The International Sustainability Standards Board (ISSB) has proposed amendments to its climate disclosure standard, IFRS S2, offering relief to financial institutions reporting Scope 3 greenhouse gas emissions. The ISSB Scope 3 updates aim to simplify compliance while ensuring investors still receive essential transparency about emissions impacts. However, the move has sparked a debate surrounding the balance between reporting pragmatism and the integrity of corporate sustainability data.
About the ISSB standards
The ISSB was launched in November 2021 at the COP26 climate conference, with the ultimate goal of developing IFRS Sustainability Disclosure Standards to give investors clarity about companies’ sustainability opportunities and risks. In June 2023, the IFRS published its first set of standards for general sustainability (IFRS S1) and climate-specific reporting (IFRS S2). To date, over 35 jurisdictions have begun the process of using the standards.
Amendments to the ISSB Scope 3 standards
The ISSB’s proposed Scope 3 amendments respond to market input by tackling implementation difficulties, aiming to streamline business compliance while preserving the value of emissions information for investor decision-making, rather than diminishing greenhouse gas disclosure requirements.
The ISSB Vice-Chair, Sue Lloyd, explained the rationale: “It is the role of a responsible standard-setter to listen to market feedback from the earliest implementation stages… we have taken steps to respond in a timely manner by proposing targeted amendments helping preparers where possible.”
One of the key proposed amendments to the climate-related disclosure standard is an amendment to the Scope 3 Category 15 emissions. This category focuses on value chain emissions relating to investments like financial services companies’ investment, financing and capital market activities.
Under the suggested amendment, organisations would be allowed to narrow their reporting to financed emissions only, excluding emissions linked to derivatives, insurance activities, or those they facilitate. The ISSB’s proposal also includes a new requirement for companies to report the volume of derivatives or other financial activities they’re omitting from their Scope 3 disclosures.
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How the changes to ISSB Scope 3 requirements will impact financial sector disclosures
The ISSB Scope 3 proposal would notably reduce the immediate data burden on financial institutions. Scope 3 category 15 emissions are among the most challenging to report due to difficulties in tracing carbon impact through multi-layered financial instruments.
For example, derivatives, which represent financial exposure rather than ownership, pose a unique measurement challenge. Similarly, facilitated emissions, such as those linked to capital raising or underwriting services, are difficult to attribute. By allowing these categories to be excluded from disclosure, the ISSB offers practical relief without abandoning the principle of transparency.
Additionally, the proposed amendments include:
- Relief from using the Global Industry Classification Standard (GICS) in some circumstances when disclosing financed emissions for banks and insurers.
- Flexibility in GWP values, allowing entities to use jurisdiction-required metrics that deviate from the latest IPCC standards.
- Clarification on alternative measurement methods for GHG emissions if mandated by local regulators instead of the Greenhouse Gas Protocol.
Market reception and strategic considerations
The ISSB’s approach aligns with a broader trend of adaptive standard-setting. It acknowledges that widespread adoption depends not just on the ambition of the standard but also on its feasibility across industries and jurisdictions. For financial institutions, which have long struggled with Scope 3 data gaps, this update could accelerate reporting progress while still preserving comparability.
However, critics may argue that such concessions risk watering down the comprehensiveness of sustainability disclosures, especially when investors and stakeholders are increasingly focused on full value chain accountability. Still, the ISSB has reinforced that it views these amendments as technical adjustments, not a retreat from ambition. By requiring companies to disclose what is excluded and why, the standard retains a focus on decision-useful information for investors.
Final thoughts – Next steps
The proposed changes have been published in an Exposure Draft, now open for public comment until June 27, 2025. The ISSB encourages feedback from all stakeholders to ensure that the final amendments strike the right balance between rigour and realism.
As ISSB Scope 3 reporting continues to evolve, organisations, especially in the financial sector, must stay agile and informed. These developments illustrate the importance of investing in internal sustainability reporting capabilities and staying ahead of regulatory adjustments that could shape the next wave of ESG disclosures.
