The International Sustainability Standards Board (ISSB) has tentatively voted during its 20 October meeting to require businesses applying its future climate change standard to include so-called Scope 3 greenhouse gas (GHG) emissions in their disclosures.

In a tweet, the board’s chair Emmanuel Faber hailed the move as “rewriting economics”. He wrote: “During our board week in Montreal, the ISSB confirmed in a final and unanimous vote to require disclosure of scope 3 GHG emissions as part of our redeliberations finalising the climate standard for global capital markets.”

The board’s vice-chair, Sue Lloyd, emphasised, however, that the board would not require a big-bang application of the proposals.

“I think it is really important that we have it on the public record that we are not just agreeing to (a) [and] (b) ‘cold’ but that we are agreeing on the basis that we have asked the staff to come back with recommendations for relief and support [that build] on the paper and our discussions.”

Lloyd added that this was “an assessment of the 15 [GHG Protocol] categories”. These categories are specified in the GHG Protocol Corporate Value Chain standard.

The GHG Protocol guidelines are the result of a collaboration between governments, industry, and others with the World Resources Institute and the World Business Council for Sustainable Development.

The Protocol has established three scopes for measuring different categories of emissions:

  • Scope 1: direct emissions from business operations;
  • Scope 2: power plant emissions from a business’s energy requirements such as power or heating; and
  • Scope 3: indirect emissions from upstream (supply chain) and downstream (consumer and waste stream emissions) activities or products.

In addition, it also has standards to cover a wide variety of situations such as the corporate standard and the value chain (Scope 3) standard. The former helps companies measure and keep inventories of their GHGs, while the latter helps them account for carbon across their value chain.

The ISSB issued International Financial Reporting Standard S1, General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, Climate-related disclosures back in March.

Sue Lloyd

Sue Lloyd, ISSB

Feedback on the proposals from constituents was broadly supportive. At its most basic, draft S2 at Paragraph 21(a)(i)-(v) proposes that an entity disclose its full Scope 1, Scope 2 and Scope 3, generated during the reporting period under the Greenhouse Gas Protocol Corporate Standard in terms of metric tonnes of CO2 equivalent.

However, it emerged from the ISSB’s discussion and the feedback on the exposure draft that preparers face a challenge to account for Scope 3 emissions. Staff noted in their analysis of the issue that “there is confusion about whether paragraph 21(a)(iii) proposed an approach to determining the GHG inventory for unconsolidated investees that would override the application of the GHG Protocol Corporate Standard, rather than requiring disaggregation of the emissions measured using [it].”

They confirmed that the proposals were “intended to be consistent with a GHG inventory prepared according to the GHG Protocol Corporate Standard and do not conflict with the Protocol’s approach to organisational boundaries.”

Their proposals for addressing the issue are set out in Appendix D of meeting paper AP4A. ISSB’s Lloyd likened the situation to the one the International Accounting Standards Board had encountered with fair-value measurement and said the board had a role to play in guiding constituents through the process over the longer term.

In other decisions during the meeting, the board tentatively gave broad support to staff recommendations in Agenda Paper 4A, Agenda Paper 4C and Agenda Paper 4D.

ISSB member Verity Chegar summed up the board’s decisions on climate-related disclosures as “confirming what we already have in S2 as written in our draft.” She went on to say that the one change the board wanted to make to S2 was the proposed disclosure set out in paragraph 87 of Agenda Paper 4D.

All decisions taken by the board are subject to staff drafting in light of comments made by the meeting.

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