The International Sustainability Standards Board (ISSB), who are part of the International Financial Reporting Standards (IFRS) foundation, have recently confirmed that Scope 3 emissions will need to be accounted for to a certain extent, under the first two sustainability-related disclosure standards they are currently drafting.
The board voted unanimously in favour of including supply chain emissions, which are notoriously difficult to calculate, but deemed essential for measuring the total carbon intensity of a good or service. In keeping with the need to streamline accounting frameworks, rather than make them more complicated, the ISSB standards will prescribe that supply chain emissions are calculated using the existing GHG Protocol Corporate Value Chain (Scope 3) Standard. This standard includes 15 categories of upstream and downstream emissions which must be included in Scope 3 calculations.
Given the complexity and quality issues surrounding Scope 3 data, the ISSB will include relief provisions to assist companies with the requirements. This could include providing more time to provide Scope 3 disclosures, and the development of ‘safe harbour’ provisions which protect or reduce a company’s liability on information disclosed to capital market participants.
The ISSB is an influential force, and as markets around the world begin or continue to develop mandatory sustainability reporting requirements, they are likely to look to the ISSB for guidance. Australia is yet to develop an overarching sustainability accounting framework, however in his maiden speech as Minister for Climate Change and Energy, Chris Bowen flagged to the Investor Group on Climate Change that he understands that inadequate assessment of risks and opportunities is a huge barrier to investment’ and that the Federal Labour government are ‘committed to establish[ing] an enhanced reporting framework that aligns with international standards’. Taken together, the decision of the ISSB to include Scope 3 puts all companies, including Australian, on notice; supply chain emissions are important, and it would be prudent to start assessing your exposure to them.
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