Sustainability Alert

The International Sustainability Standards Board (ISSB) released its first-ever sustainability standards – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (the Standards) on June 26, 2023. This signifies a momentous turning point in the sustainability reporting landscape, aiming to establish a global common language for sustainability reporting.

With the issuance of IFRS S1 and IFRS S2, the ISSB has established a global baseline for disclosing sustainability information. IFRS S1 sets out the overall requirements for a reporting entity to disclose sustainability-related financial information about its sustainability-related risks, while IFRS S2 places specific emphasis on climate-related disclosures. The aim of these two standards is to cater to the informational requirements of the capital markets while serving as a fundamental reference for securities regulators worldwide, should they choose to adopt them to enhance their regulatory frameworks.

In the Philippines, the Financial and Sustainability Reporting Standards Council (FSRSC) established the Philippine Sustainability Reporting Committee (PSRC) in 2022. PSRC’s main purpose is to evaluate ISSB’s IFRS Sustainability Disclosure Standards for local use and issue local interpretations and guidance. Currently, PSRC is evaluating the Standards for local implementation.

A Glimpse of the Standards

Presented below are the objectives and core contents of the Standards. As indicated in the table, the disclosures must encompass details concerning the entity's governance procedures and controls, strategic approach, and risk management methodologies, as well as the metrics and targets employed to oversee, handle, and report its performance concerning the identified risks and opportunities.

Effective Date

IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after January 1, 2024. This means that the first reporting will be seen in 2025 for reporting entities applying the Standards to their December 31, 2024 reporting cycles. Early adoption is permitted.

In order to claim compliance with the IFRS Sustainability Disclosure Standards, reporting entities need to apply both Standards together. However, the ISSB has provided relief from some requirements in the first year the Standards are applied, which are detailed below.

While PSRC’s evaluation is still ongoing, the adoption of the Standards for local implementation is already certain. The effectivity date of the Standards in the Philippines is dependent on the result of said evaluation and PSRC’s eventual issuance of local implementation guidance as well as regulatory requirements.

Transitional Provision

IFRS S1 and IFRS S2 set out some transition reliefs that are applicable in the first year of application, including relief from the following requirements:

• reporting information about sustainability-related risks and opportunities beyond those relating to climate-related risks and opportunities;
• reporting sustainability-related financial disclosures, including climate-related financial disclosures, at the same time as the related financial statements, which means that a reporting entity will be permitted to report its sustainability-related financial disclosures after its financial statements, allowing for more time to collate and report on sustainability;
• disclosing Scope 3 greenhouse gas (GHG) emissions information and using the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (GHG Protocol Corporate Standard) to measure Scope 1, Scope 2, and Scope 3 GHG emissions if they are using a different approach; and,
• disclosing any comparative information.

These transitional provisions, which are most likely to be adopted, are part of the ongoing evaluation of the Standards by the PSRC.

Next Steps

Now that IFRS S1 and IFRS S2 have been issued, the ISSB has indicated it will work closely with jurisdictions and reporting entities throughout the adoption process. One of its first steps will be creating a Transition Implementation Group to support reporting entities that apply the Standards. In addition, the ISSB will be launching capacity-building initiatives to support the effective adoption and implementation of these two Standards.

The ISSB has indicated that it will work closely with jurisdictions wanting incremental disclosures beyond the global baseline it has created to achieve greater interoperability of the Standards.

Locally, as indicated above, the PSRC has just recently been established and is catching up on its evaluation of the Standards for local implementation. Once said evaluation is completed, the PSRC or the FSRSC is expected to issue local implementation guidance and conduct activities that will assist local entities in adopting and applying the Standards.

Our Thoughts

We welcome the release of the Standards because they provide a comprehensive global baseline of sustainability disclosures that should meet many of the information needs of investors. Their issuance marks the beginning of a new era in sustainability reporting.

We are pleased that the ISSB will continue to work with jurisdictions and other international organizations to achieve greater interoperability of the Standards, as we believe this is key to the success of sustainability reporting around the world.

Given that reporting on sustainability will either be new to many reporting entities or potentially different from what they have previously reported, we encourage all entities that may be affected by these Standards, to start assessing the impact on their reporting now. We would like to emphasize that adoption and implementation of the Standards in the Philippines is already certain. However, the timing is yet to be determined.