The content on this page has been converted from PDF to HTML format using an artificial intelligence (AI) tool as part of our ongoing efforts to improve accessibility and usability of our publications. Note:
- No human verification has been conducted of the converted content.
- While we strive for accuracy errors or omissions may exist.
- This content is provided for informational purposes only and should not be relied upon as a definitive or authoritative source.
- For the official and verified version of the publication, refer to the original PDF document.
If you identify any inaccuracies or have concerns about the content, please contact us at [email protected].
TAC Public Meeting May 2025 Paper 5: Proposed amendments to IFRS S2
Executive summary
| Date | Paper reference | Project | Topic |
|---|---|---|---|
| 13 May 2025 | 2025-TAC-035 | Proposed amendments to IFRS S2 | Greenhouse gas emissions measurement and disclosures |
Objective of the paper
This paper analyses and discusses the International Sustainability Standards Board's (ISSB) Exposure Draft for targeted amendments and clarifications to IFRS S2 Climate-related Disclosures, specifically concerning the measurement and disclosure of greenhouse gas emissions. The paper is intended for discussion purposes to inform the development of formal responses to the ISSB comment letter, which will be presented to the TAC for final approval ahead of the 27 June 2025 submission deadline.
Decisions for the TAC
The TAC is asked to: * Discuss and evaluate the appropriateness of the analysis of the proposed amendments. * Tentatively approve the response considerations discussed. * Provide additional feedback or alternative viewpoints.
Appendices
None
This publication contains copyright material of the IFRS Foundation®. All rights reserved. Reproduced and distributed by the FRC in its role as the secretariat for the UK Sustainability Disclosure Technical Advisory Committee with the permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to use its material please visit www.ifrs.org.
Disclaimer: To the extent permitted by applicable law the International Sustainability Standards Board and the IFRS Foundation expressly disclaims all liability howsoever arising from this publication or any translation thereof whether in contract, tort or otherwise (including, but not limited to, liability for any negligent act or omission) to any person in respect of any claims or losses of any nature including direct, indirect, incidental or consequential loss, punitive damages, penalties or costs.
Information contained in this publication does not constitute advice and should not be substituted for the services of an appropriately qualified professional.
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.
The Foundation has trade marks registered around the world (Trade Marks) including ‘IAS®', ‘IASB®', ISSB™, 'IFRIC®', 'IFRS®', the IFRS® logo, 'IFRS for SMEs®', IFRS for SMEs® logo, ISSB™™, the ‘Hexagon Device', 'International Accounting Standards®', 'International Financial Reporting Standards®', and 'SIC®'. Further details of the Foundation's Trade Marks are available from the Licensor on request.
Background and context
1Since the International Sustainability Standards Board (ISSB) issued IFRS S2 Climate-related Disclosures (IFRS S2) in June 2023, it has actively engaged with stakeholders and leveraged the Transition Implementation Group (TIG) to prioritise the global implementation of IFRS S1 and IFRS S2 (the standards). During this process, the ISSB identified key implementation challenges, particularly regarding the measurement and disclosure of greenhouse gas emissions, that stakeholders faced at both jurisdictional and entity levels of implementing the standards.
2In response to the identified pervasive concerns, the ISSB has proposed targeted amendments to IFRS S2 with the aim of reducing complexity, avoiding duplication and minimising undue costs and effort during implementation. The ISSB also recognises that early resolution of these challenges supports the timely development of data infrastructure and internal processes required to meet disclosure obligations.
3The ISSB has evaluated the amendments using the following three criteria: * there is a demonstrated need to amend IFRS S2; * the amendments do not result in a significant loss of useful information for primary users; and * the amendments do not duly disrupt ongoing implementation.
4In assessing the appropriateness of the amendments, the TAC applies the same criteria used in its technical analysis and endorsement recommendations for IFRS S2, in accordance with its Framework and Terms of Reference for the development of UK Sustainability Reporting Standards.
5The relevant references to the proposed amendments in IFRS S2 are as follows: * Paragraphs 29(a)(i)(3), 29(a)(vi)(1-2), B32, B58-B63 and Basis of Conclusion BC127 and 129 – regarding financed emissions measurement and disclosures for derivatives-related and commercial banking and insurances related emissions. * Paragraphs 29(a)(i)(3) and B62 and B63 – relating to use of Global Industry Classification Standard (GICS) in disaggregating financed emissions. * Paragraph 29(a)(ii) – relating to amendments regarding jurisdictional relief on GHG Protocol Corporate Accounting Standard (2004). * Paragraph 29(a)(ii), B21-B22, and B24 – relating to jurisdictional relief permitting use of values other than global warming potential (GWP) values from the latest IPCC values.
6The following table summarises the key implementation concerns, proposed amendments, description of entities most likely to be affected and preliminary response considerations. Detailed analysis and commentary is provided in the subsequent analysis section.
| Summary of identified issue in the ISSB's consultation | Summary of proposed amendments | Type of entities most likely to be impacted | Preliminary consideration |
|---|---|---|---|
| Challenges related to measurement and disclosure of certain Scope 3 Category 15 GHG emissions (derivatives-related, banking-facilitated and insurance-associated) which arise from inconsistencies between the Basis for Conclusions, which explains their exclusion, and IFRS S2 which does not exclude them. | Permits entities to limit measurement and disclosure of Scope 3 Category 15 greenhouse gas emissions to financed emissions as defined in IFRS S2 and specifies the exclusion of derivatives-related, insurance-associated and banking facilitated emissions. Entities would be required to disclose amounts of derivatives excluded from the emissions, alongside an explanation of what has been treated as derivatives and amount of other financial activities excluded. | Financial services entities with asset management, commercial banking and insurance and reinsurance activities. | Tentatively agree |
| Practical difficulties and undue cost and effort of mandatory use of the Global Industry Classification Standard (GICS) for counterparties' financed emissions classification. | Provides hierarchical options allowing other classification standards to be used in specific circumstance. Entities would be required to disclose the system used and the basis for its classification system. | Multinational financial services entities in jurisdictions mandating different industry classification standards. | Tentatively disagree |
| Lack of clarity on entity scope for jurisdictional relief when non-GHG Protocol measurement methods are mandated. | Clarifies that the relief applies even if the jurisdictional requirement applies only partially to the entity subject to jurisdictional mandate (i.e. the relief applies to the entity in 'whole or in part') | Multinational entities in jurisdictions mandating alternative greenhouse gas measurement methods e.g. Australia's NGER Scheme. | Tentatively agree |
| Applicability of a jurisdictional relief for use of jurisdictional mandated global warming potential (GWP) values. | Extends jurisdictional relief to allow use of alternative GWP values only to the part of the entity mandated by jurisdictional authority or exchange to use such values. | Tentatively agree |
Analysis and commentary on the amendments
Permission to exclude specific Scope 3 Category 15 greenhouse gas emissions
Summarised Exposure Draft questions
(a) Do you agree with the proposal to explicitly allow entities, by adding a new paragraph 29A(b) that would expressly allow entities to limit disclosure of Scope 3 Category 15 emissions to financed emissions (excluding derivatives-related, banking-facilitated, and insurance-associated emissions), while permitting voluntary disclosure of the excluded categories? Why or why not? (b) Do you agree with the requirement for entities applying the above limitation to disclose the 'amount' of excluded derivatives alongside an explanation of what it treats as derivatives for the purpose of limiting disclosure of Scope 3 Category 15 greenhouse gas emissions and also the amount of other financial activities it excluded? Why or why not?
Preliminary response considerations for discussion purposes only
7The Secretariat's preliminary consideration is for the TAC to consider tentatively supporting the proposed amendment introducing paragraph 29A(b), which permits entities to limit disclosure of Category 15 Scope 3 emissions to financed emissions and explicitly exclude derivatives-related, banking-facilitated and insurance-associated emissions. The amendment addresses inconsistencies between the disclosure requirements in IFRS S2 paragraph 29(a)(vi)(2) and the accompanying Basis for Conclusions, where the ISSB acknowledged lack of reliable methodologies for these emissions. Ultimately, the effect is to reduce undue reporting burdens.
8Subject to targeted stakeholder input, the Secretariat's preliminary recommendation is for the TAC to consider tentatively supporting this amendment. It is intended to reduce undue cost and reporting burdens, while preserving optionality for entities that already report these emissions or wish to do so voluntarily. For the requirement to disclose the nature and magnitude of excluded financial activities and derivatives, while it promotes transparency further clarification on what constitutes a reportable 'amount' for derivatives and the excluded financial activities may be helpful to avoid diversity in practice. The Secretariat will seek stakeholder views in this area.
Technical assessment and considerations
9IFRS S2 paragraph B32 broadly requires entities to consider and disclose Scope 3 greenhouse gas emissions. More specifically, paragraphs B58-B63 discuss particular financial activities, including asset management, commercial banking, and insurance/reinsurance, for which entities are required to disclose financed emissions which are part of scope 3 Category 15 emissions. Additionally, paragraph 29(a)(vi)(2) requires entities engaged in financial activities discussed in paragraphs B58-B63 to disclose further information about their Scope 3 Category 15 greenhouse gas emissions.
10Given the breadth of Scope 3 Category 15 emissions, it could be interpreted that insurance/reinsurance-associated and investment banking facilitated-emissions, as well as derivative-related emissions, are also required for disclosure under paragraph 29(a)(vi)(2), despite the IFRS S2 Basis for conclusions (which provides context on the considerations in arriving at the disclosure requirements for these activities and asset class) explaining that the ISSB, after deliberations decided not to proceed with requirements for disclosure of derivatives-related emissions (BC127) and insurance/re-insurance-associated emissions and investment banking-facilitated emissions (BC129) due to lack of established methodologies for determining these types of emissions.
11The challenges with derivatives, in particular, include, not only the absence of a reliable methodology for quantifying their related emissions, but also the lack of a clear definition of “derivatives” from a sustainability reporting perspective. Relying on Generally Accepted Accounting Practice (GAAP-based) definitions introduces further complexity, due to the diverse accounting treatments applied under different GAAPs.
12To address these issues, the ISSB proposes a targeted amendment to paragraph IFRS 2 paragraph 29(a) by introducing new paragraph 29A(a), that would explicitly allow entities engaged in the specified financial activities to limit their Scope 3 Category 15 disclosures to 'financed emissions', as defined in IFRS S2, and to explicitly exclude derivatives-related emissions, insurance and reinsurance-associated emissions, and investment banking facilitated-emissions. While editorial amendments have been proposed to the existing paragraph 29(a)(vi)(2) to specify 'financed emissions' (a subset of Scope 3 Category 15 emissions), these editorial changes were not considered sufficient to clarify whether emissions related to derivatives are excluded from financed emissions. Therefore, in addition to editorial changes to existing paragraph 29(a)(vi)(2) introduction of a new paragraph 29A(a) is proposed as an amendment. Page 12 of the Exposure Draft shows the presentation of editorial changes while page 13 illustrates the proposed new paragraph 29A(a).
Further, the amendment introduces another new paragraph 29A(b), that would require an entity using the relief introduced by paragraph 29A(a) above, to disclose the amount of derivatives, along with information about what has been treated as derivatives and amount of financial activities (e.g. investment banking activities or insurance underwriting activities) excluded from its scope 3 category 15 emissions. Page 13 of the Exposure Draft presents the new proposed paragraph 29A(b) regarding the relief.
13Consistent with the use of 'amount' in IFRS S2 paragraphs 29(b) and 29(c) the ISSB made a deliberate decision to not define ‘amount' relating to this quantitative disclosure of derivatives and other excluded activities introduced by paragraphs 29A(a) and 29A(b) describe above. It considers this a judgement for entities to determine the type of quantitative information that would be useful for primary users.
14Subject to further input from proposed limited stakeholder outreach, the Secretariat's preliminary view is that the TAC considers tentatively supporting this amendment as it mitigates undue cost and effort associated with calculating emissions that currently lack standardised methodologies and supports the principles of proportionality. However, stakeholder views on the extent of disruption and the risk of diverse reporting practices on reporting 'amount' will be sought for final response to comment letter.
15The Secretariat notes that some UK banking institutions, particularly those applying the PCAF standard, are already reporting facilitated emissions from banking activities. A move away from such disclosure practices could potentially expose them to investor scrutiny or accusations of greenwashing. Furthermore, some of these institutions derive strategic value from disclosing facilitated emissions, as they complement their transition planning and setting of decarbonisation targets narratives. As the proposed relief is optional, it does not preclude entities from continuing to report these emissions where they choose to do so.
Relief from mandatory use of GICS in specific circumstances
Summarised Exposure Draft question
(c) Do you agree with the proposal to permit the use of alternative industry classification systems to GICS, in specified circumstances, when disaggregating financed emissions? Why or why not? (d) Do you agree that entities not using GICS should be required to disclose and justify their chosen classification system? Why or why not?
Preliminary response considerations for discussion purposes only
16Regarding (a) the Secretariat's preliminary view is that the TAC, as part of its written response, tentatively considers expressing support for the principle of allowing an alternative classification system. However, given the concerns of additional complexity, inconsistency, cost, and reduced connectivity that may arise from the proposed amendments, the TAC is recommended to tentatively consider expressing concerns about these issues and to not support the proposed amendment.
17Regarding (b) the Secretariat's preliminary view is for the TAC to tentatively consider supporting the amendment to disclose and justify the classification system used as this provides useful information to the users.
Technical assessment and considerations
18IFRS S2 paragraph B62(a) and paragraph B63(a) require entities involved in financial activities such as commercial banking or insurance to disaggregate additional information about their financed emissions by industry. Under current requirements, such entities are required to use the Global Industry Classification Standard (GICS) 6-digit industry-level codes to classify financed emissions from their counterparties.
19Stakeholders have raised concerns about the challenges in applying this requirement. These include the need for licensing agreements to use GICS, anti-competitive issues arising from preferring one commercial product over others and potential duplicative reporting where jurisdictional prudential regulators require the use of alternative classification systems.
20To address these stakeholder concerns, the ISSB has proposed amendments to paragraphs B62 and B63 by introducing new paragraphs B62A and B63B that set out a hierarchical approach for the selection of classification systems. Under this approach, an entity already using GICS to classify its lending or investment activities at the reporting date would be required to continue applying GICS for the purposes of its financed emissions disclosure. If GICS is not used in any part of the entity, but the entity is required by a prudential regulator or exchange to use alternative classification systems, it may apply an alternative system by selecting one aligned with climate considerations. Where neither condition applies, an entity may use a classification system of its choice, provided that it yields decision-useful information and the rationale for its selection is disclosed. For illustration of the proposed amendments, pages 16 and 18 of the Exposure Draft highlight the deletion of the current requirements mandating GICS unconditionally, while pages 17 and 19 present new paragraphs outlining the new proposed approach for commercial banking and insurance, respectively.
21The Secretariat's preliminary view is that the TAC in its response to the ISSB's consultation, tentatively considers expressing support for the principle of permitting an entity to use alternative classification systems to GICS. However, in terms of the proposed amendment itself, the TAC tentatively considers expressing concerns that the proposed amendment may not adequately address the practical and operational challenges associated with determining this disclosure. Instead, the proposed amendment may potentially introduce additional complexity and inconsistency.
22The key issues underpinning these concerns are discussed in detail below. Note that these build upon discussions in TAC meetings in 2024 during the technical assessment of IFRS S2 for the provision of the TAC's endorsement recommendations to the UK government.
Conflict with established financial reporting principles
23IFRS S1 paragraph B38 explains that, in a group context, the 'reporting entity' for sustainability-related information is the entity that prepares the consolidated financial statements in accordance with IFRS Accounting Standards. A well-established principle in financial reporting is that consistent accounting policies must be applied in the group accounts. Thus, any local GAAP requirements or nuances in subsidiary accounts must be addressed and adjusted for consolidation purposes. Consequently, if a subsidiary, regardless of its materiality to the group, uses GICS while the parent company and other subsidiaries use a different classification system, extending GICS to the consolidated sustainability-related information because of such subsidiary practice creates an inconsistent reporting policy approach, where the reporting policy of a subsidiary overrides the group's sustainability reporting policy.
24Moreover, requiring GICS-based classification across the group could conflict with classification systems used for other financial reporting purposes, such as those that underpin expected credit losses (ECL) calculations. For example, if ECLs (including those driven by climate factors) are based on a non-GICS classification, applying GICS to sustainability disclosures could impair connectivity and consistency of financial information reported.
Internal inconsistency and burden
25Large financial institutions typically adopt classification systems that align with their strategic priorities and operational requirements, such as asset allocation, transition planning and regulatory compliance. The proposed amendment, which mandates the use of GICS for sustainability reporting across the group, on the basis that it is used by any part of the entity, regardless of size (even if used for non-IFRS S2 purposes), would require organisations to run parallel classification systems. This duplication could span business lines, client segments, and jurisdictions, imposing undue resource demands and additional reconciliation efforts without necessarily improving disclosure quality.
Licensing and competition issues
26GICS is a proprietary system and requires licensing fees, which may vary depending on the entity size and use case, as outlined in the MSCI GICS FAQs. While the specific fees are confidential and are negotiated on a contract-by-contract basis, it can be inferred from FAQ 12 that larger institutions and broader use cases may attract higher costs. This presents a potential cost burden for large UK financial institutions with operations in multiple jurisdictions.
27Furthermore, mandating use of a commercial product raises potential anti-competition concerns, particularly if more effective or fit-for-purpose alternatives emerge in the future, as technology advancements evolve.
Questionable comparability benefits
28Given that financed emissions methodologies are currently immature, with data quality and availability challenges, it is questionable whether enforcing GICS to a large group on the basis that an insignificant part of such a group uses GICS (even if used for non-core purposes) would yield meaningful global comparability.
29In the IFRS S2 Amendment Basis for Conclusions (BC35), the ISSB notes that comparability is not the same as uniformity and that useful disclosures can still be achieved through ‘different classification systems'. This seems to undermine the justification for mandating GICS for entities with limited GICS usage, particularly when weighed against all other GICS constraints.
Existing misalignment with SASB and interoperability considerations
30IFRS S1 requires preparers to consider the SASB standards when identifying sustainability-related risks and opportunities. However, SASB employs a different industry classification system from GICS.
31Additionally, the current requirements for financed emissions classification under IFRS S2 differ from those in ESRS E1. For example, Paragraph AR46 of ESRS E1 Climate Change references the use of the PCAF's financed emissions guide, for financed emissions, which relies on NACE, the European Union's industry classification system. Thus, entities reporting under ESRS E1, would require GICS for IFRS S2 in addition to NACE for ESRS E1.
32Considering the existing misalignment in classification systems between SASB, ESRS, PCAF and GICS it is debatable whether prioritising alignment with GICS for the sake of comparability should take precedence over addressing the broader issues like resolving SASB classification issues and other interoperability-related issue in this area. A more holistic and coordinated approach to industry classification across frameworks may better serve the objectives of global alignment, connectivity and disclosure efficiency.
Clarity on jurisdictional relief relating to the use of GHG Protocol: Corporate Accounting Standard (2004)
Summarised Exposure Draft question
Do you agree with the proposed clarification that jurisdictional relief from using the GHG Protocol: Corporate Accounting Standard (2004) is permitted for part or all of an entity, where jurisdictional or exchange requirements mandate an alternative method? Why or why not?
Preliminary response considerations for discussion purposes only
33The Secretariat's preliminary considerations are that the TAC, tentatively consider supporting the proposed clarification to IFRS S2 confirming that jurisdictional relief from using the GHG Protocol: Corporate Accounting Standard (2004) can apply to all or part of the reporting entity. This is a pragmatic change that reduces the risk of duplicative reporting for multinational groups that are subject to multiple jurisdictional mandatory requirements by regulators and exchanges to use alternative methods.
Technical assessment and considerations
34IFRS S2 paragraphs 29(a)(ii) requires an entity to use GHG Protocol Corporate Accounting and Reporting Standards (2004) (‘GHG Protocol Corporate Standard') to measure its greenhouse gas emissions and provides a relief for the entity to use an alternative method mandated by a jurisdictional authority or an exchange. However, the term 'entity' in this relief is unclear whether it means the entity as a whole or also covers, separately, parts of the entity (i.e. ‘the entity in whole or in part').
35The proposed amendments to paragraphs 29(a)(vi)(2) and B24 seek to clarify that the relief applies to ‘the entity in whole or in part'. This change means that multinational groups may apply the GHG Protocol Corporate Standard for all other business units and the jurisdictionally mandated method to only that part of the business subject to such jurisdictional requirement. Entities are required to disclose the measurement approach used and consider disaggregation requirements in IFRS S1 paragraphs B29–B30, where different methodologies are used. Page 14 of the Exposure Draft illustrates proposed amendments, with the proposed changes in underlined text. Pages 12 and 15 of the Exposure Draft provide illustrate proposed amendments to paragraphs 29(a)(vi)(2) and B24 respectively.
36The Secretariat's preliminary view is that the TAC, tentatively consider supporting this amendment. It resolves interpretive uncertainty and mitigates the risk of diversity in practice that could undermine comparability. Moreover, it reduces the burden of duplicative measurement and reporting where parts of a group are already required to use alternative methods under local rules. It also supports comparability within a jurisdiction.
Extension of jurisdictional relief on GHG measurement to permit jurisdictional mandated global warming potential values
Summarised Exposure Draft question
Do you agree with the proposal to allow jurisdictional relief where entities are required to use different global warming potential (GWP) values to those in IFRS S2, for the relevant part of the entity? Why or why not?
Preliminary response considerations for discussion purposes only
37The Secretariat's preliminary view is for the TAC to tentatively consider supporting this amendment, which would permit entities to apply jurisdictionally mandated GWP values when measuring GHG emissions. This aligns with the existing relief for alternative measurement methodologies and helps avoid duplicative reporting where entities currently must apply two separate GWP value sets – one for IFRS S2 compliance and another for local regulatory purposes.
Technical assessment and considerations
38In measuring the entity's absolute gross greenhouse gas emissions, IFRS S2 paragraphs B21-B22 requires an entity to use global warming potential (GWP) values issued by the Intergovernmental Panel on Climate Change (IPCC), based on a 100-year time horizon, from the latest IPCC assessment available at the reporting date, when converting greenhouse gases into carbon dioxide equivalent values.
39While IFRS S2 provides jurisdictional relief to use an alternative measurement methodology other than the GHG Protocol Corporate Standard, that relief does not currently extend to GWP values. As a result, entities operating in jurisdictions that mandate different GWP values must calculate emissions twice, one using IPCC GWP values for IFRS S2 compliance, and another using jurisdictionally required values for local compliance.
40The proposed amendment to paragraphs B21-B22 would align this aspect of IFRS S2 with paragraph 29(a)(ii), allowing an entity, ‘in whole or in part', that is subject to jurisdictional or exchange authority requirements to use alternative GWP values to that part of the entity subject to such jurisdictional mandate. Page 14 of the Exposure Draft illustrates proposed amendments.
41Consistent with the considerations under the proposed GHG Protocol: Corporate Standard relief amendment, the Secretariat's preliminary view is that the TAC tentatively considers supporting this amendment as it provides consistency with the GHG Protocol Corporate Standard relief, mitigates diversity in interpretation and helps prevent the unnecessary burden of duplicative calculations or parallel systems. It also supports comparability within jurisdictions.
Effective date
Summarised Exposure Draft question
Do you agree with the proposal to implement the amendments as early as possible and to allow early application? Why or why not
Preliminary response considerations for discussion purposes only
42The Secretariat's preliminary view is for the TAC to tentatively consider supporting the early implementation of the proposed amendments, including the option for voluntary early adoption. This consideration is subject to the concerns raised in relation to the proposed GICS amendments, which may warrant additional transitional considerations if finalised in the current form.
Technical assessment and considerations
43Allowing early application would provide preparers with clarity and flexibility, thereby supporting a smoother transition ahead of broader implementation deadlines.
44As noted in the GICS section, there are concerns that the proposed GICS amendments could lead to significant costs and operational disruption, although these are reduced from the requirements in IFRS S2 as issued in June 2023. Therefore, if the ISSB decides to move forward with the proposed GICS amendments in their current form, it would be prudent to establish a phased implementation timeline that accommodates the time and resources needed for institutions to adjust their systems and processes accordingly.
45Exposure Draft page 20 illustrates the proposed new paragraphs for effective dates.
Questions for the TAC
- Does the TAC agree with the Secretariat's response considerations?
- Does the TAC tentatively approve the response considerations?