The International Sustainability Standards Board (ISSB) has voted to amend its climate-change reporting standard, International Financial Reporting Standard S2, to address application challenges and fix inconsistencies in the standard.
Vice-chair Sue Lloyd said: “I think what will be really important for me in terms of the messaging that comes through in the exposure draft […] we’re not really deliberating whether or not we made good decisions in the past.”
The purpose of the changes, she added, was to respond “to new information that we have about the application of the decisions that we made in the past” and to communicate them clearly.
Board members have proposed issuing the amendments on a 60-day comment period – subject to approval from the IFRS Foundation’s Due Process Oversight Committee.
Staff papers prepared for the 29 January meeting show that the amendments focus on three issues:
- disclosure of Scope 3, Category 15 greenhouse gas (GHG) emissions associated with derivatives, facilitated emissions, and insurance activities;
- reporting GHG global warming potential values; and
- challenges using the Global Industry Classification Standard (GICS) for disaggregating financed emissions disclosures.
Scope 3, Category 15 GHG emissions
The ISSB voted to exclude emissions related to derivatives and certain financial activities from Scope 3 reporting to reduce complexity and align with its original intent.
Additionally, they will require companies to disclose the amount of excluded activities to maintain transparency for investors.
Staff member Dianora Aria de Marco said: “The challenge that we have is that objectively reading the standard, [it] is not clear that this was the board’s intention.”
Jurisdictional relief
ISSB members also agreed to expand the jurisdictional relief in the standard to allow companies to use different global warming protocol values or GHG measurement methods, if required by local regulations, rather than just the latest values by the Intergovernmental Panel on Climate Change (IPCC).
The change is intended to reduce the burden on companies that operate in multiple jurisdictions.
Industry classification
Finally, the ISSB agreed to introduce flexibility in the use of industry classification systems for disaggregating financed emissions.
The amendment establishes a hierarchy for industry classification and means that if a company already uses GICS, it should continue to do so. Otherwise, it should use a system required by local regulators.
Finally, it proposes companies can use any system that provides information that is useful to investors.
This approach aims to reduce the burden for some companies while preserving comparability where possible.
The issue was raised with the ISSB by stakeholders such as national standard setters and regulators.
The issues related to Scope 3, Category 15, emissions, and jurisdictional relief, were raised through the ISSB’s Transition Implementation Group.
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