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TAC Public Meeting October 2024 Paper 2: Amendments (GICS)
Executive summary
| Header | Value |
|---|---|
| Date | 08 October 2024 |
| Paper reference | 2024-TAC-022 |
| Project | Technical assessment of IFRS S1 and IFRS S2 |
| Topic | Amendment to IFRS S2 on the use of GICS for financed emissions |
Objective of the paper
The TAC has tentatively agreed to amend IFRS S2 paragraphs B62 and B63, which require commercial banks and insurers to use the 'Global Industry Classification Standard (GICS),' when disaggregating gross financed emissions. Following this tentative decision, the TAC is required to approve the suggested amended text.
Decisions for the TAC
The TAC is asked to consider and approve the suggested wording for the amendment in IFRS S2 paragraph B62 and B63.
Appendices
There are no appendices to this paper.
This paper has been prepared by the Secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) to discuss in a public meeting. This paper does not represent the views of the TAC or any individual TAC member.
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Context
1In the September 2024 meeting, as part of the discussion on financed emissions (paper 2024-TAC-015), the TAC raised concerns with IFRS S2 paragraphs B62 and B63, which require commercial banks and insurers to use the 'Global Industry Classification Standard (GICS)' when disaggregating gross financed emissions. TAC members noted that there are several alternative industry classification standards being used by UK entities (e.g., Standard Industrial Classification (SIC)) and requiring one particular commercial system—which needs to be licenced to use—over others may increase the costs to entities. The TAC tentatively agreed they would support more flexibility in IFRS S2 regarding the use of classification systems rather than mandating a single one. As entities are still in the early stages of reporting in this area, the TAC concluded that proposing more flexibility in the standard should not hamper comparability. The TAC also noted that, given the flexibility offered by the suggested amendment, an entity will likely apply an approach already used by the entity which aligns to existing reporting or regulatory frameworks (e.g., Basel Pillar 3).
2Following the tentative decision to amend IFRS S2, the TAC is required to approve the suggested amended text.
Endorsement recommendations
Criteria for amendment
3The TAC's Terms of Reference state that the TAC may recommend whether, in light of its assessment, amendments are necessary before the IFRS Sustainability Disclosure Standard can be endorsed, or whether amendments to other legislative or regulatory provisions in the UK framework may be required. The TAC may propose amendments if:
- (a) changes are considered necessary for the effective application of the IFRS Sustainability Disclosure Standard within a UK context; or
- (b) failure to amend a IFRS Sustainability Disclosure Standard would be of detriment to the long-term public good in the UK.
4Although mandating the use of GICS for disaggregating gross financed emissions may improve international comparability, it may not enable consistency with an entity's general purpose financial report if a different classification system is already being used for another purpose. In this instance, connectivity with other disclosures in the general purpose financial report is likely to result in improved understandability and relevance.
5Additionally, the potential costs of requiring entities to use GICS does not outweigh the benefits, especially as GICS is a commercial standard and requires licencing to use.
6In making this amendment, the TAC should consider the implications regarding interoperability and alignment with the IFRS Sustainability Disclosure Standards as demonstrated in the table below. If an entity applies the UK Sustainability Reporting Standards and chooses to use a classification system that is different to GICS to disaggregate gross financed emissions by industry, it will not be in compliance with the IFRS Sustainability Disclosure Standards as issued. If an entity is required to apply the UK Sustainability Disclosure Standards, but also wishes to comply with IFRS Sustainability Disclosure Standards, this entity will be required to disaggregate gross financed emissions by industry using the GICS 6 digit industry-level code. The flexibility provided by this amendment should not prevent entities from choosing to use GICS and complying with IFRS S2.
| Entity uses GICS for disaggregating gross financed emissions | Entity uses alternative classification system for disaggregating gross financed emissions | |
|---|---|---|
| Compliant with UK Sustainability Reporting Standards | Compliant | Compliant |
| Compliant with IFRS Sustainability Disclosure Standards as issued by the ISSB | Compliant | Not Compliant |
Suggested endorsement recommendation
7The TAC is asked to consider and approve the following amendments to IFRS S2 for endorsement in the UK.
8The suggested wording is based on the TAC's discussion that entities should be able to use an internationally recognised classification system, for example, one that they already use to meet existing regulatory requirements. Additionally, the suggested wording retains the reference to GICS as an example of a classification system that an entity could use. Maintaining the reference to GICS preserves some of the wording in IFRS S2 so that the amendment does not fully diverge from the global baseline. The TAC Secretariat considered adding further examples of industry classification systems that could be used. However, there are too many potential alternative industry classification systems that could be included. To add further examples to the requirement, an assessment would need to be completed to ascertain which industry classification systems are appropriate to be included.
Commercial banking
B62An entity that participates in commercial banking activities shall disclose:
(a) its absolute gross financed emissions, disaggregated by Scope 1, Scope 2 and Scope 3 greenhouse gas emissions for each industry by asset class. When disaggregating by:
(i) industry—the entity shall use an internationally recognised industry classification system. For example, the Global Industry Classification Standard (GICS).—6-digit_industry-level code for classifying counterparties, reflecting the latest version of the classification system available at the reporting date
Insurance
B63An entity that participates in financial activities associated with the insurance industry shall disclose:
(a) its absolute gross financed emissions, disaggregated by Scope 1, Scope 2 and Scope 3 greenhouse gas emissions for each industry by asset class. When disaggregating by:
(i) industry—the entity shall use an internationally recognised industry classification system. For example, the Global Industry Classification Standard (GICS).–6-digit_industry-level code for classifying counterparties, reflecting the latest version of the classification system available at the reporting date.
Questions for the TAC
- Does the TAC agree that the criteria for amendment are satisfied?
- Does the TAC agree that the amendment does not prevent entities from choosing to use GICS and complying with IFRS S2?
- Does the TAC agree with the suggested amended text in relation to the reference to GICS in IFRS S2?