ISSB Proposes Scope 3 Reliefs for Financial Sector Amid ESG Reporting Challenges
Overview
The ISSB is proposing targeted amendments to IFRS S2 that would ease Scope 3 reporting obligations for the financial sector. These changes aim to address implementation challenges while maintaining transparency for investors.
Scope 3 Reporting Relief for Financial Institutions:
Financial firms may now limit reporting on Scope 3 Category 15 emissions to only financed emissions (e.g. loans and investments). Emissions tied to derivatives, facilitated transactions, and insurance underwriting may be excluded.
If excluded, firms must:
Disclose the amount of excluded derivatives and financial activities.
Define what they classify as derivatives.
This relief gives financial institutions flexibility while requiring enough detail for investors to gauge the extent of omitted emissions.
Jurisdictional Reliefs: Emissions Measurement and GWP Values
Two amendments grant jurisdiction-specific leeway:
Greenhouse Gas Measurement Methods: Entities may use alternative calculation methods if required locally (instead of the GHG Protocol).
Global Warming Potential (GWP) Values: Entities may apply different GWP values if mandated by their jurisdiction, deviating from the IPCC’s 100-year baseline values.
These updates recognize that some jurisdictions already mandate differing approaches and prevent duplication/conflicts in compliance.
Photo by IFRS
Alternative Industry Classification Systems Allowed
Under current IFRS S2 rules, financial institutions must use the Global Industry Classification Standard (GICS) to categorize financed emissions.
The proposed amendment allows:
Use of a different classification system if mandated by a jurisdiction or stock exchange.
Use of internally adopted systems if no jurisdictional requirement exists.
Firms must disclose which system they use and justify the choice. This change reduces compliance friction for global firms using different regulatory systems.
Early Application and Next Steps
The ISSB proposes immediate availability and early application of these amendments. Stakeholders can submit feedback until June 27, 2025.
Key Takeaways
Financial institutions may report fewer Scope 3 emissions if exclusions are disclosed clearly.
Broader options are now available for emissions classification and methodology based on regional rules.