The International Sustainability Standards Board (ISSB) is taking significant steps to standardize how companies worldwide disclose their strategies for transitioning to a lower-carbon economy. This initiative aims to combat market fragmentation and enhance the comparability of critical climate-related information for investors.
The move focuses on “transition plans” – detailed disclosures outlining how entities plan to meet their climate targets. While IFRS S2 Climate-related Disclosures already mandates reporting on such plans if they exist, the ISSB has identified a need for greater global consistency in how these plans are structured and reported.
Key actions include:
- Harmonizing Frameworks: The ISSB will actively work to align and unify various existing frameworks and standards governing transition plan disclosures. This aims to reduce complexity and inconsistency for preparers and improve data utility for investors and financial markets.
- Leveraging TPT Resources: The IFRS Foundation will utilize materials developed by the Transition Plan Taskforce (TPT) to create practical educational guidance for companies implementing IFRS S2’s transition plan requirements. Crucially, this guidance will not alter the core requirements of IFRS S2. Instead, it will focus on adapting and applying the standard globally, reinforcing its position as the global baseline. The core objective remains disclosing material climate-related risks and opportunities affecting an entity’s prospects.
Clarification on GHG Measurement Standards:
The ISSB also confirmed the foundational measurement standards underpinning IFRS S2’s greenhouse gas (GHG) emissions reporting requirements:
- GHG Protocol Mandate: Emissions must be measured using the globally prevalent GHG Protocol Corporate Standard (2004).
- Scope 3 Alignment: Companies must utilize the specific Scope 3 categories defined in the GHG Protocol’s Corporate Value Chain (Scope 3) Standard (2011) for reporting value chain emissions.
This harmonization effort directly addresses calls from global investors and financial markets for consistent, comparable, and decision-useful information on how companies are preparing for and managing the risks and opportunities associated with the transition to a low-carbon economy. Standardized transition plan disclosures are seen as vital for assessing corporate resilience and future financial performance.
Source: IFRS Foundation, 24 June 2024.