Unanimous ISSB Includes Scope 3 in Reporting Standards

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    Stockholm (NordSIP) – Identifying and measuring the indirect greenhouse gas emissions of a company’s entire value chain is, admittedly, challenging. For a long time, this has been a good-enough excuse for many companies to abstain from reporting their Scope 3 emissions. Indulgent investors, likewise, have often been cautious about requesting such information.

    Challenging does not mean impossible, however, according to the International Sustainability Standards Board (ISSB) of the IFRS Foundation. At its October meeting, after carefully analysing the feedback on its proposed standards, the ISSB voted unanimously to require company disclosures on Scope 1, Scope 2, and Scope 3 GHG emissions.

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    The ISSB seems highly aware that many companies will struggle with these new reporting requirements and vows, therefore, to develop “relief provisions” to help companies apply them. Although the details of the promised support are yet to be decided upon, it will probably include giving companies more time to provide Scope 3 disclosures. Another option would be to design so-called ‘safe harbour’ provisions which would grant companies certain protection from liability on information disclosed to investors and other capital market participants.

    A recent survey conducted by Morningstar shows that asset managers are not nearly as unanimous as the ISSB in their views on Scope 3 emissions disclosure. Whereas the majority of the survey respondents agree with the ISSB’s proposal that Scope 1 and 2 GHG emissions should be mandatory for all companies, only eight of the surveyed managers, including BNP Paribas, Capital Group, Legal & General, and Wellington, believe that Scope 3, too, should be mandatory.

    “Given methodological complexity for Scope 3 emissions and the lack of direct control by companies over the requisite data, our investors believe the usefulness of this disclosure varies significantly right now across industries and Scope 3 emissions categories,” comments BlackRock in the survey. “We encourage regulators to adopt a disclosure framework that accounts for this significant variation. Under this framework, companies would disclose emissions estimates for any of the fifteen Scope 3 categories that are material to them. If none of the fifteen categories are material, or if companies are not yet capable of estimating their Scope 3 emissions, they would have the option of explaining why that is the case.”

    Another interesting development reported from the ISSB meeting is the removal of the term ‘enterprise value’ from the objective and the assessment of materiality. In order to replace it, the ISSB aims to look for guidance on making materiality judgements from the Integrated Reporting Framework and the International Accounting Standards Board’s existing frameworks.

    Making the reporting standards “interoperable” is high up on the agenda, as always. At the meeting, the ISSB confirmed the use of the Task Force on Climate-related Financial Disclosures (TCFD) architecture as the basis for its standards. Notable among future priorities is also the plan to enhance SASB Standards to make them more internationally applicable. The ISSB is also looking to coordinate work with the International Accounting Standards Board (IASB) to support connectivity in the two boards’ requirements and consider operability with the work of others, including GRI and EFRAG.

    The ISSB promises to provide more details shortly in their informative podcast.

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