FPH CHAIRMAN’S MESSAGE



Dear Fellow Shareholders:

Six years ago we decided to express in a few words the vision of First Philippine Holdings Corporation (FPH), which is to: “Uplift lives through key industries and infrastructure that advance national development.”

Today, we live in an era where change hurtles at us with blinding speed. Corporations and business models come and go. The average life of a Fortune 500 corporation has now shortened to between 12 to 15 years from 67 years in the 1920’s. And more critically, we see a fragile world pummeled everyday by climate events.

How then do we “uplift lives” in such a massively disrupted world?

Just last March 2016, I sat with a crowd of over 700 other people here in Manila listening to Al Gore weave his two-hour presentation on the state of the global climate. I was particularly struck as he emphasized a particular point: “All our infrastructure was built for a world that’s now changing.” Immediately, images of our typhoon-damaged plants in Leyte flooded my mind.

I’m sure you all remember, when Typhoon Yolanda hit in November 2013, much of what worked for four decades, particularly at our geothermal plants, was overwhelmed by a force no one had ever seen before. The forces unleashed by climate change are now more powerful than they’ve ever been, which compels that we build stronger as we move forward in this changed world.

But the phrase also rings true from yet another perspective: now, more than ever, the world needs to rapidly switch to a new energy paradigm if we want to keep the planet inhabitable in the near future and for centuries to come.

Almost no one today doubts that climate change is exacerbated by human activity. Global average temperatures are rising and this is leading to more severe weather occurrences throughout the world.

  • The year 2015 is now the hottest year on historical record globally and it has edged out the previous record of 2014 by a wide margin (+0.16°C, to be precise)
  • Fifteen of the sixteen hottest years on record globally have occurred after the year 2000
  • January 2016 was the hottest January on record, and February 2016 was the 372nd consecutive month with a global temperature above the 20th century average. March 2016 also holds the record of being the hottest March since the year 1880 and the 11th consecutive month that a monthly global temperature has been broken; the longest such streak in the last 137 years! So, I will not be surprised if 2016 shatters 2015’s record as well.

The world is now 1°C warmer than it was in pre-industrial times (the mean global temperature then was 13.7°C), which means we only have 0.5° – 1°C to go before we exceed the Paris COP 21 commitment of restraining the average global temperature rise to less than 2°C from what it was in pre-industrial times. Beyond this threshold, scientists acknowledge that the world becomes extremely dangerous for its inhabitants and Yolanda will be nothing compared to what we will see then.

More than half the species on earth today could be wiped out before the end of the century. Many scientists are calling this the sixth era of mass extinction over the last 450 million years; the other five occurred way before humans were around. The main difference between this and the other five is how rapidly the extinction is occurring today because of manmade climate change.

Most of them agree that atmospheric concentration of CO2 should not go beyond 450 parts per million (ppm). This year, that figure already stands at 407.57 ppm and we’re no longer likely to see it go below that in our lifetimes. The world has already used up 90 percent of that carbon budget and, at current accelerating emission rates, we will likely use up the rest by 2020 or shortly thereafter. Yet the energy infrastructure being built today still threatens to “lockin” these deadly carbon emission patterns decades into the future. The later we all take action in reducing carbon emissions, the more difficult, drastic, and radical those reductions will have to be. Much of the warming already occurring will trigger widespread tipping points and feedback loops on ecosystems that cannot be reversed and will exacerbate climate change even more.

Fatih Birol, Chief Economist of the normally conservative International Energy Agency (IEA), was quoted in an article by The Guardian following the agency’s release of the World Energy Outlook report in November 2011: “The door is closing. I am very worried — if we don’t change direction now on how we use energy, we will end up beyond what scientists tell us is the minimum [for safety]. The door will be closed forever.”

The same article from The Guardian continued with this: “Yet, despite intensifying warnings from scientists over the past two decades, the new infrastructure even now being built is constructed along the same lines as the old, which means that there is a “lock-in” effect — high-carbon infrastructure built today or in the next five years will contribute as much to the stock of emissions in the atmosphere as previous generations. The “lock-in” effect is the single most important factor increasing the danger of runaway climate change.”

What’s even more disturbing is that our country and millions of less fortunate Filipino families are bearing, and will continue to bear, a disproportionate share of the devastation being wrought on the planet by climate change. In a report by Germanwatch which releases the Global Climate Risk Index yearly, the Philippines ranks as the number one country experiencing weather-related disasters between 1995-2014 (the Philippines recorded 337 events, Vietnam – 225, Bangladesh – 222). We can see why it’s no coincidence that four of the five most powerful and destructive typhoons to hit the country happened in the last five years. Indeed, climate change is a disruptive force on the environment that carries ripple effects on everything: from public safety and infrastructure; food, water, and energy production; on controlling diseases and poverty alleviation; and really, life as we know it on our planet. If any country in the world has a stake in seeing global carbon emissions reduced, it’s the Philippines, where millions more of innocent lives will be destroyed or lost if the march towards a warmer world cannot be stopped. With EDC having literally been at the center of events in 2013, we witnessed firsthand the devastation and suffering wrought on so many lives in the days, months, and years following Yolanda. That experience will always be a force that quietly but intensely guides how we move forward as a business group.

Over the last 15 years, our geothermal energy facilities incurred damage from extreme weather events totaling over PHP9 billion. More than 85 percent of this number was incurred only in the last five years! As a result, insurance premiums at EDC climbed from just PHP243 million in 2011 to PHP682 million in 2015. Insurers are beginning to see extreme weather events as an everyday risk.

Clearly, weather patterns are no longer what they used to be and we need to quickly adapt to a changed planet. This is why EDC spent substantially on geohazard mapping, landslide mitigation, and typhoon-proofing of our facilities last year. This included working with suppliers on new designs for our structures and vital sections of our power plants, built now to withstand the 300 kph winds of the future.

EDC has also employed a team of more than a dozen dedicated and well-equipped disaster response professionals who are currently dispersed at our various plants. They are constantly training our internal corps of volunteers, as well as teaching local communities and government units to be force multipliers and first responders. At critical moments, they also helped overseas after the earthquakes in Nepal and Mt. Kinabalu, Sabah, not only aiding relief efforts but also gaining more experience and understanding on how we ourselves can be better prepared.

First Balfour routinely positions heavy equipment (cranes, bulldozers, and dump trucks) at
EDC sites, which can be mobilized quickly to clear and repair roads after storms. This proved vital for mobilizing relief goods and medical supplies immediately after Yolanda and other storms. Our sites today also stockpile fuel, food, water, and communications equipment, which will enable our people to function under extreme emergencies.

Climate change doesn’t only bring more powerful typhoons but also drier summers. The disruption of the earth’s water cycles with just a 1°C warming so far is already wreaking tremendous devastation. I’m sure you’re all aware of the massive wildfires in Canada that have already displaced more than 90,000 people, destroyed more than 400,000 acres of forest, and will cost insurers upwards of USD9 billion. The massive forest fires are being fought by no less than 500 firefighters, 19 helicopters (four of them heavy-lift), 31 air tankers, 44 pieces of heavy equipment and 88 fire engines. Despite the enormity of resources deployed, the blaze is expected to continue on for several months.

These past few months, we’ve also seen how drought and wildfires resulting from abnormally hot weather severely reduced agricultural food supply in 18 provinces (now all under state of calamity), and burned hundreds of hectares of forests in Mt. Kitanglad, Mt. Banahaw, Mt. Kanlaon, and Mt. Apo, even threatening our power facilities in the latter.

In Mt. Apo, having learned from previous forest fires, EDC’s reforestation plots were designed with long and wide fire breaks to prevent forest fires from spreading on our side of the mountain and putting our assets at risk. Fortunately, there was no damage and no lives lost but drought and wildfires were yet another warning of how a climate changed planet could strike us. Our people were well prepared in these instances and fought the fires in coordination with local government and scores of volunteers. Yet, there were many lessons we took home from the experience that will help shore our defenses for future emergencies like these.

Disaster preparedness and response must become a prime area of competence and expertise. It’s not just a question of how well we can do it but also how seamlessly we coordinate and integrate this capability with that of our host communities, as well as local and national governments and other private companies. Climate change adaptation isn’t something you can do alone but within the context of wider and smarter collaboration with everyone else.

The Philippines performed a crucial role in the recent Paris COP 21 climate talks, chairing the Climate Vulnerable Forum (CVF) — an international partnership of countries highly vulnerable to climate change, and the V20 — the group of finance ministers representing twenty of the most vulnerable nations in the world. Both the CVF and the V20 provided the much-needed emotional plea for a decarbonized world and although the agreements reached in Paris were dramatic, experts know they are still not enough. The world is still in dire need of more such voices to turn the tide in time to avert a global catastrophe. Sadly, however, the country’s credibility was built on the backs of thousands of Filipino lives, homes, and livelihoods that have already been lost and destroyed by climate change. The power of that voice grows only if we show the will to decarbonize our own economy. Conversely, that power dies when our actions are not consistent with that voice.

There are times when I hear otherwise responsible quarters from the business sector and our power industry reason that since the Philippines is responsible for only 0.3 percent of global carbon emissions we have the right to continue building more coalfired power plants. Doing so, the argument goes, will help us reduce power costs, create more jobs, and allow the Philippines to catch-up with other nations and industrialize. That way of thinking could have passed muster a decade ago. However, given what we know about global climate today, that assertion, even if we choose to adopt such a parochial perspective is downright thoughtless and unconscionable. For every avoidable ton of carbon spewed into the air reverberates onto millions of vulnerable Filipino lives with an impact that’s disproportionate with the rest of the world. Meeting the economy’s power demand with more coal-fired plants today means “locking-in” those high-carbon emissions for decades. And more time wasted changing course only means more lives lost, devastated, and more of our world vanishing, never to be recaptured again. This is a pivotal time in the history of the world and so much depends on everyone thinking and rowing in the same direction, taking responsibility for our piece of the biosphere and doing one’s share no matter how small. Business-as-usual is a sure road to disaster. These are extraordinary times that call for extraordinary change and everyone must shift to thinking about the quickest route to a decarbonized economy. The technology to do this is already here. It’s just our mindsets and our conversations that need to be transformed.

It is our aim that FPH and its subsidiaries will be among the bright navigating stars of Philippine industry, blazing a path toward a decarbonized economy. It will not be easy; we will have to explore many roads not yet taken and new business models that challenge old paradigms. But this is precisely where opportunities will be created and won.

We are setting a higher bar for ourselves but, for us, it cannot be any other way. We will help power our nation’s growth ambitions yet achieve this in ways that recognize the need for a livable Philippines and a livable planet. I believe the pioneering entrepreneurial spirit to accomplish this is alive and well at First Philippine Holdings and the Lopez Group. It is something we have done in the past and something we will, with certainty, do again. Times may be tough but we are a business group that shines when faced with that combination of adversity and purpose. We have the opportunity to address one of the most pressing needs of our times. We cannot ask for more.

Thank you and we look forward to your continued partnership on what will be an exhilarating and purpose-filled journey.

FEDERICO R. LOPEZ
Chairman and
Chief Executive Officer