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 Response to ISSB Exposure Draft Proposed Amendments to IFRS S2
Mr Emmanuel Faber The Chair International Sustainability Standards Board Opernplatz 14 60313 Frankfurt am Main Germany
25 June 2025
Exposure Draft ISSB/ED/2025/1 Amendments to Greenhouse Gas Emissions Disclosures (Proposed amendments to IFRS S2)
Dear Emmanuel,
The UK Sustainability Disclosure Technical Advisory Committee (TAC) welcomes the opportunity to provide feedback on the ISSB's Exposure Draft Amendments to Greenhouse Gas Emissions Disclosures (Proposed amendments to IFRS S2).
The TAC is an independent expert advisory body established by the UK Government to provide technical input to support the development and endorsement of the IFRS Sustainability Disclosure Standards for use in the UK. Accordingly, this letter is solely intended to inform and constructively contribute to the ISSB's standard setting outcomes and does not reflect an endorsement or formal technical advice under the TAC's statutory remit concerning the UK Sustainability Reporting Standards. Instead, it reflects our independent assessment of the proposals set out in the Exposure Draft based on our assessment criteria.
Our views are based on public deliberations among TAC members, representing a broad cross-section of UK stakeholders and are further informed by targeted stakeholder outreach.
The TAC commends the ISSB for its proactive approach to reduce implementation complexity, address interpretation uncertainties and promote proportionality to ensure successful implementation of the IFRS Sustainability Disclosure Standards.
This letter sets out our key points for consideration and is accompanied by an appendix containing our detailed responses to each specific question posed in the Exposure Draft.
Scope 3 Category 15 greenhouse gas emissions
The TAC supports the proposed amendment in paragraph 29A(a), which would permit entities to limit disclosure of Scope 3 Category 15 greenhouse gas emissions to 'financed emissions' as defined in IFRS S2 Climate-related Disclosures, thereby excluding facilitated, insurance-associated and derivatives-related emissions. We support this relief, provided it is subject to proactive monitoring and review as methodologies, data and technology improve. For instance, the revision of the GHG Protocol Corporate Standard provides an opportunity to review this relief in the near future.
This relief reduces reporting and assurance-related challenges for preparers as methodologies for these emissions, and data availability and quality continue to evolve. We have considered the concerns of investors and others who do not support this relief, stressing the need to disclose these emissions for effective systemic and climate risk management and assessment of progress towards net zero targets. However, we believe that a temporary and monitored relief, along with consideration of our recommendations to paragraphs 29A(b)(i) and 29A(b)(ii) discussed below, strikes a fair balance for all stakeholders.
We do not support the proposed requirements under paragraphs 29A(b)(i) and 29A(b)(ii) to disclose 'amounts' of derivatives and other financial activities excluded from Scope 3 Category 15 greenhouse gas emissions disclosures, along with an explanation of what is treated as a derivative.
We are concerned that disclosures of the ‘amounts' may in some cases be potentially complex and misleading to users. For instance, a material derivative or material other financial activities may not necessarily correlate with significant emissions exposure. In addition, the possible year-to-year variability in the classification of derivatives as assets or liabilities further reduces the contextual informational value for the purpose of understanding emissions. Ambiguity around whether to disclose nominal or fair value, and whether to include assets, liabilities, or both, for derivatives introduces further complexity and may prompt undue effort from entities with limited decision-usefulness for users.
For other financial activities, it is also unclear whether the 'amount' refers to, for example, premiums or underwritten insurance contract values for insurance entities, or facilitation fees and the notional deal amount for investment banking entities.
Instead, we recommend a principles-based disclosure of qualitative and/or quantitative information, as appropriate, about an entity's emissions exposure due to its derivatives or other financial activities.
Use of Global Industry Classification Standard
We strongly disagree with the proposed hierarchical structure mandating the use of the Global Industry Classification Standard (GICS) in certain circumstances. This proposal creates a de facto product monopoly leading to anti-competitiveness concerns and vulnerabilities related to reliance on a single commercial provider, misaligns with core sustainability and financial reporting principles, and imposes cost burdens and operational challenges to preparers. Moreover, the intended global comparability benefits may be limited. This also creates inconsistencies with other ISSB considerations on jurisdictional reliefs.
We recommend that the ISSB considers using option (d) of the hierarchy as the primary basis for determining classification systems, as it allows entities to use systems that underpin their strategic decision-making initiatives, such as transition planning and net zero targets, and that are aligned with their regulatory and financial reporting. We believe this approach results in more decision-useful information about an entity's emissions.
We would also like to refer the ISSB to our previous correspondence of 27 January 2025 in which we set out the same position regarding the use of GICS among other key matters.
Jurisdictional reliefs - use of GHG Protocol Corporate Standard and applicability of global warming potential values
We support the clarification on the existing jurisdictional relief for the use of alternative greenhouse gas emissions measurement methods and the new relief for using alternative global warming potential (GWP) values by an entity, in whole or in part, when mandated by a jurisdictional authority or exchange on which it is listed. This resolves interpretation uncertainties, thereby mitigating the potential for diverse reporting practices and reducing duplicative reporting.
However, we recommend that the ISSB considers enhancing the disclosure requirements under these reliefs. Specifically, if an entity uses alternative measurement methods or GWP values that significantly diverge from the GHG Corporate Standard and Intergovernmental Panel on Climate Change (IPCC) GWP values, the entity should clearly explain this and specify the parts of the entity that are affected.
Effective date
We agree with the ISSB's proposal to set the effective date as soon as practicable, with the option for early adoption.
We welcome the opportunity to continue to work with the Board and Staff in the implementation of IFRS Sustainability Disclosure Standards and future standard setting initiatives.
Yours sincerely
Sally Duckworth Chair of the UK Sustainability Disclosure TAC Email: [email protected]
The Financial Reporting Council provides the secretariat to the UK Sustainability Disclosure Technical Advisory Committee. For more information on the FRC's role as secretariat, please see this page. The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered office: 13th Floor, Exchange Tower, 1 Harbour Exchange Square, London, E14 9SR. Please see our privacy page if you would like to know more about how the FRC processes personal data in its role as the secretariat for the TAC, or if you would like to stop receiving FRC news, events, outreach or research related communications.
Appendix – Detailed responses to the Exposure Draft questions
Question 1: Measurement and disclosure of Scope 3 Category 15 greenhouse gas emissions
(a) Do you agree with the proposal to add a new paragraph 29A(a) that would permit entities to limit disclosure of Scope 3 Category 15 greenhouse gas 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?
1.1The TAC supports, the proposed relief in paragraph 29A(a), which would allow entities to limit the disclosure of Scope 3 Category 15 greenhouse gas emissions to 'financed emissions' as defined in IFRS S2 Climate-related Disclosures. This support is subject to the relief being proactively monitored and reviewed as methodologies, data and technology improve. For instance, the revision of the GHG Protocol Corporate Standard provides an opportunity to review this relief in the near future.
1.2This amendment aligns IFRS S2 with the Basis for Conclusions (paragraphs BC127 and BC129 of IFRS S2), which acknowledges the challenges in reliably measuring facilitated, insurance-associated and derivatives-related emissions. Through targeted outreach, preparers highlighted key reporting challenges, including the evolving but still less established measurement methodologies and issues with data availability and quality, particularly from small and medium enterprises in the financial institutions' value chain. These challenges result in reliance on significant judgements and estimates using sector averages which pose difficulties to both reporting and assurance processes. Ultimately, this limits the decision-usefulness of the information for users. As such, preparers view this relief as offering flexibility and proportionality, with its optional nature allowing market practices to evolve.
1.3However, we noted concerns from investors and other users of sustainability-related financial information, who do not support the relief. They emphasised the importance of disclosing these emissions to enable effective assessment of systemic and climate-related risks, as well as progress towards net zero targets.
1.4Furthermore, stakeholders noted that measurement methodologies have evolved since the ISSB issued IFRS S2, with some major UK financial institutions already adopting the Partnership for Carbon Accounting Financials (PCAF) standard for facilitated and insurance-associated emissions. They expressed concern that the ISSB has not revisited its original technical analysis in light of the current rapid developments. Basing amendments on potentially outdated conclusions may result in important market developments and prevailing practices not being adequately considered, thereby increasing the risk that the resulting disclosures provide less decision-useful information to users. They also highlighted that data challenges are not unique to Scope 3 Category 15 greenhouse gas emissions and should not hinder the ongoing progress in reporting such emissions.
1.5Balancing these mixed views, the TAC supports the relief subject to it being proactively monitored and reviewed as methodologies, data availability and quality and technologies improve. The ongoing work of PCAF may help address some of the current methodology limitations, although we note its methodology for insurance-associated emissions does not yet cover all products, such as life and health insurance lines, nor does it fully address derivatives.
1.6The TAC believes this approach would support the needs of both UK preparers and investors as market practices evolve, and allows entities, that see fit to do so, to report these emissions disclosures if they choose.
(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 they treat as derivatives for the purpose of limiting disclosure of Scope 3 Category 15 greenhouse gas emissions, and also the ‘amount' of other financial activities excluded? Why or why not?
1.7The TAC does not support the proposed requirements in paragraphs 29A(b)(i) and 29A(b)(ii), which would require entities applying the relief under paragraph 29A(a) to disclose the 'amounts' of other financial activities and derivatives excluded from emissions reporting, along with an explanation of what it treats as a derivative.
1.8The TAC questions the usefulness of the derivatives disclosure, as a material derivative amount may not necessarily correlate with significant emissions exposure and may be misleading. Additionally, because derivatives can alternate between asset and liability classifications from year to year, the contextual emissions informational value of such disclosure may be limited. The ambiguity in the proposal regarding whether the disclosed derivative ‘amount' should include both assets and liabilities, and whether it should be reported at fair value or nominal value may prompt undue effort for entities. Moreover, the requirement to explain what has been treated as a derivative for this purpose may result in disclosures that are cluttered and necessitate additional effort to ensure connectivity with the financial statements.
1.9In the case of other financial activities, while amounts can provide some indicative sense of the extent of emissions coverage in the disclosures, this is only effective in certain cases, and it is not clear which amounts should be reported. For instance, an entity may disclose that Scope 3 Category 15 greenhouse gas emissions have been reported for 90% of amounts reported in the financial statements for a certain business activity, and the remaining 10% of those amounts could provide an indicative sense of the extent of unreported emissions. However, this would only work if there is a clear measure of activity that is represented by amounts in the financial statements and those amounts correlate with emissions. For example, in the case of facilitated and insurance-associated emissions, revenues from these activities which are in the financial statements or notional values like deal amount or underwritten insurance contract values (which might be outside the financial statements) could be considered representative amounts. However, when such amounts are reported inconsistently, they lead to non-comparable disclosures that do not provide users with decision-useful information across similar entities.
1.10In addition, it is unclear whether the 'amount' is intended to be measured at nominal value, fair value or some other amount.
1.11We understand that the ISSB's proposal to include the requirement to disclose 'amount' is to allow users to understand the potential magnitude of the emissions that had been excluded and thus the completeness of the entity's Scope 3 Category 15 greenhouse gas information. In light of these concerns, the TAC recommends that the ISSB could meet this need by requiring a principles-based disclosure requirement about an entity's emissions exposure to its derivatives or other financial activities that will replace the proposed 'quantitative only' disclosures in paragraphs 29A(b)(i) and 29A(b)(ii).
1.12This will require entities to provide qualitative and/or quantitative information, as appropriate, that would enable users to understand the completeness and potential magnitude of financial activities and derivatives not included in the disclosure or information about an entity's exposure to greenhouse gas emissions through derivatives and other financial activities. For example, an entity could provide an explanation of its sectoral and geographical emissions exposure through derivatives. This could include disclosing its involvement, via derivatives, in commodity markets associated with high emissions. Such disclosure, which could include quantitative data, such as an 'amount' of financial activities, provides users with more decision-useful information about the entity.
Question 2: Use of the Global Industry Classification Standards in applying specific requirements related to financed emissions
a) 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?
1.13We strongly disagree with the proposed amendment that introduces a hierarchical approach mandating the use of the Global Industry Classification Standard (GICS) in certain circumstances. We recommend that instead of applying the proposed hierarchy in the mandated order with options (a) to (c) potentially presenting challenges, the ISSB makes option (d) the primary basis. This approach allows entities to use classification systems that underpin their strategic decision-making initiatives, such as transition planning and net zero targets, and that are aligned with their regulatory and financial reporting. This approach provides users with more decision-useful information about the entity.
1.14Further, this position is consistent with the TAC's findings in its IFRS S1 and IFRS S2 endorsement recommendations and advice to the UK Government, as well as its correspondence with the ISSB on the GICS and other key matters in January 2025.
1.15We set out below, in order of significance, our key concerns regarding the proposed amendment to the use of GICS.
Reliance on a single provider and product monopoly concerns
1.16Industry classification systems generally fall into two categories: official, activity-based systems developed by public bodies for economic and statistical purposes, and market-based systems created by financial market participants to support investment analysis, portfolio management, benchmarking and related functions. While official systems are typically jurisdiction-specific and publicly available, market-based systems such as GICS are global, proprietary and commercially licensed.
1.17Given the wide range of existing market-based systems, the TAC is concerned that mandating the use of a single commercial product in certain circumstances, specifically GICS, as proposed in the ISSB's option (a) of the hierarchy could create a de facto product monopoly. This raises significant anti-competitiveness concerns, with the potential to restrict product choice and stifle innovation in classification systems.
1.18Reliance on a single commercial provider leaves stakeholders vulnerable to the provider's investment decisions, future development priorities, and even their continued viability.
1.19Additionally, mandating the use of a proprietary system may present jurisdictional and legal challenges, particularly where it grants a single provider an unfair commercial advantage.
Conflict with existing core sustainability and financial reporting principles
1.20In the proposed ISSB classification systems hierarchy, options (b) and (c), which defer to climate-related or financial reporting classification systems mandated by a jurisdiction or stock exchange where GICS is not used in any part of the entity, present application challenges. Multinational groups may be subject to different classification requirements across jurisdictions. For example, some large UK financial institutions have multiple primary listings in jurisdictions with different classification mandates. It remains unclear which mandated jurisdiction's requirements would take precedence in such cases.
1.21Under paragraph B38 of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, in a group context the 'reporting entity' for sustainability related information is the entity that prepares the consolidated financial statements under IFRS Accounting Standards. A well-established principle of financial reporting is that consistent policies must be applied across the group. Accordingly, any differences in subsidiary accounts must be adjusted to align with the parent's policies during consolidation. In this context, if a subsidiary, regardless of its materiality, uses the GICS classification system while the parent and other material subsidiaries use a different system, applying GICS to the consolidated sustainability-related information solely due to that subsidiary's practice would create an inconsistent reporting approach in which a subsidiary's policy overrides the group's established sustainability reporting policy.
1.22GICS was not developed for climate-related reporting. Therefore, 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 system, applying GICS to sustainability disclosures could impair connectivity and consistency of financial information reported.
1.23While we recognise that the ISSB's proposed hierarchy seeks to promote comparability, a quality that contributes to useful information in sustainability-related reporting, we are also concerned about the challenges associated with options (a) to (c) of the hierarchy. These challenges may ultimately undermine, rather than support, the objective of paragraph 1 of IFRS S1, which requires entities to disclose information about sustainability-related risks and opportunities that is useful to primary users of general-purpose financial reports.
1.24In light of these concerns, the TAC recommends that the ISSB considers making option (d) the primary basis for determining classification systems. This option permits entities to classify counterparties by industry using classification systems that underpin their strategic decision-making initiatives, such as transition planning and net zero targets, and that are aligned with their regulatory and financial reporting. We believe this approach is principles-based and more closely aligned with the intent of paragraph 1 of IFRS S1 to provide users with decision-useful information.
Costs burdens and operational challenges
1.25GICS is a proprietary system and requires licensing fees, which may vary depending on the entity size and use case. Mandating its use increases costs to UK financial institutions that would be required to apply it across their groups.
1.26The requirement to use GICS throughout the group, simply because one part of the entity applies it, would result in parallel classification systems. This imposes undue cost to entities due to duplicative reporting, significant reconciliation demands and maintenance of fragmented internal systems.
Inconsistency with other ISSB's considerations
1.27Jurisdictional authorities and exchanges may require specific classification systems. While the ISSB has applied jurisdictional reliefs in other contexts (e.g., GHG Protocol Corporate Standard, global warming potential values), this principle is not consistently applied in the case of GICS as an entity would still be mandated to use GICS if a small part of it uses it despite the jurisdictional rules elsewhere requiring an alternative classification system.
Questionable comparability benefit
1.28Jurisdictional relief related to the use of GHG Protocol Corporate Standard and the application of GWP values, which the TAC supports, already impact the comparability of financed emissions disclosures. In this context, it is questionable whether mandating 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 enhance global comparability, given the variability introduced by jurisdictional reliefs associated with these emissions.
1.29We understand that the ISSB considers that use of GICS would not result in significant interoperability issues with ESRS E1 Climate change as the statistical classification of economic activities in the EU (NACE) can be mapped into GICS easily. However, this raises questions about the necessity of mandating GICS if it can yield comparable outcomes with other classification systems.
b) Do you agree that entities not using GICS should be required to disclose the industry-classification system used to disaggregate their financed emissions information and explain the basis for their industry-classification system selection? Why or why not?
1.30We support the requirement for entities not using GICS to disclose the industry system used and explain the basis for their industry-classification system selection. This enhances transparency and provides users with the necessary context for understanding reported emissions.
Question 3: Jurisdictional relief from using the GHG Protocol Corporate Standard
Do you agree with the proposed clarification that the existing jurisdictional relief from using the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) is permitted to an entity in whole or in part if a jurisdictional authority or an exchange on which it is listed mandates an alternative method? Why or why not?
1.31We support the clarification to the existing jurisdictional relief as it resolves interpretation uncertainty and mitigates the potential for inconsistent reporting practices that could affect comparability. It also reduces duplicative reporting if local regulations mandate alternative measurement methods.
1.32However, we recommend that the ISSB considers enhancing the disclosure requirements under this relief such that if an entity uses an alternative measurement method that significantly diverges from the GHG Corporate Standard it should clearly explain this and specify the parts of the entity that are affected.
Question 4: Applicability of jurisdictional relief for global warming potential values
Do you agree with the proposal to extend the jurisdictional relief that would allow an entity in whole or in part to use global warming potential (GWP) values that are mandated by a jurisdictional authority or exchange on which it is listed? Why or why not?
1.33We support the proposal to allow an entity in whole or in part to use GWP values mandated by a jurisdictional authority or exchange on which it is listed. This approach aligns with the relief provided under the GHG Protocol Corporate Standard and prevents duplicative calculations, particularly in multi-jurisdictional contexts.
1.34Similar to the GHG Protocol Corporate Standard relief, we recommend that the ISSB considers enhancing the disclosure requirements under this relief to require an entity that uses alternative GWP values that significantly diverge from the Intergovernmental Panel on Climate Change (IPCC) GWP values to clearly explain this and specify the parts of the entity that are affected.
Question 5: Effective date
Do you agree with the proposed approach for setting the effective date of the amendments and permitting early application? Why or why not?
1.35We support the proposed approach for setting an effective date that applies as soon as possible, with the option for early application. This would align with the ongoing implementation of IFRS S2 and streamline the process.
Question 6: Other comments
Do you have any other comments on the proposals set out in the Exposure Draft?
1.36As methodologies for Scope 3 Category 15 greenhouse gas emissions continue to evolve, we recommend that the ISSB works collaboratively with PCAF to ensure timely alignment and consistency in guidance for measuring and reporting these emissions.