Unanimous confirmation of Scope 3 disclosures, or: something, sometime…

ISSB unanimously confirms Scope 3 GHG emissions disclosure requirements with strong application support, among key decisions,” announced a recent press release.

Here’s what it said:

  • The International Sustainability Standards Board (ISSB) of the IFRS Foundation has made significant progress refining its first two proposed sustainability-related disclosure standards―[draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and [draft] IFRS S2 Climate-related Disclosures.
  • At its October meeting, following careful analysis of the feedback on its proposed standards, the ISSB voted unanimously to require company disclosures on Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions, applying the current version of the GHG Protocol Corporate Standard. As part of these requirements, the ISSB will develop relief provisions to help companies apply the Scope 3 requirements. This relief will be decided at a future meeting and could include giving companies more time to provide Scope 3 disclosures and working with jurisdictions on so-called ‘safe harbour’ provisions.

A few days later the formal meeting summary set out some of the possibilities discussed for providing support:

  • supporting preparers in the application of the proposed requirement by developing implementation guidance for disclosures about 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 an entity’s underlying data;
  • assisting preparers in the application of the proposed requirement by specifying when the ‘scope’ of the Scope 3 GHG emissions disclosures must be reassessed; and
  • assisting preparers in the application of the proposed requirement by specifying 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.

The press release indicated that the ISSB already possesses a certain flair for publicity, succeeding in whipping up a reasonable amount of not particularly warranted attention; it would have been more than adequate to communicate its decision in the usual way, as part of the regular meeting update (which, as I said, followed within mere days). After all, the theoretical alternative, in which the ISSB’s message to the world might have been “Well, we thought it was worth floating the idea, but we got some negative comments, so we’re dropping it completely,” was hardly likely to happen. And given that the relief in question might easily consist of pushing the implementation of Scope 3 disclosures to a year or two behind the rest of the standard, if not longer, the press release might just as reasonably have been titled “ISSB unanimously confirms Scope 3 GHG emissions disclosure requirements remain too far away for most companies to worry about.”

Of course, I’m overstating that – for many companies it likely makes sense at least to have scoped out the issue at a high level. Still, it is still quite far away. For Canadian companies the picture is made murkier because of local regulatory developments. The proposed rule issued for comment by the Canadian Securities Administrators (CSA) in October 2021 proposed the following:

  • Reporting issuers would have to disclose Scope 1, Scope 2, and Scope 3 GHG emissions and the related risks, or the issuer’s reasons for not disclosing this information. This would provide reporting issuers with flexibility in complying with these disclosure requirements. As an alternative, the CSA is also consulting on requiring issuers to disclose Scope 1 GHG emissions. Under this alternative, disclosure of Scope 2 and Scope 3 GHG emissions would not be mandatory. Issuers would have to disclose either their Scope 2 and 3 GHG emissions and the related risks, or the issuer’s reasons for not disclosing this information.

Obviously, this doesn’t seem exactly cutting-edge when set against the ISSB’s recent announcement (even with my skeptical colouring on it), . No surprise then that the CSA is already reconsidering. This is from another recent news release:

  • The CSA is actively considering international developments and how they may impact or further inform the proposed climate-related disclosure rule published in October 2021.
  • The ongoing assessment of key international climate-related rule proposals is intended to inform a CSA rule that serves the needs of Canadian capital markets, has considered international consensus, responds to Canadian investor needs, and reflects the realities of Canadian issuers.
  • Since publication of the CSA’s proposed climate-related disclosure rule, important international developments have occurred. In March 2022, the United States Securities and Exchange Commission (SEC) proposed amendments to rules that would require registrants to provide certain climate-related information in their registration statements and annual reports. The ISSB also published a proposed general standard for the disclosure of sustainability-related financial information as well as a proposed specific climate-related disclosure standard.  
  • In addition, while the CSA, SEC and ISSB proposals are all largely based on Task Force on Climate-Related Financial Disclosures (TCFD)  recommendations, some substantive differences exist. The CSA is analyzing the key differences and will continue to monitor the evolution of these proposals.

A bold prediction then: at some unidentifiable point in the future, many public Canadian companies will disclose some kind of information on their Scope 3 emissions. And you can hold me to that!

The opinions expressed are solely those of the author.

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