IFRS S2 Guidance On GHG Emissions Disclosure

The IFRS Foundation publishes advice on GHG emissions reporting under IFRS S2.

To increase transparency and improve investor understanding of climate-related risks, the IFRS Foundation has published extensive educational guidance on how businesses should report greenhouse gas (GHG) emissions in accordance with the IFRS S2 Climate-related Disclosures standard. In order to support IFRS S2's goal of providing decision-useful climate risk data to investors and other stakeholders, the advice offers crucial clarifications regarding emissions reporting, methodologies, target disclosures, and the usage of carbon credits in Scope 1, 2, and 3.

The cornerstone of the advice is a requirement that firms report their total gross greenhouse gas emissions for all three scopes. Material Scope 3 emissions must be disclosed when they are relevant, in accordance with the materiality principle. Businesses cannot leave out these emissions. When reporting these absolute emissions, do not include removal offsets like carbon credits. This supports IFRS S2's dedication to providing an accurate assessment of a company's transition risk exposure. The 15 categories established by the GHG Protocol Corporate Value Chain Standard must be used to evaluate Scope 3 emissions, which frequently account for the majority of a company's carbon footprint. The reporting organization, however, is only obliged to provide information on the areas that it considers to be significant and pertinent.

The Greenhouse Gas Protocol, specifically the Corporate Standard for Scope 1 and 2, and the Corporate Value Chain Standard for Scope 3, are both heavily relied upon for the measurement of emissions under IFRS S2. However, the requirements of IFRS S2 always prevail in the event of a disagreement. The new recommendations prioritize high-quality data, particularly data that is timely, precise, and verifiable. Businesses must make a sincere attempt to utilize primary data that accurately reflects the geography and technology connected with value chain operations. In the event that data limitations force the use of secondary or predicted data, the firm must clearly state the degree to which it is used and support the justification with reasonable and verifiable facts.

Particularly with regard to the methodology and organizational limits used in emission computations, transparency is another key element of IFRS S2. The selected measurement method—equity share or control—must be stated by organizations, along with the justification for that selection. In addition, they are expected to provide disaggregated data, which separates emissions data for activities included in the consolidated financial statements from those that are not. This degree of transparency is essential for comparing businesses with different operational models.

Companies are not required by the norm to establish goals for reducing greenhouse gas emissions, but if they do, they must disclose them completely and honestly. This encompasses the differences between gross and net goals, the kinds of greenhouse gases addressed, and the use of carbon credits to achieve these targets. Businesses must be upfront about the assumptions regarding permanence and additionality, as well as the type of carbon credits utilized—whether they are nature-based or technological. Stakeholders may be certain of the validity and efficacy of the organization's carbon offset approach because of this.

Although IFRS S2 mandates consistency in reporting, it allows for some latitude in comparative disclosures. A company is not need to restate emissions from previous years if it has major structural changes during the reporting period, such as mergers or acquisitions. If the changes are judged significant, though, the business must account for how they have affected the data for the current reporting year.

Acknowledging the systemic role of financial institutions in funding carbon-intensive operations, IFRS S2 establishes standards for financed emissions (Scope 3, Category 15). Although the standard doesn't mandate a specific method, it does require that the computation of these emissions be transparent and rigorous. Companies must explain how their selected approach accurately depicts their financed emissions footprint and disclose what that methodology is.

Overall, the IFRS Foundation's educational guidance offers businesses moving to IFRS S2 reporting an operational roadmap. It stresses the significance of data quality, methodological clarity, and comparability as well as thorough emissions reporting throughout the whole value chain. The IFRS Foundation aims to encourage accountability in businesses' climate efforts and promote better-informed investment choices.