Decoding Thailand’s transition to international ESG standards

Piyanat Suanapai
PwC Thailand Spotlight, insights on business and industry trends in Thailand and beyond.

Hello, I’m Piyanat Suanapai, your podcast host.

In this podcast episode, we delve into the financial reporting standards related to sustainability, IFRS S1 and S2, which may potentially evolve into a global ESG standard in the future. Currently, these two standards have been mandated in several countries, including Thailand. The Securities and Exchange Commission of Thailand (SEC) has plans to gradually implement these standards within the country.

Today, Chayathorn Chanruangvanich, ESG and Corporate Sustainability Leader, PwC Thailand, will explain why these two standards are becoming increasingly important and how Thai companies should prepare for the eventual enforcement of IFRS S1 and S2.

Hello Chayathorn.

Chayathorn Chanruangvanich
Hello.

Piyanat
What are IFRS S1 and IFRS S2 standards related to, and how do these two standards differ from each other?

Chayathorn
The IFRS S1 and IFRS S2 financial reporting standards are focused on sustainability from an investor’s perspective. IFRS S1 requires the disclosure of financial information related to sustainability, while IFRS S2 focuses on the disclosure of information concerning climate change.

Overall, IFRS S1 provides a broad view of sustainability, requiring companies to consider significant risks and opportunities related to sustainability and to disclose material aspects across four dimensions including governance, strategy, risk management and metrics and targets.

On the other hand, IFRS S2 delves into the details of a company’s impact on climate change, requiring companies to assess climate-related risks and opportunities. This involves considering two main types of risks: physical and transitional. These risks must be evaluated from a forward-looking perspective to enable the organisation to adapt to reduced greenhouse gas emissions.

The two types of risks outlined in IFRS S2 require companies to assess the financial impacts on their balance sheets, income statements and cash flow statements over short-, medium- and long-term horizons.

Piyanat
What are the main challenges and complexities in preparing and disclosing information according to IFRS S1 and S2 standards for publicly listed companies in Thailand?

Chayathorn
I can summarise the challenges into five key areas. First, boundary considerations within IFRS S1 and S2 for corporate groups. Previously, the focus might have been primarily on the parent company; however, the standards now require coverage of subsidiaries, joint ventures and associated companies, similar to financial reporting. This presents challenges in data collection from subsidiaries.

Second, materiality assessment requires a comprehensive view of the corporate group, considering both sustainability and financial perspectives.

Third, data collection related to greenhouse gas emissions, particularly Scope 3, poses significant challenges.

Fourth, climate change impact assessment, which involves modelling scenarios. For example, assessing the implications for coastal factories if sea levels rise in the future and adapting infrastructure accordingly will impact future financial statements.

Fifth, data collection and verification are conducted to prepare assurance reports on sustainability according to IFRS S1 and S2, with initial levels of limited assurance. Companies need to prepare for audits.

Piyanat
As you mentioned earlier, disclosing greenhouse gas emissions for Scope 1, 2, and especially 3, under IFRS S2, is quite new in Thailand. What are the challenges in data collection for this disclosure, and what are the possible solutions to address these challenges?

Chayathorn
Greenhouse gas emissions are categorised into three scopes: Scope 1, Scope 2 and Scope 3. Scope 3 involves indirect emissions occurring throughout the value chain of the organisation. If we consider Scope 1, 2 and 3 together as 100%, Scope 3 emissions can constitute 50% to 95%, depending on the company and industry. Therefore, Scope 3 data collection is the most challenging as this data is not directly controlled by the company but must be gathered from suppliers, distributors and customers, covering the entire value chain from production to end-of-life disposal.

The challenges in data collection include complexity and diversity of data due to multiple sources and suppliers with varied data formats, necessitating the design of robust data collection processes; data gaps as suppliers or organisations may not provide the necessary information, requiring estimates or proxies for net greenhouse gas emissions calculation; and annual updates for greenhouse gas calculations, ensuring completeness and accuracy.

Solutions to these challenges include designing data collection processes with verification and testing to ensure accurate data input, verification and calculation; considering systematic solutions to reduce data errors; and preparing for assurance on emissions data, which provides future benefits for the company.

Piyanat
What is the current progress in implementing IFRS S1 and S2 in Thailand? How should publicly listed companies prepare themselves to align with the upcoming timeline?

Chayathorn
To prepare for the implementation of IFRS S1 and S2 standards, based on the latest hearing from the SEC, Thailand will employ a phased-in approach, categorising companies into groups and implementing standards at different times. SET50 companies will begin with the fiscal year 2026, followed by SET100 companies in 2027 and so on. Companies should identify their group to determine their effective dates.

Second, conduct a gap analysis to identify differences between current practices and future requirements under IFRS S1 and S2.

Third, develop a roadmap based on the timeline for standard implementation and identify gaps, facilitating preparation at each phase.

Fourth, identify key stakeholders to support the implementation of IFRS S1 and S2 according to the timeline, such as the sustainability team, risk management team and finance team, to oversee their respective related functions.

These four steps are crucial for preparation.

Piyanat
Finally, besides disclosing sustainability information according to IFRS S1 and S2 standards as required by the SEC, how can publicly listed companies leverage this information for business decision-making and create added value for their organisations?

Chayathorn
From my perspective, even though sustainability reporting may not have been of significant interest in the past, reporting under these standards allows companies to utilise financial information for planning and risk management.

One observation with IFRS S2 is the assessment of financial impacts reflected in future balance sheets, income statements and cash flow statements. Companies can use this information for financial planning related to sustainability.

There are two aspects in estimation: risk mitigation, where companies protect themselves, and opportunity identification, where sustainability can enhance future company value. Utilising financial impact assessments to pursue sustainability-related business opportunities further extends the company’s current efforts.

Piyanat
These are the key details and interesting points regarding the IFRS S1 and S2 financial reporting standards that businesses should be aware of, including the progress made by the SEC in enforcing these standards in Thailand. We hope that our listeners will gain an understanding of the key aspects of IFRS S1 and S2, the challenges involved, and what publicly listed companies need to do to prepare, especially in terms of data preparation for disclosure in reports according to these standards.

Thank you, Chayathorn, for joining us today.

Chayathorn
Thank you for having me.

Piyanat
For more information, please visit our website at www.pwc.com/th or follow PwC Thailand social media channels – LinkedIn, X and Facebook for our latest updates.

Don’t forget to like and follow the PwC Thailand Spotlight podcast series so you don’t miss out on our new episodes.

That’s it for today, thank you and goodbye.

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