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TAC Public Meeting December 2025 Paper 6: Financed emissions prior year balance sheet

AGENDA PAPER 6

Executive summary

Logo for the UK Sustainability Disclosure Technical Advisory Committee.


Date	09 December 2025
Paper reference	2025-TAC-056
Project	Technical assessment of IFRS S1 and IFRS S2
Topic	Financed emissions – using a prior year balance sheet for loans and investments

Objective of the paper

Following the absence of a written confirmation from the ISSB on whether UK banks could apply the impracticability mechanism in IFRS S2 paragraph B57 to not report current-year financed emissions due to challenging timeframes, the TAC is asked to reconsider its endorsement recommendations. Specifically, whether to maintain the current IFRS S2 reporting requirement or provide relief from it.

This paper also presents the feedback received from the UK Government consultation on the draft UK Sustainability Reporting Standards.

Decisions for the TAC

The TAC is asked to consider whether to amend its endorsement recommendations to the Secretary of State regarding the IFRS S2 requirement for banks to report current-year financed emissions based on loan and investment balances at the current reporting date.

If there is agreement to amend the endorsement recommendations, the TAC is asked to select and agree upon the new recommendations.

Appendices

Appendix 1 – Extract from the TAC's endorsement recommendations (December 2024)
Appendix 2 – Extracts from IFRS S1 and IFRS S2

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.

This publication contains copyright material of the IFRS Foundation® (Foundation). All rights reserved. Reproduced and distributed by the Financial Reporting Council (FRC) in its role as the secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) with the permission of the Foundation. No rights granted to third parties without permission of the Foundation and the TAC. For more information about the Foundation and the rights to use its materials please visit www.ifrs.org

Context

1This paper relates to a number of requirements in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These requirements are included in Appendix 2.

2In its December 2024 endorsement recommendations to the Secretary of State, the TAC recommended that the financed emissions requirements for banks be maintained, but that banks be allowed to utilise the proportionality mechanisms in IFRS S2 paragraph B57 to not report financed emissions for the current period. Instead, they would continue their current practice of reporting investees'/borrowers' prior period emissions based on prior period loans and investment balances only as additional information useful to users. This was based on the view that it is impracticable for the banks to estimate their financed emissions for a current reporting period due to compressed timeframe of about six weeks between the period end date and the publication date. The recommendation was conditional on the International Sustainability Standards Board (ISSB) providing a written acknowledgment that the impracticability provisions in IFRS S2 paragraph B57 can be applied by banks given these challenges.

3Since the publication of the endorsement recommendations, the ISSB has released guidance relating to the disclosure of greenhouse gas emissions. However, this guidance does not seem to specifically address the concerns of the TAC in respect of financed emissions.

4As the TAC's endorsement advice on financed emissions to the Secretary of State was contingent upon an acknowledgement from the ISSB, which was not received, the TAC has now been asked to revisit this matter. In addition, there has also been recent stakeholder feedback gathered through the formal consultation process by the UK Government on the draft UK Sustainability Reporting Standards (UK SRS) which closed on 17 September 2025.

5In the UK Government's consultation, many stakeholders indicated that they agreed with the TAC's assessment and believed that the current approach taken by banks is pragmatic and would result in decision-useful information.

6As a reminder, the TAC's Terms of Reference require the TAC to provide a technical assessment as to whether endorsing IFRS Sustainability Disclosure Standards would be conducive to the long-term public good in the UK. The TAC is required to assess whether:

use of the IFRS Sustainability Disclosure Standard is likely to result in an improvement in the international comparability of sustainability-related reporting in the UK;
use of the IFRS Sustainability Disclosure Standard is likely to support companies in making disclosures that are understandable, relevant, reliable and comparable;
use of the IFRS Sustainability Disclosure Standard is likely to improve the quality of corporate reporting within the UK in the long-term; and
companies are likely to be able to provide the disclosures required by the IFRS Sustainability Disclosure Standard within the timeframes that a company normally reports without undue cost or effort.

7The TAC may consider whether:

use of the IFRS Sustainability Disclosure Standard is likely to be conducive to the UK's economic growth and international competitiveness, taking into account the costs and benefits of compliance; and
the IFRS Sustainability Disclosure Standard is likely to be coherent with, and suitable for inclusion in, UK domestic legislation and regulation.

8According to the Terms of Reference, the TAC can only propose amendments to an IFRS Sustainability Disclosure Standard if:

changes are considered necessary for the effective application of the IFRS Sustainability Disclosure Standard within a UK context.
a failure to amend an IFRS Sustainability Disclosure Standard would be of detriment to the long-term public good in the UK, taking into consideration the matters in paragraph 6.
changes are desirable to build upon the material provided within the global baseline provided by an IFRS Sustainability Disclosure Standard. ¹

Analysis

Understanding the challenge highlighted by the TAC

9The challenges in disclosing financed emissions highlighted by the TAC in its December 2024 endorsement recommendations appear to have not been properly understood by several stakeholders. The description and example below attempt to clarify the issue.

Disclosing prior period financed emissions using prior period loans and investments balances

Note: The fact pattern that is presented here is a simplified example.

Although year-end processes vary across institutions, for the purposes of financed emissions, financial institutions would typically use the balance sheet (as at the reporting date) to ascertain its climate-related risk exposure. Loans and investments would be appropriately categorised by product type, sector and subsector.

Under current voluntary financed emissions reporting, institutions would typically classify loans and investments for certain sectors they choose to report, e.g. high-emitting sectors. In addition, institutions also run other processes, including various validation steps, to ensure accurate loans and investment balances are reported. These steps can take time depending on the volume and complexity of balances.

Having done the year end loans and investments closure and classification processes, institutions would calculate financed emissions using data collected directly from investees/borrowers, data obtained from data providers and/or modelled data. Due to the inevitable lag in collecting data from counterparties, the investee/borrower emissions data is typically from prior reporting periods.

Loans and investment balances as at the current reporting date would then be used to determine the attribution factor to be applied to the investee's/borrower's emissions data to determine the institution's share of emissions in accordance with the Partnership for Carbon Accounting Financials (PCAF) methodology.

With only six weeks between period-end and annual report publication date, banks find it difficult to request, collect, analyse and disclose current-period financed emissions on time. As a result, a common practice has developed among many large global banks to disclose the prior-period financed emissions derived from investee's/borrower's prior-period emissions data and prior-period loans and investment balances. This approach reflects the fact that prior-period emissions data is typically the most recent value chain data available. In addition, banks also consider it more meaningful to align the prior-period emissions data with loans and investments at the end of the same period, as they believe this provides a more consistent and decision-useful view of financed emissions.

For example, Company A's financed emissions report for the year ended 31 December 2024 would show the following disclosure:

Financed emissions in tCO2e (as at 31 December)

	2024	2023	2022
Sector A	-	350	395
Sector B	-	55	62

10Importantly, the following are not part of the concerns raised by the TAC:

The use of prior period emissions data as a proxy to estimate current reporting period: The TAC agrees that IFRS S2 permits prior period emissions data to be used to calculate emissions for the current period with some conditions applied.
Presenting prior period data as current year data: The TAC agrees that prior period emissions data cannot be presented as current period emissions data. If banks are disclosing prior period financed emissions data, then this should be clearly labelled as such.

11Notably, the ISSB's Transition Implementation Group (TIG) has indicated in previous discussions that there is no issue with using prior-year data as an estimate for the current year, provided the approach is consistent with the Scope 3 measurement framework outlined in IFRS S2 paragraphs B38–B57. This includes:

using a measurement approach, inputs and assumptions that result in faithful representation of this measurement; and
all reasonable and supportable information being available to the entity at the reporting date without undue cost or effort.

12Additional challenges have been observed. Currently, under voluntary reporting, financial institutions would determine which investments/loans are included in the financed emissions calculation. This means that some financial institutions will only disclose financed emissions for certain sectors. However, under IFRS S2 this would change as institutions are required to classify all sectors comprehensively.

13There is also a perspective that an investee's/borrower's total business emissions typically remain relatively stable year over year unless an aggressive decarbonisation strategy is in place. In such cases, prior-period emissions data can serve as a meaningful proxy for the current year emissions data. However, loan and investment balances can fluctuate significantly between periods due to new additions, repayments, and other movements. Therefore, using current period-end balances is more representative for determining the institution's share of investee/borrower emissions (based on prior-year data as a proxy) as at the current reporting date. This view is further reinforced by the preference of some investors to compare current-year emissions against a base year rather than relying solely on trends, thereby underscoring the importance of current-year data.

Previous TAC discussions and decisions

14The TAC has discussed this issue in several meetings. The TAC has also extensively discussed challenges relating to the timing of reporting and collecting data from the value chain. The following is a summary of the TAC's discussions and decisions that are relevant to this issue relating to financed emissions:

14.1It is expected that there will always be data lags in the calculation of financed emissions. This is not something that will improve with time or with more experience. The TAC noted that to improve transparency it is important to provide an explanation of the approach used when the timing of sustainability-related information does not align with financial reporting.

14.2Connectivity between financial information and sustainability information is vital, and therefore banks should make every effort to disclose information for the current reporting period.

14.3To the extent possible, coterminous reporting is essential and is, to a certain extent, already good practice in the UK. Where the timing is not aligned, it is important to provide an explanation of the approach used.

14.4Aligning the timing of sustainability-related reporting to financial reporting might give rise to additional cost and effort, especially in the early years of reporting, although this would be expected to improve over time.

14.5Sustainability disclosure requirements should not prevent entities from disclosing information within the timeframes in which they normally report without undue cost or effort.

14.6The importance of using estimates to report data if actual data is not readily available, but it is not always possible or appropriate to estimate certain information. If an entity collects information from a different reporting period or applies a significant number of estimates due to time lags in data collection, the entity should provide disclosures of these approaches in accordance with the requirements in IFRS S1 paragraphs 74 and 77 relating to the judgements applied in the process of preparing disclosures and the level of measurement uncertainty.

14.7The UK Government should consider the establishment of safe harbour protections for value chain disclosures in initial reporting periods.

Stakeholder feedback from DBT consultation

15In June 2025, the UK Government issued a consultation to seek views on the exposure drafts of UK SRS S1 and UK SRS S2. This consultation included the TAC's December 2024 endorsement recommendations.

16Question 2 of the consultation specifically asked if the industry practice to use the balance sheet for loans and investments from a previous period to calculate financed emissions (where it is impracticable to provide the information for the current reporting period end) would result in decision-useful information.

17Most respondents (including a few investors) agreed that the approach currently taken by banks is pragmatic and would result in decision-useful information. The reasons provided include:

It is the trends over time that are most decision-useful and therefore using the same approach year on year overrides the disadvantage of the time lag.
It allows for the balance sheet component of financed emissions reporting to match the underlying investee/borrower emissions data.
The current approach reflects the best available information at the time of reporting and enables entities to identify trends, highlight data gaps, and support informed decision-making.

18A few respondents (including some investors) disagreed with the approach currently taken by banks, noting:

Loans and investment balances are recognised at fair value and these can move in value significantly between periods.
Using a different reporting period goes against the principle of connectivity.
Previous period information does not provide the most effective assessment of a company's exposure in the current reporting period.

19Overall, it is evident from the responses to the UK SRS consultation that despite the implications for connectivity, most stakeholders agree with the approach that banks are currently taking to calculate and disclose financed emissions data.

What does the PCAF methodology require?

20The 2022 Partnership for Carbon Accounting (PCAF) methodology, which is the leading methodology for calculating financed emissions, requires financial institutions to use a fixed point in time (the date of the balance sheet) as the basis for the emissions. Page 39 of the PCAF methodology states:

As a basis for reporting emissions, financial institutions shall choose a fixed point in time to determine their lending and investment positions, such as the last day of its fiscal year (e.g., 30 June or 31 December), to calculate an attribution factor. The GHG accounting period shall align with the financial accounting period.

21However, noting the challenges with collecting emissions data from counterparties, page 42 of the PCAF methodology also states:

PCAF recognizes that there is often a lag between financial reporting and the reporting of required emissions-related data for the borrower or investee. In these instances, financial institutions should use the most recent data available even if it is representative of different years, with the intention of aligning as much as possible. For example, it would be expected and appropriate that a financial institution's reporting in 2020 for its 2019 financial year would use 2019 financial data alongside 2018 (or other most recent) emissions data. [Emphasis added]

22As part of the overall reporting requirements and recommendations on page 124, the PCAF methodology states:

Frequency: Financial institutions shall disclose at least annually and at a fixed point in time in line with the financial accounting cycle. Financial institutions shall ensure that the chosen point in time provides a representative view on the emissions for that reporting year and shall transparently disclose if large changes close to (before/after) the reporting date affected the results. [Emphasis added]

23However, as part of the methodology outlined in the 'Business loan and unlisted equity' section, pages 72 and 73 of the PCAF methodology also state:

As described, PCAF distinguishes three options to calculate the financed emissions from business loans and unlisted equity depending on the emissions data used:

Option 1: reported emissions

Option 2: physical activity-based emissions

Option 3: economic activity-based emissions

While Options 1 and 2 are based on company-specific reported emissions or primary physical activity data provided by the borrower or investee company or third-party data providers, Option 3 is based on region- or sector-specific average emissions or financial data obtained from public data sources such as statistics or data from other third-party providers.

Options 1 and 2 are preferred over Option 3 from a data quality perspective because they provide more accurate emissions results to a financial institution. Due to data limitations, financial institutions might use Options 1 or 2 for certain companies and Option 3 for others. The data quality mix shall be reflected in the average data quality score, as Chapter 6 illustrates.

24It is not clear whether the current approach taken by banks is permissible according to the PCAF methodology.

25It is also important to note that for many financial institutions, the disclosure of financed emissions is relatively new, and practice still needs to evolve. The PCAF methodology is also relatively new and further testing in the market may be required.

26It is also noted that financial institutions that apply the PCAF methodology on financed emissions do so on a voluntary basis. While various jurisdictions require climate-related reporting by financial institutions, the TAC Secretariat has not identified any jurisdiction that mandates the use of PCAF. The European Sustainability Reporting Standard (ESRS) E1 Climate Change paragraph AR46 states that entities may consider PCAF for financed emissions. As a result, there is currently some diversity in practice in the way financed emissions are reported by financial institutions.

Current practice of reporting financed emissions

27In its 2025 report on banks sustainability-related disclosures, KPMG benchmarked 33 global banks' sustainability-related disclosures ² for the 2024 reporting cycle. On page 6 of this report, KPMG observed that 57% of banks in its sample disclosed financed emissions data with a lag of at least 12 months. The remaining banks in the sample either aligned the financed emissions data with the current financial reporting period or used a mixed approach. It is not clear from this report what the mixed approach entails or how many banks use this approach. Additionally, KPMG also observed that 73% of banks in its sample released their sustainability-related disclosures simultaneously with their annual report, whereas 3% published within the month and 24% published more than one month later.

28To better understand how significant the challenge is and the diversity in practice, the TAC Secretariat conducted desk-based research on current practice by banks not only in the UK, but in other major jurisdictions.

29In the UK, most banks that were reviewed use prior year balance sheet data for their loans and investment balances and prior year investee/borrower emissions to determine their share of financed emissions. These banks then label this accordingly as prior year financed emissions data. Thus, they do not report financed emissions for the current year of reporting. The TAC Secretariat identified that this approach is also common among major financial institutions in Canada, Australia and Japan.

30However, the TAC Secretariat also noted that a small number of banks in the UK are estimating and reporting current-year financed emissions using prior year emissions data as a proxy. Additionally, European banks are taking this approach, which is in compliance with the requirements in ESRS E1.

IFRS 9 - Expected Credit Losses considerations

31Some stakeholders have drawn parallels between the financed emissions process and the expected credit losses (ECL) process under IFRS 9 Financial Instruments, especially in relation to the condensed timeframe between finalisation of the balance sheet and completion of the calculations. Discussions with stakeholders experienced in the ECL process in banking suggest that, while the ECL framework could theoretically serve as inspiration for financed emissions, there are significant practical differences.

32The ECL process is well-established, highly automated, and has been refined over several years since its implementation. In contrast, the financed emissions process remains largely manual for many institutions. ECL modelling for year-end reporting is data-driven and tailored to the financial institution's own data, whereas financed emissions lack standardised models and rely heavily on third-party data availability.

33Another key distinction is that the ECL process tracks individual loans, while financed emissions relate to entity-wide emissions of the investee/borrower. This becomes particularly challenging when investees/borrowers have complex corporate structures, operate across multiple jurisdictions, and have different reporting periods. Consequently, obtaining reliable emissions data from investees/borrowers is far more challenging than gathering data for ECL calculations.

34Therefore, it may not always be possible to infer that banks are able to fully draw from their experiences in calculating ECL when calculating financed emissions.

Further considerations

35The TAC previously discussed several provisions within IFRS S1 and IFRS S2, specifically:

IFRS S2 paragraph B19 allowing entities to use GHG emissions data from a different reporting period if such data is obtained from value chain entities whose reporting periods differ from the entity's own.
IFRS S2 paragraph B39 requiring entities to use all reasonable and supportable information available at the reporting date, without undue cost or effort, when selecting the measurement approach, inputs, and assumptions for Scope 3 GHG emissions.
IFRS S2 Scope 3 measurement framework that recognises that entities must exercise judgement in determining inputs for Scope 3 emissions, including trade-offs between timely data and data directly collected from specific activities within the value chain.
IFRS S2 paragraph B57 permitting entities to not report Scope 3 data if estimating such emissions is deemed impracticable.

36However, most TAC members consider these provisions not applicable to the specific challenge of aligning loan and investment balance dates with corresponding investee/borrower emissions data for the purpose of determining financed emissions for reporting.

37Although PCAF is the leading methodology, there are questions as to whether the process applied by banks is necessarily the most effective. For example, banks could collect emissions data from borrowers at initiation of the loan which then can be used with the current year balance sheet. This approach could remove the need to collect emissions data from counterparties after the close of the balance sheet.

38The TAC might also consider the implications of revising financed emissions comparatives due to changes in estimates, discussed further in TAC paper 2025-TAC-057. The decisions made in this paper might affect the discussion in TAC paper 2025-TAC-057.

Summary of the analysis

39Based on the new information obtained from the UK Government consultation on the draft UK SRS and additional desktop research, three things are evident:

The current practice used by banks to disclose their financed emissions is not permitted by IFRS S1 and IFRS S2 (and therefore UK SRS S1 and UK SRS S2) if the banks need to demonstrate compliance with reporting Scope 3 GHG emissions.
Drawing from the experience of IFRS 9's ECL process, banks could potentially adapt their financed emissions methodologies such that they can use current period end loans and investment balances together with investees'/borrowers' prior-period emissions data to estimate current-period financed emissions.
Some stakeholders broadly support the current reporting practice used by many banks on financed emissions noting that this is a pragmatic approach that results in decision-useful information.

40Although it might be technically possible for banks to estimate and report current year financed emissions using prior period counterparty emissions data, the TAC is asked to consider whether the benefit of this approach outweighs the cost and effort that would be required. Additionally, the TAC is asked to consider whether following the approach in IFRS S1 and IFRS S2, as opposed to the current practice that is being used, will improve the quality of reporting in relation to financed emissions.

41A summary of the endorsement criteria is outlined in the table below, including an assessment of whether the requirements in IFRS S1 and IFRS S2 in relation to financed emissions meets the endorsement criteria.

Endorsement criteria	In relation to the disclosures of financed emissions, would the implementation of IFRS S1 and IFRS S2 meet the endorsement criteria?
The use of the IFRS Sustainability Disclosure Standard is likely to result in an improvement in the international comparability of sustainability-related reporting in the UK.	Yes.
	Maintaining the global baseline will improve international comparability of disclosures as financial institutions will have some consistency over the way they report financed emissions year on year.
The use of the IFRS Sustainability Disclosure Standard is likely to support companies in making disclosures that are understandable, relevant, reliable and comparable.	Partially.
	There are conflicting views on whether changing the approach currently taken by many banks (of using prior period loans/ investment balances) will result in information that is more
understandable, relevant, reliable and comparable.
The use of the IFRS Sustainability Disclosure Standard is likely to improve the quality of corporate reporting within the UK in the long-term.	Partially.
	There are conflicting views on whether the requirements in IFRS S1 and IFRS S2 would lead to better quality reporting that serves the needs of investors.
Companies are likely to be able to provide the disclosures required by the IFRS Sustainability Disclosure Standard within the timeframes that a company normally reports without undue cost or effort.	No.
	Although UK listed banks have four months from the reporting period end to issue their annual report (and for those listed in the US three months), the common practice for most is to issue their annual report within six weeks from the year end date. Requiring banks to change their approach to financed emissions will likely affect their ability to report within their usual timeframes, potentially incurring significant cost and effort to meet the required deadlines.
Additional criteria
Whether use of the IFRS Sustainability Disclosure Standard is likely to be conducive to the UK's economic growth and international competitiveness, taking into account the costs and benefits of compliance.	Partially.
	As noted by stakeholders, the cost and effort of compliance may outweigh the benefit. It should be noted that some jurisdictions have introduced additional temporary relief from Scope 3 emissions reporting. For example, in Canada, entities are not required to report Scope 3 emissions for the first three years of reporting while in New Zealand entities have four years of relief from reporting Scope 3 emissions.
Whether the IFRS Sustainability Disclosure Standard is likely to be coherent with, and suitable for inclusion in, UK domestic legislation and regulation.	Yes.
	There is no current UK domestic legislation or regulation that would be affected by these requirements.

42Considering the criteria outlined in paragraph 6, the TAC will need to consider whether to endorse the requirements in IFRS S1 and IFRS S2 (and therefore UK SRS S1 and UK SRS S2) relating to financed emissions. The options for the TAC to consider are outlined below.

Endorsement recommendations

Previous recommendations

Endorsement recommendation

The TAC recommends that the ISSB provide written clarification to acknowledge that where a reporting entity determines it is impracticable to provide a reliable and decision-useful estimate of its financed emissions using loans and investments for the current reporting period end due to constrained timelines, that the current industry practice of reporting financed emissions using the latest available reliable information for a previous period, clearly labelled as such, is not inconsistent with the requirements of IFRS S1 and IFRS S2. This information can provide users with the most recent reliable information which is considered to be decision-useful for the reporting entity and users of the information. Note that the reporting entity would always be required under these circumstances to disclose how it is managing its Scope 3 greenhouse gas emissions in accordance with IFRS S2 paragraph B57, and the financed emissions information for a previous reporting period would be considered additional information.

In the absence of this written acknowledgement from the ISSB, the TAC recommends that the PIC considers the need for such an acknowledgement for UK entities to avoid undue cost and effort.

However, there are differing views on these recommendations.

Additional recommendations and observations

43The TAC recommends that the development of practice of reporting financed emissions is monitored and fed back to the ISSB when it conducts its post-implementation review of IFRS S2.

44The full December 2024 endorsement recommendations regarding financed emissions and the timing of reporting are included in Appendix 1.

Options for the TAC to consider

45In light of the new information we have received and described in this paper, the TAC is asked to amend their endorsement recommendation. The TAC is asked to discuss and decide on which option(s), if any, to take forward.

46The TAC is reminded that they are able to propose an amendment to an IFRS Sustainability Disclosure Standard if:

changes are considered necessary for the effective application of the IFRS Sustainability Disclosure Standard within a UK context.
a failure to amend an IFRS Sustainability Disclosure Standard would be of detriment to the long-term public good in the UK, taking into consideration the matters in paragraph 6.
changes are desirable, to build upon the material provided within the global baseline provided by an IFRS Sustainability Disclosure Standard. ³

47The following options are provided to the TAC for discussion:

47.1Option 1 – recommend that the requirements in IFRS S2 are maintained with no amendment and acknowledge that this would require a significant shift for banks.

Although this approach does not address the concerns of banks, it would maintain the global baseline. Stakeholders have been clear that limited amendments in the UK are the preferred option.

47.2Option 2 – revert to an earlier tentative decision made by TAC members, which was to recommend amendments to IFRS S1 and IFRS S2 that did not significantly change the requirements, but focused on increasing transparency.

This approach would maintain the ambition within the standards that data is disclosed for the current year, whilst giving flexibility to allow practice to evolve. This approach recognises the challenges of calculating financed emissions and that there will always be a lag in financed emissions data from investees/borrowers, but encourages more transparency about the approach banks take.

The TAC agreed the following amendments to IFRS S1 and IFRS S2 relating to the financed emissions requirements.

Suggested amendments to IFRS S1 using wording borrowed from IFRS S1 paragraphs 25 and 70:

64An entity shall report its sustainability-related financial disclosures at the same time as its related financial statements. The entity's sustainability-related financial disclosures shall cover the same reporting period as the related financial statements, unless another IFRS Sustainability Disclosure Standard permits otherwise in specified circumstances.

Suggested amendment to IFRS S2 paragraphs B61, B62 and B63 (collectively):

An entity... shall disclose:

the methodology used to calculate the financed emissions, including the method of allocation the entity used to attribute its share of emissions in relation to the ~~[size of investments/size of its gross exposure]~~ and the reporting date of ~~[investments/gross exposure]~~ used to calculate the financed emissions if the entity determines it is impracticable to use ~~[investments/gross exposure]~~ for the current reporting period.

47.3Option 3 – introduce a temporary relief from disclosing information for the current reporting period specifically for financed emissions. This relief would permit financial institutions to use a different reporting period for a limited period of time. This relief would not have a specific time limit, but would be reconsidered by the UK Government when conducting a post implementation review.

This approach would provide banks with the flexibility they are requesting, whilst giving them sufficient time to change the methodology and start reporting in line with the same reporting period that is used for financial reporting.
The TAC Secretariat recommends no time limit within the standard, but recommends that the UK Government revisits this issue when conducting a post implementation review of UK SRS 2.

47.4Option 4 extend the existing relief for reporting Scope 3 emissions. Currently draft UK SRS only requires Scope 3 reporting from the second year of reporting, but this could be extended.

Recognising that there would be significant implementation cost for banks to change the way they calculate financed emissions, an extended relief period for Scope 3 could be useful. It would not be appropriate to extend the relief period for just one Scope 3 category, and therefore a broader extension would be most appropriate.
This option could be viewed as a compromise, as it acknowledges the concerns of banks but also maintains the ambition in IFRS S1 for sustainability-related information to be disclosed for the same reporting period as used for financial reporting.

47.5Option 5 – reach out to PCAF to ask them to provide input on this issue. PCAF methodology requires financial institutions to use the balance sheet as the basis for the financed emissions calculations. Additionally, the wording in the methodology could be interpreted in different ways, and therefore it would be appropriate for PCAF to provide further information to address this issue.

Questions for the TAC

Does the TAC agree to amend its December 2024 endorsement recommendations to the Secretary of State regarding the application of IFRS S2 paragraph B57, allowing institutions to use prior-year loans and investment balances to estimate financed emissions instead of current period-end balances due to impracticability arising from time constraints?
If the answer to question (i) is 'yes', which of the options (if any) does the TAC want to recommend to the Secretary of State?

Appendix 1 – Extract from the TAC's endorsement recommendations (December 2024)

Greenhouse gas emissions: financed emissions

Endorsement recommendation

The TAC recommends that the financed emissions requirements in IFRS S2 are amended so that entities are not required to use GICS when disaggregating gross financed emissions by sector/industry classification but might use GICS or a different classification system they use for existing regulatory or financial reporting purposes. The proposed amendments can be found in Appendix 5.

The TAC recommends that the ISSB provide written clarification to acknowledge that where a reporting entity determines it is impracticable to provide a reliable and decision-useful estimate of its financed emissions using loans and investments for the current reporting period end due to constrained timelines, that the current industry practice of reporting financed emissions using the latest available reliable information for a previous period, clearly labelled as such, is not inconsistent with the requirements of IFRS S1 and IFRS S2. This information can provide users with the most recent reliable information which is considered to be decision-useful for the reporting entity and users of the information. Note that the reporting entity would always be required under these circumstances to disclose how it is managing its Scope 3 greenhouse gas emissions in accordance with IFRS S2 paragraph B57, and the financed emissions information for a previous reporting period would be considered additional information.

In the absence of this written acknowledgement from the ISSB, the TAC recommends that the PIC considers the need for such an acknowledgement for UK entities to avoid undue cost and effort.

However, there are differing views on these recommendations.

Additional recommendations and observations

183The TAC observes that entities should use existing guidance provided by established industry standards on the expected level of coverage of emissions included in financed emissions disclosures and suggests to the ISSB that this could be an area that is considered as part of the development of the ISSB's industry-based standards.

184The TAC observes that, consistent with IFRS S1 paragraphs B29 and B30, entities should disaggregate their assets under management financed emissions disclosures consistently with the accounting treatment of those assets, e.g. distinguishing between assets that are owned and controlled by the entity and by assets that are not owned or controlled by the entity.

185The TAC recommends that the development of global frameworks and standards for the calculation of financed emissions for different financial products is an area for continued monitoring as practice is established.

186The TAC observes that in accordance with IFRS S2 paragraph 29(a)(iii) entities should disclose appropriate explanation and context as to why disaggregated financed emissions figures are disclosed.

187The TAC observes that comparability and consistency in the calculation of financed emissions for undrawn facilities is likely to be challenging given the divergent practices and current lack of available guidance.

188The TAC recommends that the development of practice of reporting financed emissions is monitored and fed back to the ISSB when it conducts its post-implementation review of IFRS S2.

Technical assessment and deliberations

189IFRS S2 paragraphs B58–B63 set out requirements for the disclosure of financed emissions.

190Subject to the recommendations below, the TAC broadly supports the requirements related to financed emissions, but recognises that this is a developing area of practice.

191Firstly, the TAC recommends that IFRS S2 paragraphs B62 and B63, which require commercial banks and insurers to use the GICS when disaggregating gross financed emissions by sector/industry classification, are amended to allow entities to select a more appropriate approach, for example, a classification standard they already use for existing regulatory or financial reporting (e.g. Basel Pillar 3 or ICB). There are several alternative industry classification standards used by UK entities and mandating the use of one specific commercial standard over others might increase costs to entities. Additionally, allowing entities to use an approach that they already use for existing regulatory reporting will improve consistency within entities' own reporting and enable connectivity. Lastly, the use of GICS does not align with the SASB's own classification system, SICS, which is being used by some other initiatives in an attempt to align with the ISSB. Although there were differing views, the TAC considers that the recommended amendment would support more flexibility in the use of classification standards rather than mandating only one. As entities are still in the early stages of reporting in this area, proposing more flexibility in the approach used is not expected to hamper comparability.

192IFRS S1 paragraph 64 states that 'the entity's sustainability-related financial disclosures shall cover the same reporting period as the related financial statements.' Additionally, IFRS S2 paragraphs 29(a)(i)(3) and B59 require an entity to disclose 'its absolute gross Scope 3 greenhouse gas emissions generated during the reporting period'. Estimation of financed emissions by financial institutions involves counterparty level analysis and data gathering based on loans and investments as at the calculation date. As a finalised position of loans and investments is required as the first step in the financed emissions calculation, the short time span between finalisation of the balance sheet at the financial reporting period end and publication of the annual report may not allow sufficient time for the estimation of financed emissions using the current reporting period end. As a result, given the complexity of the process for estimating financed emissions, these entities might not always be able to compile financed emissions data using the current period end balance sheet within the limited time available, which can typically be only six weeks from the balance sheet date to publication date. Consequently, they typically rely on the most recent available loans and investments information from a previous period as the best data available at the reporting date for the purposes of financed emissions reporting. This current practice accords with IFRS S2 B39 which states that ‘an entity is required to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort when the entity selects the measurement approach, inputs and assumptions it uses in measuring Scope 3 greenhouse gas emissions.'

193The TAC recognises that other provisions within IFRS S2 could be used to support entities in estimating Scope 3 greenhouse gas emissions, but these provisions might not fully resolve the issue of being able to provide reliable financed emissions information for the current reporting period end, as representative of emissions generated during the current reporting period. IFRS S2 paragraph B57 states: 'This Standard includes the presumption that Scope 3 greenhouse gas emissions can be estimated reliably using secondary data and industry averages. In those rare cases when an entity determines it is impracticable to estimate its Scope 3 greenhouse gas emissions, the entity shall disclose how it is managing its Scope 3 greenhouse gas emissions. Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.' Given the condensed reporting timeframe for some financial institutions and the number of inputs and data points required for the calculation of financed emissions, it might be impracticable for these entities to provide a reliable and decision-useful estimate using loans and investments for the current reporting period end. The current industry practice of reporting financed emissions for a previous period, clearly labelled as such (e.g., prior year end or an interim period end), can provide the most recent reliable information which is considered to be decision-useful for the reporting entity and users of the information.

194In accordance with IFRS S2 paragraph B57, and while industry practice develops, where a reporting entity determines that it is impracticable in these circumstances to reliably estimate its Scope 3 greenhouse gas emissions for the current reporting period, in addition to disclosing how it manages Scope 3 greenhouse gas emissions it might also disclose financed emissions information for a previous reporting period as the most reliable information currently available. In this case, the entity should disclose the reporting period used.

195Therefore, the TAC recommends that the ISSB provides written clarification to acknowledge that the above interpretation is not inconsistent with the requirements of IFRS S1 and IFRS S2. In the absence of this written acknowledgement from the ISSB, the TAC recommends that the PIC considers the need for such an acknowledgement for UK entities to avoid undue cost and effort. The TAC also emphasises that the preferred approach would be for entities to report financed emissions information that covers the same reporting period as the related financial statements, which facilitates connectivity. Further, the TAC recommends that the development of practice is monitored and fed back to the ISSB when it conducts its post-implementation review of IFRS S2.

196The TAC observes that in relation to the financed emissions disclosures of assets under management, whether an entity owns or controls another entity should be aligned with the financial accounting treatment. If an entity is included in the financial consolidation as per IFRS 10 Consolidated Financial Statements, then for sustainability reporting purposes that entity would be considered to be controlled by the reporting entity. The TAC also notes that, consistent with IFRS S1 paragraph B29 and B30, entities should disaggregate their assets under management financed emissions disclosures consistent with the accounting treatment of those assets. That is, distinguishing between assets that are owned and controlled by the entity and those that are not owned or controlled by the entity.

197There is currently no standardised methodology for the calculation of financed emissions for undrawn facilities and therefore it is expected that there is likely to be diversity in practice which will compromise comparability and consistency. Therefore, the TAC notes the importance of entities disclosing the methodology and assumptions they have used in their calculations to support comparability.

198The TAC notes that the current flexibility in IFRS S2 that allows entities to determine their approach to calculating financed emissions is appropriate. This flexibility allows market practice to develop and new approaches to emerge and innovate. UK stakeholders have referenced the materials from Partnership for Carbon Accounting Financials (PCAF) as a useful framework and some stakeholders have requested that more explicit references to the PCAF guidance be made in IFRS S2. Given the nascent nature of financed emissions disclosure and the continuing development of the PCAF framework, the TAC is in agreement that it is appropriate to retain the flexibility that currently exists in IFRS S2 for financial institutions to use PCAF if they find it useful and appropriate, but also to be able to explore other approaches that might develop over time. The TAC recommends that the development of global frameworks and standards for the calculation of financed emissions for different financial products is an area for continued monitoring as practice is established.

199IFRS S2 requires the disclosure of financed emissions disaggregated by Scope 1, Scope 2 and Scope 3 emissions. While this breakdown is intended to provide more granular information to investors, if appropriate context and explanation is not provided alongside the disclosure, it might not be clear that the Scope 1 and Scope 2 figures being disclosed are not the Scope 1 and Scope 2 figures of the reporting entity itself. The TAC notes that in accordance with IFRS S2 paragraph 29(a)(iii) entities should disclose appropriate explanation and context as to why disaggregated financed emissions figures are disclosed. Additionally, further explanation and context about the disclosure would be helpful to users as it is not always possible for this information to be disaggregated if it is not available from entities in the value chain.

Appendix 2 – Extracts from IFRS S1 and IFRS S2

The extracts below from IFRS S1 and IFRS S2 set out the relevant requirements that relate to financed emissions and are discussed in this paper.

Timing of reporting

Appendix B Application guidance

Greenhouse gas emissions

Permission to use information from a reporting period that is different from the entity's reporting period, in specific circumstances

B19An entity might have a different reporting period from some or all of the entities in its value chain. Such a difference would mean that greenhouse gas emissions information from these entities in its value chain for the entity's reporting period might not be readily available for the entity to use for its own disclosure. In such circumstances, the entity is permitted to measure its greenhouse gas emissions in accordance with paragraph 29(a)(i) using information for reporting periods that are different from its own reporting period if that information is obtained from entities in its value chain with reporting periods that are different from the entity's reporting period, on the condition that:

the entity uses the most recent data available from those entities in its value chain without undue cost or effort to measure and disclose its greenhouse gas emissions;
the length of the reporting periods is the same; and
the entity discloses the effects of significant events and changes in circumstances (relevant to its greenhouse gas emissions) that occur between the reporting dates of the entities in its value chain and the date of the entity's general purpose financial reports.

Scope 3 greenhouse gas emissions

B37An entity that participates in one or more financial activities associated with asset management, commercial banking and insurance shall disclose additional information about the financed emissions associated with those activities as part of the entity's disclosure of its Scope 3 greenhouse gas emissions (see paragraphs B58–B63).

Scope 3 measurement framework

B38An entity's measurement of Scope 3 greenhouse gas emissions is likely to include the use of estimation rather than solely comprising direct measurement. In measuring Scope 3 greenhouse gas emissions an entity shall use a measurement approach, inputs and assumptions that result in a faithful representation of this measurement. The measurement framework described in paragraphs B40–B54 provides guidance for an entity to use in preparing its Scope 3 greenhouse gas emissions disclosures.

B39An entity is required to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort when the entity selects the measurement approach, inputs and assumptions it uses in measuring Scope 3 greenhouse gas emissions.

B40An entity's measurement of Scope 3 greenhouse gas emissions relies upon a range of inputs. This Standard does not specify the inputs the entity is required to use to measure its Scope 3 greenhouse gas emissions, but does require the entity to prioritise inputs and assumptions using these identifying characteristics (which are listed in no particular order):

data based on direct measurement (paragraphs B43–B45);
data from specific activities within the entity's value chain (paragraphs B46–B49);
timely data that faithfully represents the jurisdiction of, and the technology used for, the value chain activity and its greenhouse gas emissions (paragraphs B50–B52); and
data that has been verified (paragraphs B53–B54).

B41An entity is required to apply the Scope 3 measurement framework to prioritise inputs and assumptions even when the entity is required by a jurisdictional authority or an exchange on which the entity is listed to use a method other than the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) for measuring its greenhouse gas emissions (see paragraphs B24-B25), or whether the entity uses the transition relief described in paragraph C4(a).

B42An entity's prioritisation of the measurement approach, inputs and assumptions and the entity's considerations of associated trade-offs—based on the characteristics in paragraph B40—requires management to apply judgement. For example, an entity might need to consider the trade-offs between timely data and data that is more representative of the jurisdiction and technology used for the value chain activity and its emissions. More recent data might provide less detail about the specific activity, including the technology that was used in the value chain and the location of that activity. On the other hand, older data that is published infrequently might be considered more representative of the specific activity and its greenhouse gas emissions.

B57This Standard includes the presumption that Scope 3 greenhouse gas emissions can be estimated reliably using secondary data and industry averages. In those rare cases when an entity determines it is impracticable to estimate its Scope 3 greenhouse gas emissions, the entity shall disclose how it is managing its Scope 3 greenhouse gas emissions. Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.

Financed emissions

B59Paragraph 29 (a)(i)(3) requires an entity to disclose its absolute gross Scope 3 greenhouse gas emissions generated during the reporting period, including upstream and downstream emissions. An entity that participates in one or more of the following financial activities is required to disclose additional and specific information about its Category 15 emissions or those emissions associated with its investments which is also known as 'financed emissions':

asset management (see paragraph B61);
commercial banking (see paragraph B62); and
insurance (see paragraph B63).

B60An entity shall apply the requirements for disclosing greenhouse gas emissions in accordance with paragraph 29(a) when disclosing information about its financed emissions.

Asset management

B61An entity that participates in asset management activities shall disclose:

its absolute gross financed emissions, disaggregated by Scope 1, Scope 2 and Scope 3 greenhouse gas emissions.
for each of the disaggregated items in paragraph B61(a), the total amount of assets under management (AUM) that is included in the financed emissions disclosure, expressed in the presentation currency of the entity's financial statements.
the percentage of the entity's total AUM included in the financed emissions calculation. If the percentage is less than 100%, the entity shall disclose information that explains the exclusions, including types of assets and associated amount of AUM.
the methodology used to calculate the financed emissions, including the method of allocation the entity used to attribute its share of emissions in relation to the size of investments.

Commercial banking

B62An entity that participates in commercial banking activities shall disclose:

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:
1. industry—the entity shall use 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.
2. asset class—the disclosure shall include loans, project finance, bonds, equity investments and undrawn loan commitments. If the entity calculates and discloses financed emissions for other asset classes, it shall include an explanation of why the inclusion of those additional asset classes provides relevant information to users of general purpose financial reports.
its gross exposure to each industry by asset class, expressed in the presentation currency of the entity's financial statements. For:
1. funded amounts—gross exposure shall be calculated as the funded carrying amounts (before subtracting the loss allowance, when applicable), whether prepared in accordance with IFRS Accounting Standards or other GAAP.
2. undrawn loan commitments—the entity shall disclose the full amount of the commitment separately from the drawn portion of loan commitments.
the percentage of the entity's gross exposure included in the financed emissions calculation. The entity shall:
1. if the percentage of the entity's gross exposure included in the financed emissions calculation is less than 100%, disclose information that explains the exclusions, including the type of assets excluded.
2. for funded amounts, exclude from gross exposure all impacts of risk mitigants, if applicable.
3. disclose separately the percentage of its undrawn loan commitments included in the financed emissions calculation.
the methodology the entity used to calculate its financed emissions, including the method of allocation the entity used to attribute its share of emissions in relation to the size of its gross exposure.

Insurance

B63An entity that participates in financial activities associated with the insurance industry shall disclose:

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:
1. industry—the entity shall use 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.
2. asset class—the disclosure shall include loans, bonds and equity investments, as well as undrawn loan commitments. If the entity calculates and discloses financed emissions for other asset classes, it shall include an explanation of why the inclusion of those additional asset classes provides relevant information to users of general purpose financial reports.
the gross exposure for each industry by asset class, expressed in the presentation currency of the entity's financial statements. For:
1. funded amounts—gross exposure shall be calculated as the funded carrying amounts (before subtracting the loss allowance, when applicable), whether prepared in accordance with IFRS Accounting Standards or other GAAP.
2. undrawn loan commitments—the entity shall disclose the full amount of the commitment separately from the drawn portion of loan commitments.
the percentage of the entity's gross exposure included in the financed emissions calculation. The entity shall:
1. if the percentage of the entity's gross exposure included in the financed emissions calculation is less than 100%, disclose information that explains the exclusions, including type of assets excluded.
2. disclose separately the percentage of its undrawn loan commitments included in the financed emissions calculation.
the methodology the entity used to calculate its financed emissions, including the method of allocation the entity used to attribute its share of emissions in relation to the size of its gross exposure.

The TAC may only propose amendments under this condition upon request from DBT or where UK stakeholders raise a strong need. ↩
Banks in the sample were from USA, Canada, Brazil, UK, Europe, India, China, Japan and Australia. ↩
The TAC may only propose amendments under this condition upon request from DBT or where UK stakeholders raise a strong need. ↩

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