The International Sustainability Standards Board (ISSB) has released an Exposure Draft proposing targeted amendments to greenhouse gas emissions disclosure requirements under the IFRS S2 Climate-related Disclosures standard. The comment period on the Exposure Draft is open until June 27. In this post, we discuss the proposed amendments and related consultation process, as well as the parallel Australian consultation.

In June 2023, the ISSB issued its first two IFRS Sustainability Disclosure Standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. IFRS S2 sets out the requirements for entities to disclose information about their climate-related risks and opportunities, including GHG emissions information.

The ISSB is proposing four amendments to IFRS S2, as further discussed below. The amendments are intended to address application challenges identified by entities implementing IFRS S2. The ISSB expects the amendments to reduce reporting complexity, potential duplication and related compliance costs.

Scope 3 Category 15 emissions disclosures

Under IFRS S2, information regarding Scope 3 Category 15 GHG emissions is required for entities engaged in asset management, commercial banking and insurance activities. The ISSB proposes to permit entities to limit their disclosure of Scope 3 Category 15 GHG emissions to financed emissions, which would be defined in IFRS S2 as emissions attributed to loans and investments made by an entity to an investee or counterparty. The amendments would expressly permit an entity to exclude GHG emissions associated with derivatives.

The result of the proposed amendments would be to permit entities to exclude from measurement and disclosure emissions associated with derivatives and other financial activities, including those related to investment banking (“facilitated emissions”) and insurance and reinsurance underwriting (“insurance-associated emissions”).

However, an entity that takes advantage of the foregoing exclusion would be required to disclose the amount of derivatives and other financial activities excluded from its measurement and disclosure of Scope 3 Category 15 GHG emissions. In addition, since the term “derivatives” is not defined in the IFRS Sustainability Disclosure Standards and therefore involves judgment, the entity would be required to explain the derivatives excluded.

Industry-classification system usage

IFRS S2 requires an entity with commercial banking or insurance activities to disaggregate its absolute gross financed emissions by industry using the Global Industry Classification Standard (GICS).

Under the proposal, an entity would be able to use an alternative industry-classification system used pursuant to a jurisdictional or exchange requirement. If the entity does not use GICS to classify its lending or investment activities and is not subject to any jurisdictional or exchange requirements to use an industry-classification system to report climate-related financial information or for other financial reporting purposes, the entity would be able to use an industry-classification system of its choice.

The entity would be required to disclose the industry-classification system used to disaggregate its financed emissions information and, if the entity does not use GICS, to explain the basis for its industry-classification system selection.

Standard for measuring GHG emissions

IFRS S2 generally requires an entity to disclose its GHG emissions in accordance with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. The ISSB proposes to amend IFRS S2 to clarify the scope of the jurisdictional relief available if an entity is required by a jurisdictional authority or an exchange on which it is listed to use a different measurement method.

The amendment would clarify that this relief would be available for the relevant part of the entity when a jurisdictional or exchange requirement applies to the entity in whole or in part.

Global warming potential values 

Under IFRS S2, for purposes of measuring its GHG emissions, an entity generally is required to convert the seven constituent greenhouse gases into a CO2 equivalent value using global warming potential (GWP) values based on a 100-year time horizon from the latest Intergovernmental Panel on Climate Change assessment available at the reporting date.

The ISSB proposes to amend IFRS S2 to allow an entity to use other GWP values if it is required to do so in whole or in part by a jurisdictional authority or exchange on which it is listed.

The ISSB consultation process

The ISSB consultation is available on the IFRS website. As noted above, the consultation is open until June 27.

The ISSB has indicated that, following the consultation period, it will analyze and consider the feedback it receives on the Exposure Draft and decide how to proceed. The ISSB intends to redeliberate on the proposed amendments in the Exposure Draft in the second half of 2025. Assuming adoption, the ISSB proposes to set the effective date of the amendments as early as possible. It also proposes to permit early application. 

Individual jurisdictions would be able to choose whether to make these reliefs available to locally subject entities.

Parallel Australian consultation

Last year, Australia adopted standards based on IFRS S1 and IFRS S2 – which are designated as AASB S1 and AASB S2. In connection with the ISSB’s consultation, the Australian Accounting Standards Board launched its own consultation. The AASB is seeking comments by June 2. This will enable the AASB to consider Australian constituents’ comments in the process of formulating its own comments to the ISSB.

Key takeaway

Companies should consider whether to submit feedback, either directly or through trade associations. The subject matter of the consultation will be of particular interest to financial services firms operating in ISSB jurisdictions, including foreign-based firms (such as US- and EU-based firms) with local ISSB-reporting requirements.

US SEC

As reported in several media outlets, an ISSB spokesperson has indicated that the US SEC has exited the IFRS Jurisdictional Working Group. This working group consisting of jurisdictional representatives and representatives from the IFRS Foundation has established dialogue for enhanced compatibility between the ISSB’s work and that of ongoing jurisdictional initiatives on sustainability disclosures.

Some of the other members of the group include the Chinese Ministry of Finance, the European Commission, the Japanese Financial Services Authority and the UK FCA. 

The US SEC also no longer has observer status at the IFRS Sustainability Standards Advisory Forum. The objective of the SSAF is to provide an advisory forum where members can constructively contribute towards the achievement of the ISSB’s goal of developing standards that provide a comprehensive global baseline of sustainability-related disclosures that is interoperable with jurisdictional standards on sustainability reporting.