A series of guidance and reliefs to support those applying the requirement within its Climate-related Disclosures Standard (S2) to disclose Scope 3 GHG emissions when material for a company have been set out by The International Sustainability Standards Board (ISSB). Designed to help companies embed and improve their processes for measurement and disclosure of Scope 3 GHG emissions.

The ISSB endorsed the inclusion of Scope 3 disclosure as set out in its draft Climate-related Disclosures Standard given feedback from investors that they cannot fully understand a company’s transition risk without information about its absolute gross Scope 1, 2 and 3 emissions at its October 2022 meeting. The ISSB did nevertheless agree to facilitating the provision of these disclosures through guidance and reliefs to implement processes when measuring Scope 3 emissions.

At its December 2022 meeting, the ISSB agreed to set out a framework in S2 for the measurement of Scope 3 GHG emissions that will require the use of reasonable and supportable information that is available without undue cost or effort and incorporates the use of estimation. Disclosures to enable investors to understand the basis for measurement of Scope 3 GHG emissions will be backed by the company’s application of this framework.

A minimum of one year following the effective date of S2 is designed to give time for companies to implement their processes. When information is obtained from companies in its value chain with a different reporting cycle, a company will also be able to include information that is not aligned with its reporting period. The ISSB continued to announce that in disclosing its Scope 2 GHG emissions, companies would be required to use the location-based method along with relevant information about contractual instruments in relation to managing energy it has purchased.

Intended to support preparers in the financial sector with the measurement and disclosure of emissions associated with their portfolios, the ISSB also concurred in both confirming and refining proposed requirements for financed emissions.

Sue Lloyd, Vice-Chair of the ISSB, addressed COP15 delegates in Montreal: 

We recognise that companies need help, as best practice continues to develop, in measuring Scope 3 GHG emissions. The ISSB believes the reliefs and guidance agreed this week will provide companies with the time to get their processes in place, and the guidance to support this disclosure.

Consultation on agenda priorities 

The ISSB also agreed plans to consult on priorities beyond its initial two Standards during the meeting in Montreal, which was held concurrently with the COP15 Biodiversity Conference.

Based on feedback from investors and other market participants, the ISSB is planning four projects for prioritisation in its upcoming consultation on agenda priorities:

• biodiversity, ecosystems and ecosystem services;
• human capital;
• human rights; and
• connectivity in reporting with the IASB. 

The first three projects are more expansive in scope than the analysis the ISSB has agreed to conduct on incremental enhancements that complement S2 related to natural ecosystems and the human capital aspects of the climate resilience transition ('just transition'). The connectivity in reporting project would include co-working with the IASB to develop management commentary and the Integrated Reporting Framework.

The consultation will amass further stakeholder input to update the ISSB’s research and standard-setting priorities.

Emmanuel Faber, Chair of the ISSB, added:

Investors here at COP15, and through our ongoing engagement, have set out why they need better insights into biodiversity and ecosystem services that our global economy relies on, such as air and water purification, the provision of raw materials, and pest and flood control. Biodiversity underpins all human activities, including business, and as such has substantial implications for market participants. As we work relentlessly to deliver a global baseline of sustainability-related disclosures that meet capital markets needs, comprehensive biodiversity disclosure will be key.

Source: IFRS