The International Sustainability Standards Board (ISSB) has set out a series of measures designed to support those organisations looking to comply with its new Climate-related Disclosures Standard (S2) by disclosing their Scope 3 value chain emissions.
The new package of guidance and reliefs is designed to help embed and improve corporate processes for measuring and disclosing those Scope 3 greenhouse gas emissions which can be notoriously difficult to track.
At its October 2022 meeting, the ISSB confirmed the inclusion of Scope 3 disclosure in its draft Climate-related Disclosures Standard in response to feedback from investors that they cannot fully understand a company’s transition risk without information about both its direct Scope 1 and 2 emissions and its Scope 3 value chain emissions.
However, complex modern supply chains can make it difficult for firms to accurately track value chain emissions and as such the ISSB agreed it would provide guidance on how firms should implement processes to measure Scope 3 emissions under its standard.
As such, at its latest meeting last week, the ISSB agreed to set out a framework for the measurement of Scope 3 emissions that makes clear that reporting can be based on “reasonable and supportable information that is available without undue cost or effort” and can incorporate the use of estimation.
The update also confirmed a company will be able to include information that is not aligned with its reporting period, when that information is obtained from companies in its value chain that have a different reporting cycle.
However, it stressed that a company’s use of this framework would have to be accompanied by disclosures to enable investors to understand the methodology that had been used to measure of Scope 3 emissions.
In addition, the ISSB agreed a temporary exemption for a minimum of one year following the effective date of S2, designed to give time for companies to implement their Scope 3 disclosure processes.
“We recognise that companies need help, as best practice continues to develop, in measuring Scope 3 GHG emissions,” said Sue Lloyd, vice-chair of the ISSB. “The ISSB believes the reliefs and guidance agreed this week will provide companies with the time to get their processes in place, and the guidance to support this disclosure.”
The Board also confirmed that when disclosing Scope 2 emissions that relate to energy use, a company would be required to use the location-based method, reflecting the average emissions intensity of its local grid, along with relevant information about any energy contracts.
And it agreed to confirm and refine proposed requirements for disclosing financed emissions, approving plans for asset management and custody activities, commercial banks, and the insurance sector.
The latest meeting took place in Montreal alongside the COP15 Biodiversity Summit and the following feedback from investors the ISSB said it would not prioritise a new consultation on proposals for standards that cover biodiversity, ecosystems and ecosystem services and the ‘just transition’.
“Investors here at COP15, and through our ongoing engagement, have set out why they need better insights into biodiversity and ecosystem services that our global economy relies on, such as air and water purification, the provision of raw materials, and pest and flood control,” said Emmanuel Faber, chair of the ISSB. “Biodiversity underpins all human activities, including business, and as such has substantial implications for market participants. As we work relentlessly to deliver a global baseline of sustainability-related disclosures that meet capital markets needs, comprehensive biodiversity disclosure will be key.”
