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Sustainability reporting in the Philippines has entered a new phase. With the adoption of Philippine Financial Reporting Standards (PFRS) S1 and S2, companies are being asked to move beyond standalone sustainability reports and provide information more closely linked to financial performance, business strategy, risk management and long-term value creation.
The shift is not only about preparing another disclosure. It is about showing how sustainability-related and climate-related risks and opportunities may affect a company’s prospects, and how the business responds. The question has evolved from whether companies publish sustainability reports to whether their disclosures are credible, decision-useful and supported by the way the business is governed and managed.
That’s why sustainability reports should be seen as the result, not the beginning. The important work happens before the report: identifying key risks and opportunities, setting clear responsibilities, gathering reliable data, documenting assumptions and linking sustainability to finance, risk, strategy and operations. For companies under the new rules, this work needs to start early, not just at reporting time.
PFRS S1 sets the tone for how companies should communicate sustainability-related matters that could affect their prospects. Rather than starting with a list of programs or initiatives, companies need to begin with the business itself: its operating model, value chain, dependencies, stakeholders, resources and external conditions that may influence performance over time.
The standard asks companies to explain how they govern sustainability issues, how these are integrated into their strategy, how they identify and manage them, and what measures and goals they use to track progress. It’s not just about what the company claims to do. It’s also about whether sustainability is truly part of how the business is run and managed.
Materiality is a key part of PFRS S1. Companies should focus on information that helps investors and others make decisions. The standard also highlights the need to show how sustainability information connects to financial statements and other business reports. If a sustainability issue could affect cash flow, funding, costs, operations or long-term plans, companies should clearly explain how.
In the end, PFRS S1 is not just asking, “What did we do for sustainability?” but instead, “Which sustainability issues could affect how the business creates, keeps, or protects value?”
PFRS S2 uses the same business approach for climate risks and opportunities. Many companies think climate disclosure is just about greenhouse gas emissions, but the standard asks for a broader view. This includes physical risks such as extreme weather and transition risks arising from policy changes, market trends, new technology, energy prices and changing demands from customers, investors and lenders. For example, a company facing severe weather should consider how it might affect its facilities, logistics, business continuity, insurance costs and capital planning.
Greenhouse gas emissions are still a key part of what companies must report. They need to share Scope 1, Scope 2 and Scope 3 emissions. Scope 1 is direct emissions from sources the company owns or controls. Scope 2 is indirect emissions from sources such as purchased electricity, steam, heating, or cooling. Scope 3 includes other indirect emissions across the company’s value chain, both upstream and downstream. Scope 3 is often the hardest to measure because it may need data from suppliers, customers, contractors, transport providers and other partners. Still, it can account for a large share of a company’s total emissions.
This highlights a broader point about PFRS S1 and S2: reliable sustainability reporting requires information from across the entire company, and sometimes even from external partners. The new reporting requirements are not just the job of one team. While sustainability teams may lead, finance, risk, operations, legal, compliance, audit, procurement, supply chain and the board all play a part in making reports trustworthy.
To get ready, companies should ask practical questions. Which sustainability and climate issues matter most to the business? Who is responsible for providing the needed information? What data do we already have, and what needs improvement? Are our assumptions and methods recorded? Are the right teams reviewing disclosures? Are sustainability issues included in risk management, strategy, budgeting and financial planning?
These questions help companies shift from just preparing reports to building strong reporting habits. Companies that see PFRS S1 and S2 as just another set of rules might meet the basics. But those who understand the real goals can gain more: stronger governance, better data practices, clearer risk ownership and more useful information for making business decisions. Beyond the sustainability report, the real value is in helping companies understand the issues that could shape their future.
Dianne Llarena is a Director under the Risk Consulting Group of R.G. Manabat & Co. (KPMG in the Philippines), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Dianne Llarena or Jeffree Mae M. Tapia through [email protected], social media or visit www.home.kpmg/ph.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.
