SEC Requires Sustainability Reporting Under PFRS S1 and S2

The Securities and Exchange Commission (SEC) has issued Memorandum Circular No. 16, Series of 2025, requiring Publicly Listed Companies (PLCs) and Large Non-Listed Entities (LNLs) to adopt Philippine Financial Reporting Standards (PFRS) S1 and S2, General Requirements for Disclosure of Sustainability-related Financial Information and Climate-related Disclosures, respectively. These standards require disclosure of sustainability-related and climate-related risks and opportunities that could materially affect cash flows, access to finance, or cost of capital. All Sustainability Reports must be reviewed and approved by the board of directors prior to issuance.

Implementation will follow a tiered approach from fiscal year 2026, with Tier 1 entities (PLCs with market capitalization over PHP 50 billion) reporting in 2027, and subsequent tiers through 2029 until full adoption in 2030. The SEC provides transition reliefs, including a “climate-first” reporting option, temporary exemptions for Scope 3 greenhouse gas emissions, and deferred comparative reporting. External accountability will be reinforced through mandatory limited assurance on Scope 1 and Scope 2 greenhouse gas (GHG) emissions, commencing two (2) years after initial implementation. Independent practitioners must perform assurance in accordance with the International Standard on Sustainability Assurance (ISSA) 5000, with eventual progression toward reasonable assurance for full sustainability reporting.

LNLs may request an exemption from mandatory reporting if their parent company already files a sustainability report under an equivalent framework (e.g., PFRS or ESRS) covering the LNL’s disclosures. Eligible entities must submit a “Certificate of Exemption from Mandatory Sustainability Reporting” with their annual financial statements to formalize the exemption.

Non-compliance may result in penalties for incomplete annual reports, while LNLs may qualify for exemptions if disclosures are already publicly reported by a parent company under an equivalent framework. Entities are encouraged to begin early preparations to ensure smooth compliance with the new PFRS S1 and S2 reporting requirements.