The International Sustainability Standards Board (ISSB) has voted to grant preparers applying its climate-change sustainability standard a concession when disclosing their Scope 1 and Scope 2 greenhouse gas emissions (GHG).
All 14 ISSB members tentatively voted in support of the decision.
Under the concession, entities will be allowed to use information about all three scopes of GHG emissions drawn from a different time frame to the entity’s current reporting period.
The board’s staff said it was unlikely users would lose out if the board allowed an entity “to use data from its value chain that is based on a different reporting period under the conditions stipulated in paragraph 15”.
The meeting also heard that the issue could have relevance beyond GHG disclosures. The concession builds on the board’s December 2022 decision dealing with Scope 3 GHG emissions.
Under that relief, entities can measure Scope 3 emissions “using information for reporting periods that are different from its own reporting period when that information arises from entities in its value chain with reporting periods that are different from that of the entity”.
The concession was, however, subject to certain conditions, such as both reporting periods being the same length.
It emerged in December, however, there was a similar issue with Scope 1 and 2 emissions where, for example, unconsolidated subsidiaries or joint ventures and associates had different reporting periods from the consolidated entity.
An example would be a preparer with a 31 December year-end and consolidated entities with a 31 March year-end.
Accordingly, staff recommended extending this relief to Scope 1 and 2 emissions in their meeting paper.
The ISSB’s definition of a value chain expressly refers to consolidated and unconsolidated subsidiaries, joint ventures, and associates.
Additionally, the board noted that the issue might be more acute for emissions within Scopes 1 and 2.
In their analysis of the issue for the January meeting, however, the staff expressly argued against differentiating the relief according to the emission scope.
It also became clear during the meeting that information gathering challenges could also be relevant to other sustainability topics beyond GHG as the board develops its standards in the future.
ISSB vice chair Sue Lloyd explained this was because IFRS S1 – covering general sustainability reporting requirements – has “a general requirement for entities to consider the effects on the value chain and the reporting on sustainability-related risks and opportunities”.
She said: “It may well be the case that it’s not unique [and] that there could be sort of data-collection challenges arising from entities who have an ownership interest in the value chain, etc.”
Lloyd added that “the same sorts of need for relief that we’ve identified for GHG emissions measurement could be relevant in other circumstances.”
Also during the January meeting round, the board voted to amend the requirement in paragraph 23(e) of IFRS S2 to require entities to disclose how “the latest international agreement on climate change has informed any climate-related targets it has set”.
The purpose of the amendment was to clarify how to apply the requirement in practice.
Meanwhile, the UK financial reporting watchdog has underscored the importance of sustainability reporting with the release of an update to its 2021 Statement of Intent.
In the update, the Financial Reporting Council (FRC) points to “areas where there remain ongoing challenges in ESG reporting” and suggests actions for preparers to produce decision-relevant information.
The statement also highlights the FRC’s five focus areas for the coming year. These include ESG data, materiality disclosures, and the link between investors and ESG reporting.
The FRC lead on regulatory standards, Mark Babington, said the move “highlights the ongoing challenges and opportunities of producing ESG reporting and disclosures”.