The ISSB has proposed two international standards for sustainability reporting: IFRS General Requirements for Disclosure of Sustainability-related Financial Information (overarching principles) (IFRS S1) and IFRS S2 (theme topical specific) Climate-related Disclosures (IFRS S2). The ISSB released IFRS S1 and IFRS S2 on 26 June 2023, with the intention to create a global baseline for sustainability-related financial disclosures.
Both standards are based on the four pillars used in the Task Force on Climate-Related Financial Disclosures (TCFD) framework; governance, strategy, risk management and sustainability-related metrics and targets – referred to in the standards as the ‘core content’.
All countries that adopt ISSB (which includes IFRS S1 and IFRS S2) will require Scope 3 measurement in accordance with the GHG Protocol Corporate Standard6.
IFRS S2 is the first thematic standard that outlines the requirements for entities to disclose information around climate-related risks and opportunities and how this may affect the prospects of an organisation over the short, medium and long terms. The Sustainability Accounting Standards Board (SASB) industry-based disclosures are to be considered when quantifying and accessing these risks and opportunities.
The two standards are designed to disclose decision-useful information to capital markets and securities regulators and require information about all material sustainability-related and climate-related risks and opportunities that could reasonably affect the cash flow of an entity, access to finance and the cost of capital.
In terms of Scope 3, The IFRS2 Sustainability Disclosure Standard7 states that:
“…an entity shall disclose information about its Scope 3 greenhouse gas emissions to enable users of general-purpose financial reports to understand the source of these emissions. The entity shall consider its entire value chain (upstream and downstream) and shall consider all 15 categories of Scope 3 greenhouse gas emissions, as described in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011).”
The GHG Protocol8 statement published in June 2023 further underlines the importance of Scope 3 emissions disclosure:
“IFRS 2 requires companies to disclose absolute gross greenhouse gas emissions generated during the reporting period, measured in accordance with the Greenhouse Gas Protocol, classified as scope 1 emissions, scope 2 emissions, and scope 3 emissions. The ISSB’s requirement of scope 3 disclosure in IFRS S2 further illustrates the key role that scope 3 emissions play to measure, plan and track companies progress toward science-based and net-zero targets in line with the global 1.5°C goal.”