Until recently, measuring and reporting Scope 3 emissions was largely voluntary. Many organisations demonstrated leadership by publicly disclosing their data through initiatives like the Carbon Disclosure Project (CDP) and validating reduction targets via the Science-Based Targets Initiative (SBTi). However, this voluntary approach shifted dramatically in 2023, when the European Union (EU) became the first jurisdiction globally to mandate Scope 3 emissions disclosure for private companies under the Corporate Sustainability Reporting Directive (CSRD).
As of the end of 2024, no other jurisdiction had implemented similar requirements. However, this is about to change in a big way. A growing number of countries, including the UK, have already committed to adopting a new global reporting framework that will require Scope 3 emissions disclosure. Surprisingly, this framework, introduced by the International Sustainability Standards Board (ISSB), has flown under the radar for many.
Given how little awareness there is about ISSB and its far-reaching implications, this blog will explore what ISSB is, who it applies to, and what it likely means for your organisation.
What is ISSB?
The International Sustainability Standards Board (ISSB) is an organisation established by the International Financial Reporting Standards (IFRS) Foundation to develop and maintain a comprehensive global baseline for sustainability-related financial disclosures. It aims to standardise sustainability reporting, enabling investors and stakeholders to assess companies’ sustainability risks and opportunities effectively.
The International Sustainability Standards Board (ISSB) has developed two key sustainability-related standards under the IFRS Sustainability Disclosure Standards framework: IFRS S1 and IFRS S2.
IFRS S1 provides a general framework for companies to disclose sustainability-related financial information. It applies to all sustainability risks and opportunities that could impact a company’s enterprise value, not just climate-related factors.
IFRS S2, however, specifically addresses climate-related risks and opportunities that could impact enterprise value. It focusses entirely on climate-related disclosures, including greenhouse gas (GHG) emissions reporting. Under IFRS S2, companies must disclose their Scope 3 emissions if they are material to the organisation’s financial and sustainability performance. In practice, it will be very difficult for companies to prove that their Scope 3 is not material, so they should assume that they will be covered by Scope 3 mandates.
Where is it being adopted?
As with many trends in climate policy, it is perhaps unsurprising that other jurisdictions would follow suit after the European Union (EU) mandated Scope 3 emissions reporting under the Corporate Sustainability Reporting Directive (CSRD). However, the sheer speed and scale of ISSB adoption has caught many observers off guard.
Currently, at least 31 countries have committed to adopting IFRS S2, which includes Scope 3 reporting requirements. These countries range from Switzerland to Sri Lanka, representing a broad and diverse group of economies.
While the adoption of ISSB standards is widespread, it is important to highlight that the scope of coverage varies across jurisdictions. Some countries are focusing solely on financial institutions or publicly listed companies, while others have opted for a more comprehensive approach, extending requirements to include small and medium-sized enterprises (SMEs). Below are some notable examples of jurisdictions that have committed to adopting IFRS S2:
United Kingdom
In December 2024, the UK Sustainability Disclosure Technical Advisory Committee, acting on behalf of the Financial Reporting Council, voted unanimously that the endorsement of IFRS S1 and IFRS S2 “would be conducive to the long-term public good”. Formal endorsement is expected shortly, and current indications suggest that these standards will become mandatory starting in 2026. While the exact scope of coverage is yet to be finalised, it is highly likely that publicly listed companies will be required to comply at a minimum.
China
China has completed its public consultation and plans to implement both IFRS S1 and IFRS S2 starting in 2026. Unlike many jurisdictions, China’s implementation plan includes both listed and unlisted companies. However, it appears that unlisted companies will be phased in gradually, with full compliance expected by 2030.
India
India has taken a phased approach to adoption, implementing IFRS S2 between 2025 and 2029. However, India’s legislation only covers the Banking and Finance sector. While this sector-specific approach limits initial coverage, it reflects India’s broader strategy of focusing on high-impact industries before extending requirements to others.
Australia
Australia has already passed legislation and signed into law mandatory disclosures through IFRS S2, beginning in 2025. Interestingly, Australia has opted for an inclusive approach, requiring both listed and unlisted companies to report under IFRS S2. However, IFRS S1, which covers broader sustainability reporting, remains voluntary for the time being.
Why does IFRS-2 mandate Scope 3 reporting?
The emphasis jurisdictions now place on Scope 3 emissions through the adoption of ISSB highlights their pivotal role in meeting climate targets. There are a number of reasons for this, including:
- Alignment with Global Standards: ISSB’s framework, especially IFRS S2 (Climate-related Disclosures), aligns with globally recognised frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas (GHG) Protocol. This standardisation is conducive to the financial sector and allows for streamlined, trustworthy climate-related data and ratings.
- Encouraging Decarbonisation Strategies: By requiring Scope 3 reporting, ISSB pushes companies to identify and address emission hotspots in their supply chains, incentivising engagement with suppliers and the adoption of low-carbon technologies.
- Investor Transparency: Investors require clear and comparable data to assess climate-related risks, particularly regarding how a company’s operations and value chain contribute to emissions. Scope 3 data is crucial for identifying long-term exposure to transition risks (e.g., regulatory changes, carbon pricing) and physical risks (e.g., supply chain disruptions).
- Regulatory Momentum: ISSB’s standards support the increasing global momentum for mandatory climate reporting. Many regions, including the EU’s CSRD and California’s Climate Disclosure Laws, already require Scope 3 disclosures. ISSB ensures global alignment to avoid fragmentation.
What’s next for you?
During the consultation and adoption process in each country, it became evident that measuring and reporting Scope 3 emissions to comply with IFRS S2 poses significant technical and feasibility challenges. Companies must prepare proactively rather than reacting to these requirements as they become mandatory. Early preparation not only ensures compliance but also proves to be more efficient and cost-effective in the long run.
To get ahead of the legislation, companies can take several practical steps. First, developing robust data collection systems is critical. Gathering accurate data across diverse suppliers and customers poses significant challenges, and reliance on third-party data often leads to inconsistencies and inaccuracies. To address this, companies should collaborate closely with suppliers to improve data quality and encourage transparency throughout the supply chain. Additionally, businesses can implement advanced data management systems and tools to streamline data collection processes and enhance the accuracy of reported information.
Second, adopting standardised measurement frameworks can help companies ensure consistency and comparability in their Scope 3 reporting. Currently, there is no universally accepted method for measuring Scope 3 emissions, which leads to variability in reporting practices. Companies should familiarise themselves with the Greenhouse Gas (GHG) Protocol’s Scope 3 guidance, which provides a widely recognised framework for measurement and reporting. Continuous improvement in methodologies and data quality is also essential. For example, businesses can transition from a spend-based approach to an average-data approach, or update their emission factor databases to reflect more granular and accurate activity data estimates. These efforts will help organisations refine their reporting practices over time.
Finally, businesses can leverage transitional reliefs and phased implementations offered under IFRS S2 to ease the burden of compliance. Recognising the challenges associated with Scope 3 reporting, the International Sustainability Standards Board (ISSB) allows for transitional reliefs, such as not requiring Scope 3 emissions disclosure in the first year of IFRS S2 application. Companies should use this grace period to build internal capacity, test their reporting systems, and refine their processes before mandatory compliance kicks in.
By taking these steps—building robust data systems, adopting standardised frameworks, and utilising transitional reliefs—companies can navigate the complexities of Scope 3 emissions reporting under IFRS S2 and position themselves for long-term sustainability and regulatory success.
Are you ready to take the first steps in Scope 3 emissions measurement disclosure? Reach out to us at info@cityscience.com and have a look at our Carbon Accounting and Organisational Sustainability services.