The Securities and Exchange Commission (SEC) has drafted guidelines for the adoption of Philippine Financial Reporting Standards (PFRS) in the preparation of sustainability reports by publicly listed companies (PLCs) and large non-listed (LNL) entities.

In a notice dated July 30, the SEC Corporate Governance and Finance Department released for public comment the draft memorandum circular (MC) on the adoption of PFRS on sustainability disclosures and issuance of reporting guidelines for PLCs and LNLs.

This came following the Commission En Banc’s approval of the adoption of the PFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and PFRS S2 Climate-related Disclosures, as well as the sustainability reporting guidelines for PLCs and LNLs in its meeting on July 29.

“The (sustainability reporting) Guidelines and Roadmap for PLCs and LNLs serve to encourage sustainable business practices and align company disclosures with international standards to attract Environmental, Social, and Governance (ESG)-focused investors in the Philippine capital market,” the draft MC read.

It added that, “The Guidelines support companies in evaluating and managing their nonfinancial performance, including Economic, Environmental, Social and Governance factors, while also monitoring contributions to global and national sustainability agendas such as the UN Sustainable Development Goals and AmBisyon Natin 2040.”

Currently, only PLCs are required to submit sustainability reports as provided under SEC MC No. 4, Series of 2019.

Under the draft guidelines, PLCs and LNLs covered by the reporting guidelines under Section 17.2 of the Republic Act No. 8799, or the Securities Regulation Code (SRC), are required to submit a sustainability report as an attachment to their annual reports.

LNLs that are not covered by the SRC provision shall submit their sustainability report with their audited financial statements.

The draft provides that covered companies should adopt the PFRS S1 and S2 format for their sustainability report starting fiscal year 2026. For 2025, companies may still follow any internationally recognized framework for their sustainability reports.

The submission of sustainability reports will also be implemented in a tiered approach.

Tier 1 will cover PLCs with market capitalization of over P50 billion as of December 31, 2025, or as at the date of their listing after 2025. Reporting will begin in 2027, for the period covering fiscal year on or after January 1, 2026.

Tier 2 will include PLCs with a market capitalization of over P3 billion up to P50 billion as of Dec. 31, 2025, or as at the date of their subsequent listing, with reporting beginning in 2028, covering the fiscal year on or after January 1, 2027.

Meanwhile, Tier 3 will include PLCs with market capitalization of P3 billion or less as of December 31, 2025, or as at the date of its listing beyond the period, and LNLs with annual revenue of over P15 billion as of the preceding fiscal year.

They will be required to report in 2029, covering the fiscal year beginning on or after Jan. 1, 2028.

The Commission is also looking at implementing a mandatory limited assurance on Scope 1 and 2 greenhouse gas (GHG) emissions by an independent assurance practitioner two years after the implementation of PFRS S1 and S2 for each tier, in line with applicable international standards.

Transition reliefs will be provided to address challenges identified during public consultations in relation to the adoption of PFRS.

Companies covered by Tier 1 and 2 will be permitted to disclose information on climate-related risks and opportunities only for one year, while Tier 3 companies will be given two years.

All covered corporations will be given a year to submit their sustainability report after the publication of their related financial statements at the same time as their next second-quarter or half-year interim financial statements, or within nine months if there are no interim financial statements.

All tiers will also not be required to disclose comparative information, and will be allowed to use method other than the 2004 GHG Protocol for one year. Scope 3 emissions will also not be required for two years for all tiers.

To ease reporting compliance, an LNL will be exempted from submitting a sustainability-related report when its immediate, intermediate or ultimate parent is already preparing such disclosures in the country and its sustainability-related disclosures are included in the parent’s report.

PLCs that fail to attach their sustainability reports to the annual report shall be penalized for incomplete reports, as provided under SEC MC No. 4, Series of 2019, and SEC Resolution No. 581, Series of 2021. Penalties for LNLs, meanwhile, will be subject to subsequent issuances of the SEC.

The Commission is asking stakeholders to submit their comments on the draft guidelines until August 15 via https://bit.ly/Comments-on-SR-Guidelines.