Earth Day is a reminder that environmental concerns are not abstract or distant, but deeply intertwined with economic stability and long-term growth. For businesses in the Philippines, this is a reality that is increasingly becoming difficult to ignore. As expectations for corporate accountability rise, sustainability is no longer just a voluntary initiative or an exercise of compliance contained in a mandatory report. Today, it is a core business responsibility.  

Recognizing this shift, the Securities and Exchange Commission (SEC) now requires Publicly Listed Companies (PLCs) and Large Non-Listed Entities (LNLs) to comply with newly adopted sustainability reporting standards through the Philippine Financial Reporting Standards (PFRS) S1 and S2 for their SEC-mandated sustainability reports.  

PFRS S1 and S2 represent the Philippines’ alignment with the International Financial Reporting Standards (IFRS) S1 and S2. IFRS S1 is the standard for sustainability-related disclosures while IFRS S2 is the standard for climate-related disclosures.  

Required understanding before reporting 

To prepare a sustainability report that aligns with these standards, a company needs to examine two things: 1) how it transforms inputs into products and services through its activities into outcomes that benefit them (its business model), and; 2) how external factors shape those activities.  

By examining both, the company can identify its direct and indirect interactions with its stakeholders, society, the economy and the natural environment. This helps the company determine the resources and relationships it relies on, directly and indirectly, to create value (its dependencies), as well as those it influences through its activities and outcomes (its impacts).  

The potential effects of dependencies and impacts on the company can either be positive (its sustainability-related opportunities) or negative (its sustainability-related risks). Similarly, the potential effects of climate change on the company can be either positive (its climate-related opportunities) or negative (its climate-related risks).  

Potential negative effects can be from weather-related events (climate-related acute physical risks), gradual changes in climate conditions (climate-related chronic physical risks), or efforts to transition to a lower-carbon economy (climate-related transition risks). 

In identifying opportunities and risks, the company may also refer to any applicable disclosure topic of the Sustainability Accounting Standards Board (SASB) Standards.  

Core content of a sustainability report 

To align with IFRS S1 and S2, a company must explain in the report how sustainability and climate-related risks and opportunities affect their governance, strategy, risk management, metrics and targets. 

Governance 

Governance is how sustainability and climate-related risks and opportunities are identified and monitored. The company must specify in the report the persons responsible for this, referred to as the governance body in IFRS S1 and S2. Their duties and procedures for strategy development, decision-making, and progress monitoring should also be included. 

Strategy 

Strategy is how the company addresses risks and opportunities related to sustainability and climate. The company must disclose the effects of these risks and opportunities on its current strategy and decision-making as well as on its business model and value chain. This is defined in IFRS S1 and S2 as the full range of interactions, resources and relationships related to the company’s business model and the external environment in which it operates. 

Furthermore, strategy disclosure involves assessing whether or not the company’s current strategy is resilient to the related risks and opportunities. In some cases, the company may need to conduct a scenario analysis to assess the resilience of its strategy and its business model amid uncertainties that may arise from risks.  

The company should also disclose its climate-related transition plan, which includes the targets it has set, the actions it plans to take, and the resources it will allocate to support its transition toward a lower-carbon economy.  

Risk management 

Risk management is how sustainability and climate-related risks and opportunities are included in the company’s current risk management system. This involves describing how the company prioritizes related risks against non-related risks. 

Metrics and targets 

Metrics and targets are the key performance indicators that measure company performance in addressing sustainability and climate-related risks and opportunities. To determine these indicators, the company may use the metrics provided by the SASB Standards disclosure topics. The sustainability report should also include metrics and targets specific to scope 1, 2 and 3 greenhouse gas emissions. 

The reality in sustainability reporting 

With IFRS S1 and S2, the concepts of “environment” and “sustainability” are no longer thought of as concepts separate from day-to-day business operations. Instead, the reporting standards clarify an overlooked reality: business is deeply connected to the environment.  

Recognizing this connection, rather than resisting it, may spell the difference between companies that thrive in the long term and those that fizzle out after brief stints of success.  

Still, companies are not expected to navigate through this shift on their own. There are organizations dedicated to helping companies transform this reality into positive, practical action.  

One of such organizations is Business for Sustainable Development (BSD) Philippines, a non-profit that helps companies in preparing their SEC-mandated sustainability reports, while also guiding them further on how they can more deeply incorporate sustainability into their business. To learn more about BSD Philippines, visit facebook.com/bsdph.