide thecritical decision-making and key governanceprocesses of the company. The ManagementCommittee is composed of key executives

and responsible for monitoring businessperformance and issues relevant to the long-term economic viability of the company and tosocial and environmental sustainability.

Ayala’s senior executives are subject to aperformance-based compensation scheme.An additional incentive to management is

the stock option plan for officers covering 3%of the company’s authorized capital stock,

as approved by the Board. The total annualcompensation includes basic pay and othertaxable income including guaranteed bonus,performance-based incentive, and the exerciseof stock options. (4.5)

Living by Our Values

Through our corporate values of integrity,long-term vision, empowering leadership,and commitment to national development,Ayala has earned its strong position of trustamong its stakeholders. The corporation hasadopted as basic operating principles theprimacy of the person, shared values, and theempowerment of people. (DMA-HR)

Ayala adheres to a high level of moral conductand fair dealings with its shareholders,customers, employees, and business partners.Our Code of Ethical Behavior, which is in

accord with our policies on human resourcesand embeds the core values we strive tomaintain, guides the way we work in allaspects. All directors, officers, and employeesare mandated to abide by the company’s Codeof Conduct and business practices that arealigned with the company’s principles, as setforth in the Manual of Corporate Governance,the Articles of Incorporation, and By-Laws. (4.6)

Our Manual on Corporate Governance alsoincludes a policy on Conflict of Interest aspart of Ayala’s commitment to transparencyand integrity. Transactions by and with thecompany must be consistent with our valuesand the interest of the Corporation. Ayala hasestablished a process for reviewing, approving,and monitoring related-party transactionsto determine whether they are in the bestinterests of the company, conducted at arms’

length, and at market rates. Actual or potentialconflict of interest on the part of directors isfully disclosed. Directors do not participate inthe discussions and voting of matters underconsideration by the Board where there mightbe an appearance of a conflict of interest.A director who has a continuing conflict ofinterest of a material nature should eitherresign or, if the Board deems appropriate, beremoved from the Board.

Ayala has a policy on insider trading toensure compliance with disclosure rules andgovernment regulations. The policy covers

directors, key officers, consultants andadvisers, all other employees who are madeaware of undisclosed material informationfrom time to time until such information hasbeen publicly disclosed, and members of theimmediate families of key officers and covered

The Management

Committee monitors

business performance not

only on economic but also

social and environmental

sustainability.

▲Independent directorsXavier P. Loinaz andRamon R. del Rosario, Jr. formpart of the Audit and RiskCommittee

8/9/2019 Ayala 2012 Sr

30/88


persons. These individuals are prohibited

from the buying and selling of the Company’ssecurities during trading blackout periods.

The company also has a strict Anti-MoneyLaundering policy that complies with the

provisions of the Anti-Money Laundering Law.

Communicating with Our Stakeholders

We recognize, uphold, and protect the rightsof our stakeholders and ensure open and

transparent communications with them.

Board meetings are held on a quarterly

basis, or as often as may be necessary.Our Corporate Secretary is responsible for

managing the flow of information to the Boardand ensures that the directors are apprised of

their duties.

Ayala provides multiple channels for

communicating with shareholders. Our primarychannels for shareholder communications are

the Ayala website (www.ayala.com.ph), PSEannouncements, annual reports, and annual

stockholders’ meetings. We ensure equitabletreatment of all our shareholders, including

minority shareholders. We provide ourshareholders with regular updates on thegroup’s performance and make sure that they

are informed about the notice and agenda ofany meetings that are held. The annual

stockholders’ meeting provides a uniqueopportunity for our stakeholders to participate

in the corporate governance process byexercising their voting rights and interacting

with Ayala’s Management and the Board.

Financial information and other requireddocuments filed with the SEC and the PSE aremade available for viewing on our website. (4.4)

Our Investor Relations and CorporateCommunications teams manage the differentinformation requirements of the investingpublic whose voice and opinion may be heardthrough meetings and inclusion of relevant,legitimate topics in the agenda. Information isshared regularly through periodic reports.

Our employees are our primary stakeholdersand the company and the Board welcometheir feedback and recommendations.

The company maintains an informal labormanagement council, which is a regular venuefor engaging employees in such dialogue. Itsmembership consists of union officers andrepresentatives, as well as representativesfrom the human resource department. Thecompany has formed various work councilsto gather feedback from the employees andget an equal representation from the groupof companies. The Chief Finance Officeralso serves as the Chief Risk Officer (CRO)and Chief Sustainability Officer, testifyingto the integration of risk management with

sustainability in strategic planning. He issupported by the Group Sustainability ProgramDirector and Group Risk Management Director,the Ayala Group Sustainability Council, and theAyala Group ERM Council, reporting directly tothe Chairman of the Board of Directors and theCEO. (4.4)

Managing Risks

Risk is inherent in our business; thus, theeffective management of risk is vital to thestrategic and sustained growth of the companyand the Ayala group.

The group adopts a formal risk managementprocess as an essential element of soundcorporate governance and an integral part ofgood management practice. It is designedprimarily to have a structured and disciplinedapproach of aligning strategy, processes,people, technology, and knowledge with thepurpose of evaluating and managing theuncertainties the conglomerate faces as itcreates value for all stakeholders. (4.11)

Institutionalized in 2002, the Company’sintegrated Enterprise Risk Management (ERM)framework is primarily designed to be a keyenabler to the strategic and sustained growthof the company and the Ayala group, andto support the vision of conglomerate-widepractice of risk management. ERM policies

▲The Ayala group is consistentlyrecognized for high standardsof corporate governance, socialresponsibility, and management

8/9/2019 Ayala 2012 Sr

31/88


and programs in place are in accordance

with internationally recognized standards and

frameworks. These are periodically reviewed

and improved to adapt to changes in the

business and operating environment, and be

responsive to emerging and changing risks.

Ayala has adopted a six-step process to risk

management:

• Identify risk drivers or sources

• Measure the price of failure or possible value

creation opportunities

• Formulate strategies to manage risks; present

these to the risk owners and other stakeholders

to obtain approval

• Assess current capabilities to implement the risk

management strategies

• Identify detailed action plans and resources

required; present the action p lans to the risk

owners, the Management Committee, and the

Audit and Risk Committee for approval; carry out

planned activities

• Monitor implementation of risk mitigation

strategies; update stakeholders on status of

implementation; evaluate the effectiveness of

strategies and improve if needed

Our CRO is the ultimate champion ofenterprise risk management of the group andoversees the entire risk management function.The Group Risk Management Unit providessupport to the CRO and is responsible foroverall continuity of the risk managementprocess and programs.

The Audit and Risk Committee providesoversight to the risk management process incompliance with the Audit and Risk CommitteeCharter. The CRO and the Group Risk

Management Unit submit risk managementreports to the committee on a quarterlybasis, focusing on the implementation of riskmanagement strategies and action plans forthe identified top risks of the Ayala group,any emerging risks, and developments in riskmanagement.

The Board monitors the effectiveness of riskmanagement through the regular updates onstrategic and operational risks facing thegroup from Management and reports from theAudit and Risk Committee. The company’sinternal auditors monitor the compliance withrisk management policies to ensure that an

effective control environment exists within theentire Ayala group.

8/9/2019 Ayala 2012 Sr

32/88


The following are the criteria used in assessingthe effectiveness of the risk managementprocess:

i. Governance and Organization

ii. Risk Management Strategy

iii. Reporting and Communication

iv. Tools and Technology

v. Culture and Capability

Ayala’s executive leadership team and boardmembers play a vital role in maintainingthe success of our organization and guiding

the company to new levels of growth andachievement. Risk discussions in newbusiness development, strategy execution,and synergy initiatives take place at variouslevels of the organization, including the Boardoversight and Management Committee levels.

The risk management process involvescarefully assessing our levels of risk exposurein relation to our investment portfolio andacquired businesses as part of our duediligence. Our companies review organizationalstructure, leadership, talent management, anddevelopment programs to adapt to new needs,

business models, and strategies. CorporateStrategy and Development and StrategicHuman Resources (HR) regularly discuss newbusiness development plans and collaboratewith the group HR Executive Committee inorder to strengthen Ayala’s pool of talent andleadership. (4.11)

Our risk management approach is intended toestablish safeguards against issues that candisrupt operations and to ensure strategic andsustained growth. We have taken measuresto reduce operational risks, such as thoserelated to human rights and labor issues. Over

the past five years, our companies have alsoexperienced first-hand the impact of climatechange on our businesses and recognize thatwe must be prepared for the risk of extremeclimate events. A climate-resilient businessis a sustainable business and Ayala will be

focusing on adaptation as a key strategyin its response to climate change. Detailed

discussions on the risk management initiativesof our companies can be found in theirrespective annual and sustainability reports.(DMA-HR, DMA-LA, EC2)

Ayala's 2012 Risk ManagementApproach

Risk management is a constantly evolvingprocess, and our companies are focused onhow best we can respond to new and changingconditions. The practice of sustainability ismuch the same way. In order to improve, weacknowledge that we must keep learning.

Last year, Ayala Land’s Internal Audit Divisionhosted the annual Ayala Group InternalAuditors’ Network (AGIAN) Conference. Withthe theme “The Way Forward: Adding Value,Driving Transformation,” 34 Internal Auditprofessionals from 12 companies within theAyala group participated in the three-dayconference to discuss stakeholders’ increasingexpectations, changing risk landscapes, andother developments, and how the Ayala GroupInternal Audit Organizations can respond inorder to meet various challenges. Delegatesto the conference discussed key trends inthe internal audit profession, as well asthe capacity building necessary to developstrategic thinking, entrepreneurial mindset andinnovation, customer and people orientation,and excellence in execution. Our companiesare also prioritizing ethics and businessintegrity, implementing vendor audits, andenhancing conflict of interest policies.

Constant communication from the Board andsenior management serve to reinforce andnurture the risk management culture at Ayalaand will remain a key differentiator, addingvalue to the group. ■

▲Ayala group internal auditorsmeet annually for professionaldevelopment

8/9/2019 Ayala 2012 Sr

33/88


RISK EXPOSURE RISK MANAGEMENT POLICY OBJECTIVERISK ASSESSMENT, MONITORING,

AND MEASUREMENT

RISK MANAGEMENT AND CONTROL

(STRUCTURES, PROCEDURES,

ACTIONS TAKEN)

Strategic

►We will use our risk

management capabilities to

maximize the value from our

assets, business portfolio andother business opportunities,

and to encourage innovation

► Aid in leading sustainable

development and in the

management of economic,

environmental, and social

responsibility issues

► Further enhance shareholder

value through greatercompetitiveness and an

improved capacity to take risk

►Pursue strategic growth

opportunities with greater

speed, skill, and confidence

►Structured and periodic

strategic planning process

and portfolio strategy review

►Monitoring of achievement

of strategic targets

►Continuous monitoring

of existing, as well as ofnew and emerging risks

through the business

unit risk management

champions and the office

of the Chief Risk Officer

► Investment in processes

and technologies to

support the requirements

of new businesses

►Rigorous portfolio

analytics and reviews

including resource

allocation and strategy ► Portfolio and strategic

initiatives visibility and

discussions at various

governance committees

► Development of formal

policies and processes

Operational

► Ayala operates in an ever-

changing environment and,

as a holding company, it must

(a) manage risks inherent

to its day-to-day operations

and (b) recognize the risks

that are inherent to thecompanies in its portfolio

►Everyone in the organization

needs to be involved in

active risk management

►By embedding the risk

management process into

the day-to-day operations,

the Ayala group fosters a

culture of risk management

and enables sound

decision-making at all

levels of the organization

►Ensure the company operates

in a sustainable manner ► Avert potential losses

or adverse impact

►Balance risk and reward

►Eliminate and/or minimize

operational loss

►Optimize risk

management cost

►Business planning

and budgeting

► Monitoring of actual

results versus objectives

► Identified key risk indicators

and metrics to measure

the effectiveness of the

risk mitigation strategies

►Regular review of

financial and operations

metrics and reporting

to senior management,

and management and

Board committees

►Monthly and annual

portfolio analysis/review

►Regular review and update of

policies to remain relevant

Governance

and Internal

Controls

►Risk management is a

fundamental element

of effective corporate

governance and an integral

part of sound management

practice in Ayala.

► Implement sound and

effective corporate

governance model and

internal control mechanisms

to achieve the goals

and objectives of the

Company and manage

the consequences of

any crisis situation

► Annual risk assessment

and regular reporting to the

Audit & Risk Committee

►Regular discussion at the

management and Board

committee meetings and

with the Board of Directors

►Periodic review of governance

structures and policies,

and internal controls

►Compliance with themandates of the Company’s

Manual on Corporate

Governance to ensure the

presence of organizational

and procedural controls

supported by an effective

management information

system and risk management

reporting system

►Compliance with laws

and regulations

►Regular benchmarking with

industry best practices anddevelopment of continuous

improvement program to

strengthen the Company’s

practices and policies

Risk Management Approach

8/9/2019 Ayala 2012 Sr

34/88


Clockwise from top left:

An eco-bag maker supported by Alay sa Komunidad ;

students benefiting from Text2Teach; Iraya

Mangyan with handwoven baskets; Ayala

Young Leaders; teachers participate in

an Enabling Education Communities

workshop; schoolchildren drink

potable water provided by

Lingap Eskwela; a young

reader gains access

to OurLibrary

8/9/2019 Ayala 2012 Sr

35/88

AYALA WORKS WITH SOCIETY TO CREATE shared value because business thrives incommunities that are healthy, productive,and successful. We always operate as

a responsible corporate citizen and as agood neighbor to ensure that no one is leftbehind in the journey towards progress.New products and services satisfythe needs of a broader market, whiledevelopment projects seek to promoteequitable growth.

We are committed to making life betterfor our customers and the communities inour areas of operation, especially thoseat the base of the pyramid. As a Filipinocompany with a tradition of excellence in

business performance and a legacy ofnation building, Ayala is proud to serve ourcountry and our people.

8/9/2019 Ayala 2012 Sr

36/88


s part of our triple bottom line approach,Ayala aligns business success withthe goals of the country. The Ayalagroup works with a broad spectrum of

communities, from the areas where we operateto our program beneficiaries, suppliers, andcustomers. (DMA-SO, SO10)

Given Ayala’s nationwide market presence, weencourage our subsidiaries and affiliates to helpstimulate local economies through local sourcingand job creation. They practice corporate socialresponsibility and undertake social developmentprograms that are strategically aligned with theirrespective business goals and focus on thecountry’s priority issues of quality education,livelihood and capacity building, micro-enterprises,and a healthy environment. (EC6, EC7)

We work with local communities and leverage onthe talent and resources available. Where thereare indigenous groups in our areas of operation,we respect their rights and help preserve andpromote their culture and heritage. Consultationswith the council of elders, local government,

and the community shape interventions thatare consistent with beliefs, norms, and actualneeds. We value relationships and harnessthem in consortium building and private-public partnerships to support the country’sdevelopment.

Transparency and accountability foster a strongsense of trust in the Ayala brand and our wayof doing things. Ayala practices good corporatecitizenship and complies with all laws, regulations,and standards. We protect human rightsthroughout our activities and the privacy, health,and safety of our customers and contractors. Weconduct ourselves with the utmost integrity anduphold justice and fairness in our engagementswith our stakeholders.

Making Business InclusiveInclusivity is a priority in Ayala. We continue toinnovate products and services to meet the needsof our diverse markets, particularly the largelyunderserved bottom of the pyramid. (SO1, DMA-SO,SO10)

In 2012, Manila Water received the prestigiousG20 Challenge on Inclusive Business InnovationAward from the International Finance Corporation,the investing arm of the World Bank. The companywas one of only 15 winners selected fromhundreds of nominees globally.

The G20 Challenge identifies, showcases, andsupports innovative business models that servelow-income communities and have the potentialfor replication across developing countries. WhenManila Water entered the market in 1997, it wasfounded on the principles that access to safe

A▲

Nito baskets, trays,and jars crafted bythe Iraya Mangyanshowcase theirheritage and artistry

8/9/2019 Ayala 2012 Sr

37/88

3 5O N E C O M M U N I T Y

drinking water and sanitation services are basichuman rights. Thus, its business model integratesthe needs of the marginalized communities withinits concession area.

Ayala Land’s BellaVita brand launched its Caviteand Laguna projects in late 2012, catering to low-income communities, specifically minimum-wageearners. The company offers payment schemes toaddress the financial realities of the mass marketso that quality housing is within their reach. TheBellaVita project includes an open-air retail spacecalled Fiesta Market to stimulate local enterpriseand formalize the retail activities of small informalentrepreneurs.

Globe partnered with the Department of SocialWelfare and Development (DSWD) by introducingfinancial literacy to the beneficiaries of theConditional Cash Transfer (CCT) program. The CCTis a national social development strategy thatprovides conditional cash grants to extremely poorhouseholds to improve their health, nutrition, andeducation. Using the Globe Bridging Communities SIM card, BPI Globe BanKO allows beneficiariesto open an account for an initial deposit ofP50. Savings in their mobile phone accounts

can be converted to prepaid load, offering CCTbeneficiaries additional income through retailsales. In just nine months, 3,603 savingsaccounts were opened by DSWD CCT beneficiarieswith an average increase of 79% in savings fromtheir initial deposit.

Facilitating Prosperity for All

Ayala’s community work goes beyond philanthropy.We commit to supporting innovative and strategicprojects that help improve their standard of livingin partner communi

Ayala 2012 Sr

Documents

Transcript of Ayala 2012 Sr