ISSB’s IFRS S2 Exposure Draft: A Closer Look At Greenhouse Gas Emissions

The International Sustainability Standards Board (ISSB) recently released an Exposure Draft on targeted amendments to IFRS S2 focused on greenhouse gas (GHG) emissions — particularly those relevant to financial institutions, including banks, asset managers and insurers.

These proposals aim to clarify how entities in the financial sector measure and disclose Scope 3 Category 15 emissions, especially in relation to loans, investments, and other financial activities. They also introduce jurisdictional flexibility on how emissions and global warming potential (GWP) values are calculated and provide optionality in the use of industry classification systems.

This Exposure Draft serves as a reminder that climate-related financial disclosures are still in their infancy. As such, a young standard like IFRS S2 will evolve over time as markets begin to implement it, and provide feedback to the ISSB’s Transition Implementation Group (TIG) on practical challenges. 

Below are the key proposals set out in the Exposure Draft. The ISSB is requesting feedback by the end of June 2025, with the aim of enabling a speedy implementation — ideally before the end of this calendar year.

Scope 3 Category 15 – Financed Emissions: The Exposure Draft permits entities to limit their disclosure of Scope 3 Category 15 GHG emissions by excluding those associated with derivatives, facilitated emissions, and insurance-related activities. Instead, disclosure may be restricted to financed emissions linked to “loans and investments,” including project finance, bonds, equity investments, and undrawn loan commitments. For asset managers, this also includes emissions from assets under management. Where this limitation is applied, entities must disclose the amount of derivatives and other financial activities excluded, along with an explanation of what they consider to be derivatives, as IFRS S2 does not define the term and the ISSB is not proposing to do so.

Industry Classification: The Exposure Draft provides relief from the mandatory use of the Global Industry Classification Standard (GICS) when disaggregating financed emissions. Entities may use alternative industry-classification systems—such as those mandated by jurisdictions, regulators, stock exchanges, or systems that the entity already uses—if they are useful to users of general-purpose financial reports. Where an alternative is used, entities must disclose the classification system selected and provide a clear rationale for its use.

Greenhouse Gas (GHG) Measurement Standards: The Exposure Draft clarifies that jurisdictional relief for GHG measurement methods can apply to part of an entity if required by a regulator or exchange, and entities must disclose and explain the basis for applying an alternative method to that portion of their operations.

Global Warming Potential (GWP) Values: The Exposure Draft extends jurisdictional relief to situations where an entity is mandated—either wholly or partially—by a jurisdictional authority or exchange on which it is listed to use global warming potential (GWP) values that differ from latest Intergovernmental Panel on Climate Change (IPCC) assessment, available at the reporting date. In such cases, entities are required to disclose that they are applying different GWP values and to explain the basis for this application.

In Conclusion: These proposed targeted amendments reflect the ISSB’s ongoing effort to support the practical realities of implementation of IFRS S1 and S2 —particularly for financial institutions grappling with complex financed emissions data. Through these targeted changes, the ISSB aims to provide targeted relief while maintaining robust disclosure standards, ensuring that the standards continue to enable users of general-purpose financial reports to be able to fully understand an entity’s exposure to its climate-related risks and opportunities.

The UK Sustainability Technical Advisory Committee (TAC) is already gathering feedback from UK entities most affected by the proposed targeted amendments to IFRS S2 in order to submit their own comments on the Exposure Draft. This comes as the UK Government remains in the consultation phase of adopting IFRS S1 and S2 as the UK’s future Sustainability Reporting Standards (SRS).