• Financial institutions can narrow Scope 3 reporting to loans, investments, and assets under management, excluding facilitated and underwriting related emissions.
• Amendments reduce operational burden without changing investor-facing climate risk transparency, according to the ISSB.
• The changes reinforce IFRS S2’s role as a global baseline as around 40 jurisdictions move toward adoption.

The International Sustainability Standards Board has moved to ease one of the most contentious elements of climate reporting for financial institutions, rolling out targeted amendments to its IFRS S2 standard that narrow and clarify how financed emissions must be disclosed.

The changes focus squarely on greenhouse gas reporting challenges that emerged as banks, insurers, and asset managers began applying the standard in practice. While IFRS S2 remains intact as a global framework for climate risk disclosure, the ISSB has acknowledged that some requirements, particularly around Scope 3 financed emissions, were proving difficult to operationalise at scale.

Why the ISSB intervened

The ISSB was established by the IFRS Foundation at COP26 in 2021 to create a consistent, investor-focused baseline for sustainability reporting. Its first standards, IFRS S1 on general sustainability disclosures and IFRS S2 on climate, were issued in June 2023. Since then, roughly 40 jurisdictions have begun formal steps toward using or aligning with the standards.

As implementation accelerated, feedback from preparers highlighted practical hurdles. Financial institutions, in particular, raised concerns about the breadth and complexity of Scope 3 category 15 emissions, which cover emissions linked to investments, lending, and other financing activities. Earlier this year, the ISSB launched a consultation to address those concerns, leading to the amendments announced today.

Narrowing Scope 3 financed emissions

At the centre of the update is a clarification of what financial firms are required to include when reporting Scope 3 category 15 emissions. Under the amended guidance, banks and other financial institutions may limit disclosures to emissions attributed to loans and investments they make directly. For asset managers, reporting may focus on emissions linked to assets under management.

The ISSB has explicitly excluded certain categories from mandatory reporting. Facilitated emissions associated with investment banking activities are not required disclosures under IFRS S2. Insurance-associated emissions linked to underwriting and reinsurance activities are also outside the reporting boundary. In another significant clarification, firms are permitted to exclude emissions attributable to derivatives from their financed emissions calculations.

For many institutions, these points resolve long-standing uncertainty about how far responsibility for value chain emissions extends, particularly in complex capital markets activities where attribution has been contested.

Flexibility on classifications and measurement

Beyond Scope 3 boundaries, the amendments introduce additional flexibility aimed at easing compliance without weakening comparability. Financial institutions with commercial banking or insurance activities are no longer required to use the Global Industry Classification Standard when disaggregating financed emissions. Alternative classification systems may be applied, allowing firms to align disclosures more closely with internal risk management structures.

The ISSB has also addressed jurisdictional differences in emissions measurement. Companies may use Global Warming Potential values mandated by local regulators, even if those differ from the latest Intergovernmental Panel on Climate Change assessment. Similarly, where a jurisdiction requires a measurement approach other than the Greenhouse Gas Protocol, firms may apply that method under IFRS S2.

These adjustments recognise that financial institutions often operate across multiple regulatory regimes, each with its own technical requirements.

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Investor relevance and market confidence

ISSB Vice Chair Sue Lloyd framed the changes as a pragmatic response rather than a retreat from climate transparency. “Our priority in delivering targeted amendments to IFRS S2 GHG emissions disclosure requirements has been to provide a timely response to challenges,” she said. “We are confident that the amendments will bring real relief to companies applying ISSB Standards without significantly affecting the decision-usefulness of information for investors.”

For investors, the revisions preserve the core objective of IFRS S2: to provide decision-useful information on climate-related risks and opportunities. The ISSB’s message is that clearer boundaries and flexible methodologies can improve data quality by focusing reporting on emissions that institutions can reasonably measure and influence.

Global significance

The amendments land at a critical moment for global climate reporting. As more jurisdictions incorporate ISSB standards into regulatory frameworks, pressure is mounting on financial institutions to produce consistent, credible disclosures. By easing implementation frictions while maintaining a common baseline, the ISSB is seeking to keep momentum behind IFRS S2 as the reference point for climate reporting in capital markets.

For banks, insurers, and asset managers, the changes offer breathing room. For regulators and investors, they reinforce the ISSB’s central balancing act: advancing climate transparency without imposing reporting requirements that outpace market readiness.

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