ISSB Releases IFRS S1 and S2 Standards Requiring Scope 3 Disclosure

The International Sustainability Standards Board released its inaugural sustainability standards, IFRS S1 and IFRS S2, in June 2023, requiring companies to disclose Scope 1, Scope 2 and Scope 3 greenhouse gas emissions measured under the Greenhouse Gas Protocol. The GHG Protocol's Director described the Scope 3 requirement as the first time a major global standard-setting institution has mandated reporting of value-chain emissions.

Released on 26 June 2023 in Washington DC, IFRS S2 requires companies to disclose absolute gross greenhouse gas emissions classified as scope 1, scope 2 and scope 3, calculated in accordance with the GHG Protocol. The ISSB's International Reporting and Connectivity Council includes a GHG Protocol representative, reflecting coordination between the two frameworks. Pankaj Bhatia, Director of GHG Protocol, called the ISSB's scope 3 requirement a major step forward and described it as setting a precedent for other institutions and regulatory programmes to follow.

The inclusion of mandatory scope 3 disclosure in a global standard is significant because scope 3 emissions typically constitute the largest share of a company's climate footprint, often exceeding 90% in supply-chain-intensive sectors. For India, where many companies are embedded in global supply chains as Tier 1 and Tier 2 suppliers to multinationals, IFRS S2 adoption by their customers creates indirect pressure to measure and report scope 3 emissions even before India adopts the standard domestically.

GHG Protocol confirmed it is undertaking updates of its corporate suite of standards to address stakeholder feedback, particularly on the Scope 3 Standard, and to maintain alignment with IFRS S2. The two bodies committed to collaboration throughout implementation. The ISSB standards are expected to be adopted, adapted or referenced by securities regulators in multiple jurisdictions, with the Securities and Exchange Board of India monitoring international developments as it refines its own sustainability reporting framework.

Key figure — June 26, 2023 — ISSB release date of IFRS S1 and IFRS S2 standards