New ISSB Updates: Mandatory Scope 3 and Why Categories 15 Financed Emissions is challenging?

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Updates from ISSB: To include Scope 3 GHG emissions disclosure requirements

On October 21, 2022, The International Sustainability Standards Board (ISSB) unanimously confirms Scope 3 GHG emissions disclosure requirements with strong application support, among key decisions.

“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 harbor’* provisions.”

*‘Safe harbor’ gives companies protection from, or reduces, liability on information disclosed to investors and other capital market participants.


In ISSB’s Update for October 2022, the group has confirmed with all 12 ISSB members agreed with the following decisions:


  • The ISSB discussed its proposals to require an entity to measure and disclose its Scope 1, Scope 2, and Scope 3 GHG emissions in accordance with the GHG Protocol Corporate Standard.

  • Disclosure would include information about which of the 15* Scope 3 GHG emissions categories described in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard are included within the entity’s measure of Scope 3 emissions.

  • *Scope 3 GHG emissions categories

Upstream categories

1. Purchased goods and services

2. Capital goods

3. Fuel- and energy-related activities (not included in Scope 1 or Scope 2) 4. Upstream transportation and distribution

5. Waste generated in operations

6. Business travel

7. Employee commuting

8. Upstream leased assets

Other upstream

Downstream categories

9. Downstream transportation and distribution 10. Processing of sold products

11. Use of sold products

12. End-of-life treatment of sold products

13. Downstream leased assets

14. Franchises

15. Investments (i.e., financed emissions)

Other downstream

(From “World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), ‘GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard’, 2011.”)


ISSB’s address to the data availability and data quality challenges associated with the disclosure of Scope 3 GHG emissions includes follow:


  • introducing a later effective date for disclosures about Scope 3 GHG emissions—addressing transitional challenges associated with data availability;

  • collaborating with security regulators to provide safe harbor provisions—addressing transitional data availability challenges;

  • 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.


What does it mean to investors?

In an article written by Marie Rupp, Senior Sustainability Analyst from Allianz GI, are all net-zero goals created equal? (2021). After comparing the share of Scope 1,2,3 by sector, she illustrated that scope 3 downstream emissions in the financial sector, especially Category 15 Investments activities have taken more than 80% of the sector’s greenhouse gas emissions. For a financial institution, scope 3 category 15 emissions (i.e., financed emissions) are often the most significant part of its GHG emissions inventory and special consideration must be made regarding how these are measured. (PCAF)


Measuring financed emissions

The industry-led initiative, The Partnership for Carbon Accounting Financials (PCAF) is helping financial institutions assess and disclose the greenhouse gas (GHG) emissions from their loans and investments through GHG accounting. Responding to industry demand for a global, standardized GHG accounting approach, PCAF developed the Global GHG Accounting and Reporting Standard for the Financial Industry (the Standard). This Standard has been reviewed by the GHG Protocol and conforms with the requirements set forth in the Corporate Value Chain (Scope 3) Accounting and Reporting Standard for category 15 investment activities. The PCAF’s expected users range from Commercial banks, Investment banks, Development banks, Asset owners/managers (mutual funds, pension funds, closed-end funds, investment trusts), and Insurance companies.

According to PCAF, GHG accounting enables financial institutions to disclose these emissions at a fixed point in time and in line with financial accounting periods. Measuring financed emissions allows financial institutions to make transparent climate disclosures on their GHG emissions exposure, identify climate-related transition risks and opportunities, and set the baseline emissions for target setting in alignment with the Paris Agreement.


From PCAF (2020). The Global GHG Accounting and Reporting Standard for the Financial Industry. First edition.


Financial institutions taking actions in China

In 2021, The Industrial Bank Co., Ltd. (CIB) has reported its financed emissions for its Shenzhen branch (one of the first large banking branches in China to account for financed emissions) in accordance with the PCAF and TCFD (Task Force on Climate-related Financial Disclosures) in its Environmental Report 2020 to calculate and optimize its portfolios and financial activities while managing its climate exposures through tracking emission trends using reported emissions data.


Accounting for scope 3 might takes time to become a sophisticated practice for many sectors but no doubt about its importance to be included if companies and financial institutions are actually committed to their net zero plans. There are many ways to account for and manage financed emissions for financial institutions, the key is to act now. Through the influence of managed investments and effective engagement plans, financial Institutions are more on track to align with the Paris Agreement and improve their risk management. As a financial institution that understands where its risks lie in its portfolio can act on that information to mitigate these risks by steering financial flows toward low-risk and low-emission investments.