Cover note and summary of redeliberations (Agenda Paper 4)

At this meeting, the ISSB continued redeliberating the proposals in Exposure Draft (ED) IFRS S2 Climate-related Disclosure, in particular, covering the following topics:

• Scope 1 and Scope 2 greenhouse gas (GHG) emissions
• Scope 3 GHG emissions
• GHG emissions measurement methods
• Interoperability—key matters
• Industry-based materials

Scope 1 and Scope 2 greenhouse gas emissions (Agenda Paper 4A)

This paper discusses the proposed requirements in ED IFRS S2that require an entity to disclose its absolute Scope 1 and Scope 2 GHG emissions generated during the reporting period to enable users of general purpose financial reporting to better understand an entity's exposure to particular climate-related risks and how the entity manages these risks.

Staff recommendation

The staff recommended that the ISSB:

• Proceed with the requirements for an entity to disclose its absolute gross Scope 1 and Scope 2 GHG emissions generated during the reporting period
• Proceed with the requirements with clarifications for an entity to:
  • Provide separate disclosure for the consolidated accounting group and unconsolidated investees
  • Disclose the approach used to include Scope 1 and Scope 2 GHG emissions for entities outside the consolidated accounting group, and an explanation of how the approach relates to the objective of the proposed requirement

The staff further recommended that the ISSB develop guidance, such as an illustrative example, to further clarify the requirement to provide separate disclosures for the consolidated accounting group and the unconsolidated investees.

ISSB discussion

ISSB members generally agreed with the staff recommendation. One ISSB member asked the staff whether stakeholders through their comment letters and/or outreach activities had expressed any confusion around whether entities are required to disclose GHG emissions disaggregated for each associate and joint venture. The staff said that the staff had not identified any such confusion from its discussions with the stakeholders and their comment letters. Another ISSB member asked whether GSG emissions related to associates and joint ventures would be categorised as Scope 3 emissions because they are not in a reporting group of their investors. The staff replied that it was not the intent of the proposals in the ED and that Scope 1 and Scope 2 emissions related to associates and joint ventures would have to be separately disclosed.

Another ISSB member questioned whether the staff proposals included in the agenda paper would override the GHG Protocol Corporate Standard. One of the Vice Chairs clarified that even though at some point before the ED was published considerations had been given as to whether there should be fewer options than those included in the GHG Protocol Corporate Standard, no adjustments were made to the proposals in that respect and the staff proposals for this meeting would not change that status, either.

ISSB members said that illustrative examples would be helpful to show how the Scope 1 and Scope 2 methods could look different depending on the different choices entities make within the GHG Protocol Corporate Standard and then how those calculations would be presented applying the ISSB’s requirements.

ISSB decision

11 of the 12 ISSB members voted in favour of proceeding with the requirements to disclose absolute gross Scope 1 and Scope 2 GHG emissions generated during the reporting period. One ISSB member was absent.

11 of the 12 ISSB members also voted in favour of improving the clarity of the requirements regarding disaggregating information between consolidated accounting group and unconsolidated investees. One ISSB member was absent.

Scope 3 greenhouse gas emissions (Agenda Paper 4B)

This paper discussed the proposed requirements in the ED  IFRS S2 that require an entity to disclose its Scope 3 GHG emissions.

Staff recommendation

For decision-making the staff recommended that the ISSB:

• Proceed with the proposal to require an entity to disclose its Scope 3 GHG emissions
• Confirm that this includes considering the 15 Scope 3 GHG emissions categories described in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

For further considerations by the ISSB the staff recommended that the ISSB:

• Address the data availability and data quality challenges by considering:
  • Introducing a later effective date for Scope 3 GHG emissions—addressing transitional challenges associated with data availability
  • Collaboration with security regulators to provide safe harbour provisions—addressing transitional data availability challenges
  • Supporting preparers in the application of the requirement by developing implementation guidance for Scope 3 GHG emissions—addressing persistent data quality challenges
  • Amending the proposed requirement to introduce data quality tiers—addressing data availability and data quality challenges to differentiate between the levels of quality present in the entity’s underlying data
• Assist preparers in the application of the proposed requirement by considering:
  • Amending the requirement to specify when the ‘scope’ of the Scope 3 GHG emissions disclosures must be reassessed
  • Amending the requirement to specify what a preparer can do when reporting cycles for entities in the value chain do not align with each other and/or with that of the preparer

ISSB discussion

ISSB members generally agreed with the staff recommendation. Some of them emphasised that disclosure on Scope 3 emissions is very important because it is important part of understanding whether an entity’s business model is sustainable. ISSB members also emphasised that capacity building is very important for entities to be able to provide Scope 3 emissions disclosure, acknowledging capacity and preparedness are different from jurisdiction and jurisdiction and also from entity to entity.

With regard to the staff proposal regarding the 15 Scope 3 GHG emissions categories, one ISSB member asked whether the proposal was to require entities to disclose all 15 categories of Scope 3 information. The staff clarified that entities would only need to consider them in assessing which of those categories are relevant and thus should result in disclosure. This includes considerations of materiality. Another ISSB member raised a related question asking whether the staff proposal suggests entities to apply supplementary guidance related to the GHG Protocol Corporate Value Chain Standard, which is voluminous. Staff clarified that its intent was merely to clarify which standard to refer to when entities consider the requirements relating to categories of Scope 3 GHG emissions and that it does not extend to requiring entities to apply all related supplementary guidance. The ISSB member suggested that staff be careful to convey that intent clearly when drafting the requirements.

With respect to the requirements in which an entity is required to provide the reason why it is omitting Scope 3 GHG emissions relating to entities in its value chain, the Chair expressed a concern that the requirement could indicate that an entity could omit information for such emissions as long as the entity provides the reason. The staff responded saying that is not the intent of the requirements and clarified that in cases in which an entity cannot obtain reliable information from entities in its value chain, it should move towards filling the missing information with estimates. The staff said that the staff would further consider how this can be clarified and bring a paper to a future ISSB meeting.

ISSB members welcomed the staff proposals relating to introducing safe harbour provisions. One ISSB member observed that it would help instill confidence in preparers. While agreeing with the direction of the proposal, some ISSB members cautioned the staff in two aspects as the staff further considers this proposal. One is that it would be the regulator in each jurisdiction that decides whether to provide such provisions, so the drafting of the requirements should reflect that. Another point is that safe harbour provisions should not deprive asset owners of their litigation rights and it should not give a message that by such provisions the ISSB is not elevating preparers over investors. Another ISSB member also observed that this would be a good opportunity to lessen misunderstandings that exist between preparers and investors regarding the extent of the burden associated with disclosing Scope 3 GHG emissions.

ISSB members also discussed other staff proposals to address data availability and data quality. They agreed with the direction of the travel relating to proposing a later effective date for Scope 3 GHG emissions disclosure. One ISSB member commented that even if the ISSB decided on a later effective date, it would be important for the ISSB to encourage entities to disclose Scope 3 GHG emissions early if preparers have capacity to do so. With respect to the staff proposal relating to introducing data quality tier, one ISSB member said that before making such a decision, the ISSB should consider whether benefits obtained by information disclosed applying such a new requirement exceed costs on preparers associated with providing the information.

ISSB decision

All of the 12 ISSB members voted in favour of proceeding with the requirements to disclose Scope 3 GHG emissions.

They also voted in favour of confirming that entities consider the 15 Scope 3 GHG emissions categories described in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

They also agreed that staff should develop proposals to address measures to assist prepares in the implementation and application of the Scope 3 GHG emissions disclosure requirements, by taking account of the approach included in the agenda paper and the ISSB’s discussions.

Greenhouse gas emissions measurement methods (Agenda Paper 4C)

This paper discussed the proposed requirements in the ED IFRS S2 that require an entity to measure and disclose its Scope 1, Scope 2 and Scope 3 GHG emissions applying GHG Protocol Corporate Standard (GHG Protocol Corporate Standard).

Staff recommendation

• The staff recommended that the ISSB proceeds with the requirement for an entity to measure and dicsclose its Scope 1, Scope 2 and Scope 3 GHG emissions applying the GHG Protocol Corporate Standard, subject to the following reliefs:
  • When an entity has been using a GHG emissions measurement method that is different from the GHG Protocol Standards, the entity may continue to use its existing measurement method for a defined period following the effective date of the requirement prior to applying the GHG Protocol Standards
  • When an entity is required by jurisdictional authorities or the exchange on which it is listed to use a GHG emissions measurement method that is different from the GHG Protocol Standards, the entity may continue to use that measurement method, so long as it is required, to avoid duplicative reporting
• The staff recommended that the ISSB specify that entities be required to use the version of the GHG Protocol Standards as of the date that ED IFRS S2 was exposed for comment on 31 March 2022, which is the 2004 version for the GHG Protocol Corporate Standard and the 2011 version for the GHG Protocol Corporate Value Chain Standard
• The staff recommended that the ISSB consider addressing concerns about comparability by requiring an entity to disclose information about:
  • The measurement method it has used (if not using the GHG Protocol Standards)
  • The reason why the GHG Protocol Standards have not been used, and when relevant, when they will use the GHG Protocol Standards
  • Its key assumptions and inputs, including emissions factors or global warming potentials
  • Any changes the entity has made to its GHG emissions disclosure from previous reporting periods

ISSB discussion

One ISSB member asked the staff how common the GHG Protocol Corporate Standard was among the current practice now that the ISSB is proposing to require entities to use the Standard. The staff responded that comment letter feedback indicated it was one of the most commonly used standard. The staff also noted that this was consistent with the findings by the survey recently conducted by CDP (formerly the Carbon Disclosure Project).

Referring to the earlier tentative decision made regarding entities having to consider the 15 Scope 3 GHG emissions categories, another ISSB member asked the staff how this decision interacts with the proposed relief in which entities are not required to use GHG Protocol Corporate Standard in specified circumstances. The staff said it would have to consider it further to clarify the interaction.

Noting one of the IASB’s projects coming out of its recent agenda consultation was climate-related disclosure, one ISSB member questioned whether the ISSB’s decision-making on the measurement method for GHG emissions should wait until the IASB’s project progresses. One of the Vice Chairs explained that the IASB’s project focuses more on the financial effects during the current reporting period, so its project should not hold up the ISSB’s discussion in this aspect.

ISSB decision

All of the 12 ISSB members supported the staff recommendations as laid out in the agenda paper. They also supported the direction of travel regarding the proposed disclosures to address concerns about comparability.