The ISSB was established in 2021 under the IFRS Foundation to respond to a growing global need for consistent and investor-focused sustainability reporting. Until then, companies were using multiple frameworks, often leading to fragmented and hard-to-compare climate information across markets. To address this, the ISSB was tasked with creating a single global baseline for sustainability disclosures, aligned with financial reporting. The goal was to help investors better understand how sustainability issues, especially climate change, affect a company’s financial position and future prospects. In June 2023, the IFRS Foundation released the first two ISSB standards: • IFRS S1, which sets general requirements for sustainability-related financial disclosures, and • IFRS S2, which focuses specifically on climate-related disclosures, including governance, strategy, risk management, metrics, targets, and greenhouse gas emissions. Since their release, many jurisdictions around the world have begun adopting or aligning with these standards. As a result, IFRS S1 and S2 are quickly becoming the foundation of a common global language for climate and sustainability reporting.
As companies began implementing IFRS S2, many especially in the financial sector, found that some of the requirements were difficult to apply in practice. Despite widespread support for the standard's ambition, it proved challenging to translate it into consistent, high-quality data. One of the most complex areas was Scope 3 emissions, which cover indirect emissions across a company’s value chain. For banks, asset managers, and insurers, this mainly involves financed emissions, the emissions linked to the companies and projects they lend to or invest in. These emissions often make up the largest share of a financial institution’s climate footprint. However, gathering reliable data across diverse portfolios, sectors, and geographies is highly data-intensive and depends on information that is not always available or comparable. Recognizing these practical difficulties, the ISSB launched a consultation process in early 2025 to gather feedback from preparers, investors, and other stakeholders. The aim was to refine the requirements in a way that would ease implementation without weakening the usefulness of climate information for decision-making.
Following its consultation, the ISSB heard a consistent message: while Scope 3 disclosures are critical for understanding climate risk, some aspects of the requirements were proving too complex to apply consistently in practice, particularly for financed emissions in the financial sector. In response, the ISSB introduced targeted amendments to IFRS S2. Rather than overhauling the standard, the changes focus on specific areas where greater clarity and flexibility can ease implementation, reduce reporting burden, and still preserve decision-useful information for investors. 𝗧𝗵𝗲 𝗸𝗲𝘆 𝗮𝗺𝗲𝗻𝗱𝗺𝗲𝗻𝘁𝘀 𝗶𝗻𝗰𝗹𝘂𝗱𝗲:
Financial institutions may now limit Scope 3 Category 15, (covering the indirect emissions associated with a financial institution’s capital allocation) reporting to: • emissions linked to loans and investments for banks, and • emissions linked to assets under management (AUM) for asset managers. They are no longer required to include emissions from facilitated investment banking activities or from insurance and reinsurance underwriting. This allows firms to focus on emissions where attribution and influence are clearer.
Companies are permitted to exclude emissions associated with derivatives from their financed emissions disclosures, addressing concerns around methodological complexity and the risk of double counting.
Instead of mandating the use of the Global Industry Classification Standard (GICS), a widely used system for categorizing companies by sector and industry, entities with banking or insurance activities may now use alternative classification systems that better reflect their business models or regional practices.
When converting greenhouse gases into CO₂-equivalent emissions, firms may now use the Global Warming Potential (GWP) values required by local regulators, even if these differ from the latest IPCC values. This allows climate reporting to stay aligned with national rules while reducing unnecessary complexity.
While the Greenhouse Gas (GHG) Protocol remains the global benchmark, companies may use other measurement approaches when required by jurisdictional authorities—such as national GHG accounting standards, regulator-prescribed methodologies, or sector-specific frameworks (for example, methods set by central banks or financial supervisors for financed emissions). This provides flexibility to meet local rules.
Together, these amendments are intended to make IFRS S2 more practical to apply, while maintaining the consistency and credibility that investors expect from global climate disclosures.
As sustainability reporting shifts from frameworks to real-world execution, financial institutions face not only growing regulatory expectations, but also the need for practical climate insights that support decision-making, risk management, and long-term strategy. Organizations need clarity, consistency, and systems that can scale. That’s where Cognitud comes in. We help financial institutions turn complex climate standards such as IFRS S2 into practical, workable processes. By aligning data collection, emissions and scenario analysis, and regulatory disclosures, we enable firms to:
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Abhigyan Gupta
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IFRS S2 is a global climate disclosure standard that requires organisations to disclose climate-related risks, opportunities, governance, strategy, metrics, targets, and greenhouse gas (GHG) emissions. Its goal is to provide decision-useful, comparable climate information for investors and financial markets.
The International Sustainability Standards Board is the body under the IFRS Foundation responsible for developing global sustainability and climate disclosure standards, including IFRS S1 (general sustainability disclosures) and IFRS S2 (climate disclosures).
Financed emissions are the GHG emissions associated with a financial institution’s lending, investing, and underwriting activities. For banks, asset managers, and insurers, these emissions typically represent the largest share of their climate impact.
Financed emissions are generally calculated using methodologies such as PCAF (Partnership for Carbon Accounting Financials). The approach involves: • Identifying financed activities (loans, investments, underwriting) • Attributing a share of a client or investee’s emissions based on the level of financial exposure • Aggregating emissions across portfolios This enables consistent measurement across asset classes.
IFRS S2 itself is not automatically mandatory worldwide. It becomes mandatory when adopted or referenced by regulators, stock exchanges, or jurisdictions. Many countries are aligning or planning alignment with IFRS S2, making it increasingly influential.
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