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LINE OF SIGHT | Going Green: Capturing sustainability in financial reporting

BY TONETTE RAGAZA

OVER THE weekend, my nephew was watching a certain movie on Netflix which caught my attention. The story revolves around the Once-ler who arrives in a lush land and begins chopping down Truffula trees to make “Thneeds” for his business. As the Once-ler’s business grows, he ignores the warnings of the Lorax, a creature who speaks for the trees and the environment. The Once-ler’s insatiable greed leads to the devastation of the Truffula trees, the destruction of animal habitats, and the downfall of the land’s ecosystem, leaving it in desolation. The story ends with the Once-ler giving a young boy the last Truffula seed and encouraging him to plant it, in hopes of renewing the land and promoting sustainability through responsible actions.

The movie, while seemingly a children’s story, powerfully resonates with the core principles of sustainability.  Sustainability refers to the practice of meeting the needs of the present without compromising the ability of future generations to also meet their needs. It involves managing resources in a way that balances economic growth, environmental care, and social well-being.

The advocacy for sustainability has reached far enough to influence investment decision-making, thereby encouraging organizations to understand and assess their operational footprint and to be transparent with their impact across economic, environmental and social realms, through sustainability reporting.

The International Financial Reporting Standards (IFRS) Foundation has responded to the call for more informed investment and economic decisions in the public interest through the establishment of the International Sustainability Standards Board (ISSB). The ISSB operates under the oversight of the IFRS Foundation and is responsible for developing IFRS Sustainability Disclosure Standards.

The ISSB has set out four key objectives, which are: (1) to develop standards for a global baseline of sustainability disclosures; (2) to meet the information needs of investors; (3) to enable companies to provide comprehensive sustainability information to global capital markets; and (4) to facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.

On June 26, 2023, the ISSB published its first two IFRS sustainability standards: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) effective for annual reporting periods beginning on or after January 1, 2024.

IFRS S1 and IFRS S2 are designed to provide additional information regarding an organization’s sustainability-related risks and opportunities. The information is relevant to the primary users of the general purpose financial statements, in their decision-making on whether to allocate resources to the entity. The objectives of these disclosure standards are focused on financial risks and opportunities (sustainability and climate-related), and how those risks and opportunities impact an entity’s cashflow, access to finance, and/or the cost of capital over the short, medium, and long term, or how these risks and opportunities impact the future prospects of the organization.

The issuance of IFRS S1 and IFRS S2 marks an important milestone for achieving globally consistent disclosures. These sustainability-related financial disclosures might be new or could potentially deviate from most companies’ past reporting practices; hence, all affected entities are urged to begin contemplating the potential implications of them ahead of their effectivity. 

May organizations play the good version of the Once-ler who would listen to the Lorax and keep Truffula trees alive and flourishing. May the issuance of these Standards inspire businesses to become more conscious and responsible stewards of the environment, ensuring that our choices today, determine a sustainable tomorrow.

Tonette Ragaza is a Manager of the Audit and Assurance Practice Area at P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines, with 29 Partners and more than 1000 staff members. We’d like to hear from you! Tweet us: @GrantThorntonPH, like us on Facebook: P&A Grant Thornton, and email your comments to pagrantthornton@ph.gt.com. For more information, visit our website: www.grantthornton.com.ph. 

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