For a long time, Environmental, Social, & Governance (ESG) and Sustainability Reports were primarily regarded as branding instruments, serving to highlight and showcase various initiatives.
In the present, that era is over.
Sustainability Reporting is now entering the same regulatory mandate as Financial Reporting. With the establishment of the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards Foundation — Sustainability Disclosures are being standardized across the globe: being measured, governed, and subject to assurance.
For businesses in the Philippines and across global markets, this is not a trend — it is structural reform.
From Voluntary ESG to Regulated Sustainability Disclosure
Tracing back in its historical context, ESG reporting has existed for decades — a large initiative being done voluntarily to drive investor demand. Yet, in 2021, the pivotal point came into existence, wherein the International Sustainability Standards Board was established under the IFRS.
In 2023, the ISSB issued IFRS S1 and IFRS S2, effective for annual periods beginning January 1, 2024, subject to local adoption. Such issuance of Sustainability Disclosure Standards marked the shift of reporting from voluntary ESG narratives to standardized and integrated — forming part of the regulatory and auditing landscape.
Why the ISSB Matters
The ISSB was launched at COP26 — an organization comprising the United Nations summit to address the issue of climate change. Hence, ISSB was tasked to solve a crucial problem: fragmented sustainability frameworks and inconsistent disclosures, which, if left behind — will be costly for investors and complex for regulators.
Previously, companies were just navigating multiple standards, resulting in:
- Non-comparable ESG data,
- Selective Disclosures
- Greenwashing Risks
- Investor Skepticism
With these concerns, the ISSB was the result of consolidated key sustainability boards to meet information needs for investors, including:
- Climate Disclosure Standards Board
- Value Reporting Foundation
It now operates alongside the International Accounting Standards Board, signaling that sustainability disclosures are no longer optional, but financially material. Moreover, the global support for ISSB, such as the G20, International Organization of Securities Commissions (IOSCO) & Financial Stability Board, reinforces one message: Sustainability risks are financial risks.
The Core Standards: Reshaping Corporate Reporting
IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information
IFRS S1 requires companies to disclose material sustainability-related risks and opportunities that could reasonably affect cash flow, access to finance, costs of capital, and long-term enterprise value.
Some of the key requirements include:
- Integration of sustainability disclosures with financial statements
- Governance structure transparency
- Strategy and risk management processes
- Industry-specific disclosures referencing SASB standards
- Clear linkage between sustainability risks and financial performance
Thus, IFRS S1 prescribes the overall preparation and manner of disclosure for sustainability-related financial matters, making it not just a form of Corporate Social Responsibility reporting but an integrated sustainability direction.
IFRS S2 – Climate-Related Disclosures
IFRS S2 introduces mandatory climate-specific reporting that aims to give beneficial information for users of general purpose financial statement — requiring companies to:
- Distinguish between physical risks (e.g., typhoons, floods, extreme heat)
- Identify transition risks (e.g., carbon taxes, regulatory shifts, changing consumer behavior)
- Conduct climate scenario analysis
- Disclose Scope 1, 2, and 3 greenhouse gas emissions
- Report climate-related opportunities and transition plans
- Present cross-industry and industry-specific metrics
For Philippine corporations operating in climate-vulnerable sectors, this is particularly significant — making climate disclosure not a theoretical fundamental but rather a quantifiable and auditable matter.
How can it be Strategic for Companies?
Forward-looking organizations can recognize that structured sustainability delivers business value. Some of the following advantage for implementing Sustainability Disclosures are worth taking note of:
Investor Confidence & Capital Access
Investors around the world are integrating ESG risks into portfolio decisions. Thus, ISSB-aligned financial reporting enhances credibility and comparability, reducing the perceived risks, and has the potential for lowering the costs of capital
Stronger Risk Identification
Factors of risk include climate change, supply chain volatility, regulatory transitions, and reputational matters, all of which carry their financial weight and consequences. Hence, Sustainability Reporting formalizes risk mapping and mitigation strategies.
Competitive Positioning
Organizations that integrate sustainability into corporate governance frameworks can place themselves in a much more resilient capacity for global supply chains, specifically when dealing with multinational partners.
Improvement in Internal Controls
Reliable ESG reporting requires defined accountability, documented processes, measurable Key Performance Indicators, and Data Validation Systems. As a result, sustainability disclosures also strengthen enterprise-wide governance.
Protection Against Greenwashing
Greenwashing is a form of deception, a marketing tactic wherein a company represents itself as more environmentally friendly, yet unrealistically implements or meets such a sustainable policy.
With standardized disclosures under ISSB, vague sustainability claims can be easier to expose. For this reason, structured reporting protects brand integrity and legal standing for the general public.
Philippine Adoption of ISSB Sustainability Disclosure Standards
The Philippines has formally aligned with global sustainability reporting through Securities and Exchange Commission (SEC) Memorandum Circular No. 16, Series of 2025, issued last December 22, 2025.
Under the Memorandum Circular, covered Publicly Listed Companies and Large Non-Listed Companies are mandated to submit a Sustainability Report attached to their Annual Report or along with their Audited Financial Statements. All Sustainability Reports must be reviewed and approved by the Board of Directors before issuance.
Moreover, beginning in the Fiscal Year 2026, covered companies shall adopt PFRS S1 and PFRS S2 (the local adoption of IFRS S1 and IFRS S2 in the Philippines) under a tiered implementation approach based on market capitalization and revenue thresholds. Hence, this means that by Fiscal Year 2027, such covered companies shall submit their Sustainability Reporting.
Furthermore, the Circular also introduced a mandatory external limited assurance on Scope 1 and Scope 2 Greenhouse Gas Emissions, two years after each tier’s initial adoption to sustainability reporting — in accordance with the International Standard on Sustainability Assurance
Thus, this development marks a decisive shift from voluntary sustainability guidelines into mandatory & standard-based disclosures for companies operating in the Philippines. By aligning with international sustainability standards — the framework ultimately enhances transparency and investor confidence in the Philippine capital markets.
In Conclusion
Sustainability is indeed one of the major concerns of the majority, wherein even investors are considerate of these factors as they can materially affect the operational concerns of businesses. The ISSB, with its release of the Sustainability Disclosure Standards, can strengthen the resilience, credibility, and opportunities of the business industry.
At Babylon2k, we help businesses move beyond confusion and into confident implementation through:
- ISSB-aligned sustainability readiness assessments
- ESG governance framework development
- Financial integration of sustainability disclosures
- Audit and assurance support
- Advisory services for compliance and reporting alignment
Schedule a strategic consultation with Babylon2k today — and position your organization for resilience, compliance, and long-term value creation in the new sustainability reporting era.
References:
- IFRS Foundation announces International Sustainability Standards Board, consolidation with CDSB and VRF, and publication of prototype disclosure requirements
- ISSB issues inaugural global sustainability disclosure standards
- Project Summary – IFRS Sustainability Disclosure Standards
- The history of ESG: A journey towards sustainable investing
- Adoption of PFRS on Sustainability Disclosures – SEC
