The International Sustainability Standards Board (ISSB) has issued amendments to IFRS S2 ‘Climate related Disclosures’ entitled ‘Amendments to Greenhouse Gas Emissions Disclosures’ (the Amendments). The Amendments are targeted changes to the disclosure requirements of greenhouse gas (GHG) emissions and are in response to application challenges reporting entities identified when they started to apply the Standard.
The key changes arising from the Amendments are:
The Amendments allow entities to limit what they include in Scope 3 Category 15 emissions to only their financed emissions. In this context, financed emissions are those attributable to loans and investments made by the entity to counterparties or investees. For asset management entities this also includes emissions attributable to assets under management. However, emissions attributable to derivatives can now be excluded.
Where this limitation has been applied, an entity must now explain what instruments have been treated as derivatives. They must also describe the financial activities that have been excluded from the measure of Scope 3 Category 15 emissions, including activities associated with derivatives.
IFRS S2 previously required entities to measure GHG emissions in accordance with the ‘Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004)’. The Amendments introduce a relief from this requirement where an entity is required, in whole or in part, by a jurisdictional authority or securities exchange to use a different method. This relief allows entities to apply the other required method only to the part of the entity to which that jurisdiction applies.
The ISSB have also provided jurisdictional relief when calculating CO2 equivalent values using global warming potential values. Previously these values were specified as being those included in the latest Intergovernmental Panel on Climate Change assessment available at the reporting date. The Amendments similarly introduce a relief from this requirement when a jurisdictional authority or securities exchange requires the use of other global warming potential values. And again, this applies only to the part of the entity that is subject to this jurisdictional requirement.
Entities with commercial banking or insurance activities are required to disclose their absolute gross financed emissions, disaggregated by Scope 1, Scope 2 and Scope 3 emissions for each industry by asset class. Previously they were required to use the Global Industry Classification Standard (GICS) to classify their counterparties into industries when preparing this disclosure.
The Amendments introduce a relief from this requirement and allow an entity to select an industry classification system that will enable users to understand the entity’s exposure to climate-related transition risks. They also include some guidance on choosing a system to ensure comparability. Entities are required to disclose the system that has been used, and information that enables users to understand how the entity’s selection fulfils the requirements of the Standard.
These Amendments are effective for reporting periods beginning on or after 1 January 2027, with early application permitted.
We are pleased to see the ISSB take steps to simplify the GHG emissions disclosure requirements for entities applying IFRS S2. Disclosures of financed emissions are complex to calculate, so specific relief and guidance will help entities to appropriately apply the Standard. In addition, the relief for entities that are subject to specific jurisdictional requirements will be helpful in avoiding conflicting reporting requirements and will support the wider application of ISSB Standards in more jurisdictions.
You can access the full text of the Amendments issued by the ISSB here.
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