Are financed emissions required under the ISSB S2 mandatory reporting standards?
Yes, financed emissions are required under the ISSB S2 Climate-Related Disclosures standard.
The ISSB (International Sustainability Standards Board) has developed IFRS S2 to standardize climate-related financial disclosures, which includes emissions associated with a company's value chain. Specifically:
- Scope 1, Scope 2, and Scope 3 emissions must be reported under ISSB S2.
- Financed emissions, which fall under Scope 3, Category 15 (Investments), are relevant for financial institutions, including banks, insurers, and asset managers.
These emissions arise from the investments, loans, and financial services that institutions provide to other entities. Reporting financed emissions is critical for understanding the climate-related risks and impacts of financial institutions' portfolios.
Thus, for organizations whose business activities include financing or investing, financed emissions are indeed required under ISSB S2.
Acceptable exclusions
For some businesses, investments are not a core part of their business model OR they invest via managed funds over which they have limited operational control.
Per the GHG Protocol relevance test, it is acceptable to exclude financed emissions in these case, so long as sufficient justification is provided.
Trace recommendations regarding emissions generated from investing in managed funds
Under the new ISSB / ASRS (Assurance Sustainability Reporting Standards) rules, companies are not required to report financed emissions from funds if the funds cannot provide raw emissions data.
Here's why:
1. Data Availability is Key
Financed emissions reporting is contingent on access to reliable, verifiable emissions data from the fund or investment. If the fund cannot provide this data, it is impossible to calculate or disclose emissions accurately.
2. Reasonable Assurance Requirement
ASRS emphasizes that sustainability data must meet reasonable assurance criteria, meaning it should be robust, complete, and verifiable. Without raw emissions data from the fund, any financed emissions calculations would lack sufficient assurance, undermining the accuracy and integrity of the report.
3. Practical Considerations
The ASRS rules are designed to balance transparency with feasibility. When data is unavailable, the standard allows flexibility, recognizing that reporting inaccurate or estimated data may do more harm than good. In these cases, disclosures should include a statement explaining the limitation and steps being taken to address data gaps.
4. Encouraging Future Transparency
By not penalizing entities for data unavailability, the ASRS aims to encourage funds to improve emissions transparency and reporting. Customers should engage with their funds to advocate for better disclosure practices in the future.