Corporate accountability in a VUCA world

By Jenny Isabel Menes

Next year is geared to reshape the future of corporate reporting in the Philippines. Around the world, the business community is grappling with the realities of a VUCA or volatile, uncertain, complex and ambiguous environment. Here at home, these forces feel especially pronounced as companies navigate volatile markets, uncertain regulatory shifts, complex global pressures, and ambiguous long-term risks.

Against this backdrop, there are three major regulatory developments that are converging in a way that will compel businesses to rethink not only how they report their performance, but how they make decisions in the first place:

• Philippine Interpretations Committee Questions and Answers (PIC Q&A) 2025-01 (Timing of recognition for the cost of plastic packaging diversion activities under the Extended Producer Responsibility (EPR) Act of 2022);
• International Financial Reporting Standards (IFRS) S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures); and
• IFRS 18 (Presentation and Disclosure in Financial Statements).

Making sustainability a financial reality

PIC Q&A 2025-01 may look like a narrow accounting clarification on the surface, determining when companies should recognize the cost of their plastic packaging diversion activities under the EPR Act. However, its implications run deeper. Its interpretation signals that sustainability obligations are no longer soft commitments or greenwashing corporate social responsibility talking points.

These obligations now have clear financial consequences, governed by the same recognition and measurement requirements as any other liability. Companies can no longer treat environmental compliance as an afterthought — it must be built into budgets, forecasts and strategies.

This shift aligns with the global move toward IFRS S1 and S2, which the country is currently preparing to adopt. IFRS S1 establishes the overarching framework for disclosing all material sustainability-related risks and opportunities that could affect a company’s financial position, performance, or cash flows. IFRS S2, meanwhile, focuses specifically on climate-related disclosures, requiring companies to report on greenhouse gas emissions, transition plans, scenario analyses and other climate-related metrics.

Together, these standards elevate sustainability reporting to the same level of discipline as financial reporting. Like the requirements of the EPR Act, companies are now required to explain how climate risks influence their business model, how management plans to respond to these risks, and what metrics will be used to track their progress. For many Philippine companies, this will be the first time that sustainability information is subject to investor-grade scrutiny and this information must be measured, comparable and auditable.

Then comes IFRS 18, which replaces International Accounting Standard (IAS) 1: Presentation of Financial Statements and overhauls how financial performance is presented. The standard introduces clearer categories of income and expenses and requires transparency around management-defined performance measures (MPMs). Companies with sustainability-related MPMs (e.g. operating profits after EPR compliance costs, net interest income on green loans, profit after site restoration costs, etc.) will show up more visibly in operating results. Investors will see, in black and white, how sustainability affects profitability — and which companies are managing the transition well.

Taken together, these developments point to a single conclusion: the wall between sustainability and financial performance is collapsing. Philippine companies need to integrate environmental obligations into their core decision-making, not because regulators say so, but because the market demands it.

Boards must understand climate risk as deeply as they understand credit risk. Chief financial officers need to collaborate with sustainability teams, supply chain leaders and risk managers. Data systems and financial reporting processes need to be overhauled. Governance structures need to mature. Some businesses will see this as a burden, but the wiser ones will recognize that these changes offer a roadmap for navigating a VUCA world.

Volatility can be managed by building stronger data systems that allow companies to respond quickly to shifting regulatory and market conditions. Uncertainty becomes less threatening when businesses embrace transparency and produce investor-grade sustainability information that reduces guesswork for stakeholders. Complexity is addressed by integrating financial, operational and sustainability data rather than treating them as separate reports. Ambiguity is mitigated when companies treat sustainability as a strategy and not just compliance.

The message for Philippine enterprises is clear: the future of reporting is integrated, disciplined and sustainability driven. The companies that will thrive in the next decade will be those that understand that financial performance and environmental responsibility are no longer separate conversations. They are now the same story — and the world is watching how we choose to tell it.

Jenny Isabel Menes is an audit partner at Deloitte Philippines.