ISSB Eases Scope 3 Reporting Rules For Financial Sector

The International Sustainability Standards Board (ISSB), being part of the IFRS Foundation, has today issued a package of major amendments to its climate disclosure standard, unveiling major reliefs that are intended to make reporting simpler for firms, and especially for those in the financial sector. These amendments, which primarily address Scope 3 greenhouse gas (GHG) emissions reporting, aim to facilitate companies to meet sustainability reporting requirements while preserving the usefulness of information presented to investors.

Launched during the COP26 climate summit in November 2021, the ISSB was established with the task of formulating IFRS Sustainability Disclosure Standards, enabling investors to better grasp companies' sustainability risks and opportunities. Two fundamental standards have been issued by the ISSB since then: IFRS S1 for general sustainability disclosures and IFRS S2 for climate-related disclosures, both of which were launched in June 2023. The standards have picked up pace globally, with over 35 jurisdictions starting the adoption process.

The most recent proposed amendments to IFRS S2, the climate-related standard, follow a reaction to input from companies and stakeholders that brought to light practical difficulties in adopting the standards, particularly regarding Scope 3 emissions. Scope 3 emissions are emissions that occur within a company's value chain and can sometimes be the most challenging to quantify and report correctly, especially for financial institutions whose business interests cover a wide and intricate array of investments, loans, and insurance services.

The most significant revision issued by the ISSB would permit financial sector firms to exclude specific emissions from Scope 3 reporting. In particular, the reliefs would allow for derivatives-related emissions, facilitated transactions, and insurance activities-related emissions to be excluded. Rather, the financial institutions would need to concentrate their Scope 3 reporting on financed emissions—the ones linked directly to the loans and investments they extend. But in a bid to uphold investor transparency, firms would need to report the size of derivatives or other financial instruments they are excluding from their Scope 3 reporting.

Providing insights on the reason behind these updates, ISSB Vice-Chair Sue Lloyd stressed that the updates are not aimed at shrinking the scope of GHG emissions disclosure but as a measure to assist preparers dealing with real-world complexities in initial stages of standard implementation. She said, "It is the role of a responsible standard-setter to hear market feedback from initial stages of implementation, and to assist preparers in applying our Standards.". As a market-oriented standard-setter, we have moved to act promptly by suggesting focused amendments assisting preparers where feasible, without unduly disrupting and ensuring that our Standards continue to facilitate the provision of decision-useful information to investors.

Along with Scope 3 reporting adjustments, the ISSB has also mooted other changes. Commercial banks and insurers, which are mandated to report financed emissions, may now be exempted from the requirement to disaggregate this data according to the Global Industry Classification Standard (GICS) under specific conditions. This is to alleviate the level of complexity in gathering and reporting data for institutions operating in more than one sector.

A key proposal enables the use of jurisdiction-specific Global Warming Potential (GWP) values in lieu of the latest figures published by the Intergovernmental Panel on Climate Change (IPCC), where local regulatory requirements stipulate. Such flexibility recognises the different regulatory environments within which companies have to operate and is intended to simplify compliance without impacting the general standard of climate disclosures.

In addition, the ISSB provided guidance on which companies can apply jurisdictional relief measures that allow for the employment of measurement techniques other than the Greenhouse Gas Protocol for GHG emissions quantification, if such techniques have been authorized by responsible local authorities. This action aims to provide preparers with additional alternatives for conforming with local and international standards, reducing reporting process friction.

The draft amendments were published today in an Exposure Draft and are now available for public comment. The 60-day comment period closes on June 27, 2025. The ISSB's decision to revise its standards reflects its determination to streamline the global framework of sustainability disclosures through ongoing conversation with stakeholders and reconciling investor needs for credible information with reporting entities' reality.

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