Philippines SEC Proposes New ESG Disclosure Standards for Firms

In Short

• The SEC has proposed new sustainability reporting standards.
• Large companies must report Scope 1 and Scope 2 emissions.
• The move aims to align local reporting with global standards.

The Securities and Exchange Commission (SEC) of the Philippines has proposed a new climate reporting framework aimed at large companies, including both Publicly Listed Companies (PLCs) and Large Nonlisted Entities (LNLs).

On July 29, the SEC voted to adopt two major sustainability reporting standards, although the move is still in the public consultation phase until August 15. This is considered a prominent step in helping the country support decarbonisation and attract ESG (Environmental, Social, and Governance)-focused investors to the local market.

These two standards are called PFRS S1 and PFRS S2.

• PFRS S1 is about the general requirements for sustainability-related financial disclosures,
• PFRS S2 focuses on climate-related disclosures.

Both are based on the international IFRS standards developed by the International Sustainability Standards Board (ISSB). The Philippines has customised these global standards slightly for local use, changing the name from IFRS to PFRS.

This adoption was first approved by the Financial and Sustainability Reporting Standards Council (FSRSC), and then endorsed by the Professional Regulatory Board of Accountancy (PRBOA) in March 2024.

Along with these standards, the SEC also introduced Sustainability Reporting Guidelines and a PFRS Adoption Roadmap. These are designed to promote sustainable business practices and align Philippine companies with global reporting norms.

According to the SEC’s draft circular, the guidelines aim to support companies in managing their environmental and social impact, tracking their contribution to national goals such as AmBisyon Natin 2040 and the UN Sustainable Development Goals (SDGs).

A major feature of the new rules is the introduction of “mandatory limited assurance” for Scope 1 and Scope 2 greenhouse gas (GHG) emissions. This means companies must have their reported emissions verified by an independent third-party expert.

Scope 1 emissions come from sources that the company owns or controls directly, like fuel burned in company vehicles or factories.

Scope 2 emissions come from the energy the company uses, such as purchased electricity.

Scope 3 emissions, which are indirect and harder to track (like emissions from a product’s use), are not yet required under these standards.

This verification will be introduced in stages. The largest publicly listed companies must comply by 2028, while smaller companies and LNLs will follow in 2029 and 2030.

The SEC deserves credit for moving quickly on this issue, given how complex sustainability reporting and accounting standards can be. Most companies in the Philippines are supportive of sustainability efforts, but the technical requirements for this kind of reporting are often difficult to manage. That’s why the SEC’s progress is being seen as both ambitious and practical.

Another important point is that requiring independent assurance adds credibility to the data. It will improve the Philippines’ sustainability reputation with global investors and improve the quality of GHG emissions data overall. With better and more reliable data, both the government and private sector can take more targeted and effective climate action, potentially also creating new economic opportunities.

Ends/

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Source: The Manila Times