The International Sustainability Standards Board (ISSB) could revise its sustainability standards to alleviate implementation hurdles faced by companies but faces a delicate balancing act to maintain due process and protect its reputation for issuing stable, high-quality standards.

Staff presented an analysis of three problem areas, which include crucial Scope 3 Category 15 emissions under the Greenhouse Gas Protocol, to the 20 November ISSB meeting.

The board’s vice-chair, Sue Lloyd, said: “It’s also really important for us to signal to the market that we’re not going to fix things by telling people to sort of turn a blind eye or fudge around the edges of the words in the standard to make it work.

“We’re seriously saying that our standards are meant to be applying the words we wrote […] And that for me is messaging and reputational.”

Board advisors explore issues

The issues were explored during the September 2024 meeting of the board’s Transition Implementation Group.

ISSB member Bing Liu warned, however, that it was important to manage the risk to the board’s reputation when handling the issues, noting that in the longer term “the only way for us is to amend to avoid further reputation[al harm]”.

The ISSB published its two foundational sustainability standards, covering general reporting requirements and climate change last June. Preparers are now working to implement those standards in time for the release of the first full year of reporting under the rules next year.

The board explored three specific implementation challenges related to its new standards.

Scope 3 emissions a challenge

In relation to Scope 3 greenhouse gas (GHG) emissions, companies face difficulties in measuring and reporting emissions from specific financial activities like facilitated emissions and derivatives due to a lack of established methodologies.

Second, on an issue concerning jurisdictional relief to global warming potential (GWP) values, preparers said they may be required by local regulations to use different GWP values than those specified in IFRS S2, leading to potential duplicative reporting.

Finally, the ISSB has learned there is uncertainty about whether jurisdictional relief applies when only part of an entity is subject to different reporting requirements.

The challenges in measuring and reporting Scope 3 GHG emissions from specific financial activities have a direct impact on investors and insurers, who depend on them to:

  • make informed investment and underwriting decisions;
  • assess and manage climate-related financial risks;
  • meet their own regulatory and reporting obligations;
  • align their activities with environmental goals and commitments.

Board approves amendment criteria

In response, the ISSB approved criteria to evaluate whether amendments to the standards are justified, considering the need to address implementation challenges, the impact on the usefulness of the information provided, and the potential disruption to implementation and adoption processes.

Meanwhile, the board also heard that there is no quick fix for the issues with the new standards.

Lloyd said that engaging the standard-setting process was a “big deal” that requires a substantial effort and adherence to due process, including exposure drafts and stakeholder consultations.

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