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New Sustainability Disclosure Standards Adopted by the SEC

The Philippine Securities and Exchange Commission (SEC) has officially adopted the Philippine Financial Reporting Standards (PFRS) on Sustainability Disclosures. This important development aligns closely with the International Financial Reporting Standards (IFRS) established by the International Sustainability Standards Board (ISSB). This move signals a serious commitment to enhancing transparency in sustainability reporting, providing much-needed clarity to stakeholders.

Overview of ISSB Standards

The ISSB plays a pivotal role in developing global baseline standards specifically designed for sustainability-related disclosures. Their framework aims to meet the evolving needs of investors, ensuring that all relevant information regarding sustainability is readily accessible. The ISSB framework encompasses two significant categories: general sustainability concerns, detailed in IFRS S1, and climate-specific disclosures presented in IFRS S2. These standards are crucial for companies looking to provide a holistic view of their sustainability performance.

Implementation Timeline for Companies

According to a memorandum circular released on December 23, the SEC mandates that publicly listed companies and large non-listed entities, those with a market capitalization exceeding P50 billion (approximately US$845 million), are required to comply with these new standards for fiscal years commencing on or after January 1, 2026.

Phased Rollout of the New Standards

The introduction of these reporting standards will occur in phases, beginning with fiscal year 2026. This phased approach is designed to standardize how Philippine companies disclose sustainability and climate-related risks and opportunities to both investors and regulators alike.

• 2027: Large public companies will initiate the mandatory tiered rollout, addressing reporting obligations for the 2026 fiscal year.
• 2028: The rollout will extend to publicly listed companies with market capitalizations that exceed P3 billion (around US$845 million).
• 2029: All remaining publicly listed companies, along with large non-listed firms generating annual revenues over P15 billion (around US$250 million), will begin their reporting obligations for the 2028 fiscal year.

Mandatory Assurance Requirements

A crucial component of the new regulations is that companies must secure limited assurance on their Scope 1 and 2 greenhouse gas emissions from an independent assurance practitioner. This requirement will come into effect starting two years after their initial reporting under these frameworks, thereby enhancing the credibility of sustainability disclosures.

Transitional Reliefs for Companies

The Commission also announced transitional relief measures that were shaped based on feedback gathered from public consultations regarding the new standards. Key exemptions include:

• A two-year exemption from Scope 3 emissions reporting
• Limited climate-related risk and opportunity disclosures for Tier 1 and Tier 2 companies during their initial reporting year
• Additional leniencies for Tier 3 companies lasting for two years

However, other transitional reliefs are not provided. Instead, companies have the flexibility to utilize "reasonable and supportable information" available at the reporting date without incurring excessive costs or efforts.

Regional Context and Comparisons

With this move, the Philippines joins its Southeast Asian counterparts—Singapore and Malaysia—who are already aligned with IFRS rules. Meanwhile, countries such as Thailand, Vietnam, and Indonesia are considering similar adoptions, while Cambodia, Laos, and Myanmar are taking initial steps. However, as of now, there are no confirmed full adoptions in Brunei, Laos, or Timor-Leste.

How AI legalese decoder Can Help

Navigating these complex regulations can be daunting for many companies, especially for those unfamiliar with legal and financial reporting vernacular. That’s where the AI legalese decoder proves invaluable. This innovative tool can demystify intricate legal documents and standards, breaking down dense language into more understandable terms.

By helping companies interpret the SEC’s guidelines and ISSB standards, the AI legalese decoder enables stakeholders to better prepare for compliance. It can also assist in identifying critical areas that require focus, ensuring that firms can meet their reporting obligations effectively while maximizing investors’ understanding of their sustainability-related risks and opportunities. This is essential for long-term value creation and improved capital allocation decisions, as highlighted by the SEC’s memorandum.

In summary, the adoption of these new sustainability standards marks a significant step for the Philippine market, promoting responsible reporting and informed investment decisions. Companies are encouraged to leverage tools like AI legalese decoder to navigate these changes smoothly, ensuring they stay ahead in the evolving landscape of sustainability disclosures.

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