- Article Summary
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Why IFRS S2 Updates Matter Now
IFRS S2 Climate-related Disclosures is designed to serve as a global baseline for how companies report climate-related risks and opportunities to investors. For financial institutions, it is particularly significant because it formally brings financed emissions into mainstream financial reporting, rather than treating them as a voluntary or supplementary ESG metric.
Since IFRS S2 was first issued, Scope 3 emissions have proven to be the most difficult area to implement. Data gaps, inconsistent methodologies, and differences in regulatory expectations across jurisdictions have created real challenges for banks, insurers, and asset managers. These issues were most acute in Scope 3 Category 15, which covers emissions associated with financial activities.
In response to feedback from preparers and regulators, the ISSB issued targeted amendments to IFRS S2 in December 2025. The objective was not to remove Scope 3 requirements, but to make them more practical and globally adoptable while preserving decision-useful information for investors.
Key Changes in the IFRS S2 Amendments at a Glance
The amendments introduce several important clarifications and reliefs for financial institutions, particularly around Scope 3 Category 15 disclosures.
| Change area | Before (Original IFRS S2) | After (Targeted Amendments) |
|---|---|---|
| Scope 3 Category 15 (financed emissions) | Required disclosure of all Scope 3 Category 15 financed emissions categories for entities with financial activities | Entities are permitted to limit disclosure to financed emissions only, such as loans and investments, excluding derivatives, facilitated emissions, and insurance-associated emissions if they choose |
| Classification system for financed emissions | Required use of the Global Industry Classification Standard (GICS) | Alternatives to GICS permitted for disaggregating financed emissions |
| GHG measurement methods | Default expectation to align with the GHG Protocol Standard | Clarifies and expands availability of jurisdictional relief to use methods other than the GHG Protocol |
| Global Warming Potential values | Required use of the latest IPCC assessment to convert emissions | Jurisdictional relief to use alternate GWP values where local regulation requires it |
| Effective date | Not specified | Annual reporting periods beginning on or after 1 January 2027, with early application permitted |
Scope 3 Category 15: What Financial Institutions Must Still Disclose
Scope 3 Category 15 covers emissions linked to financial activities, including loans, investments, project finance, and equity and debt holdings. For many financial institutions, these financed emissions represent the largest share of their total climate footprint.
Under the amended IFRS S2, disclosure of financed emissions within Scope 3 Category 15 remains mandatory. Financial institutions are still expected to explain the methodologies used, the assumptions applied, and the data sources relied upon. Disclosures must be sufficiently transparent to allow investors to understand exposure to climate-related transition and physical risks.
While the amendments provide flexibility, they do not reduce expectations around consistency, governance, or decision usefulness. Financed emissions remain central to how investors assess climate risk in financial portfolios.
What Is Now Optional Under the Amendments
The most notable change is that certain elements previously included within Scope 3 Category 15 are no longer mandatory.
Financial institutions may now choose to exclude:
- Emissions associated with derivatives
- Facilitated emissions
- Insurance-associated emissions
These exclusions apply unless local regulators require their disclosure or the institution chooses to report them voluntarily. Institutions that exclude these elements are expected to clearly document their scope decisions and ensure that disclosures remain understandable and comparable over time.
Why the ISSB Narrowed the Scope
The ISSB focused the amendments on financed emissions because they are generally the most material and comparable component of Category 15. Financed emissions are closely linked to credit risk, investment risk, and transition pathways, making them especially relevant for investor decision-making.
By contrast, derivatives, facilitated emissions, and insurance-associated emissions currently lack globally consistent measurement approaches. Retaining mandatory disclosure for these elements risked undermining comparability and slowing adoption of IFRS S2 across jurisdictions.
The amendments aim to balance rigor with practicality, ensuring that IFRS S2 can function as a widely adopted global baseline.
Timeline and How Financial Institutions Should Prepare
The targeted amendments apply to annual reporting periods beginning on or after 1 January 2027. Early application is permitted.
To prepare, financial institutions should review their current Scope 3 Category 15 coverage, assess which elements they plan to include going forward, and confirm their classification systems and measurement approaches. Clear documentation of methodological choices and scope boundaries will be essential, particularly as regulators begin to adopt the amended standard at the local level.
The amendments reduce complexity, but they also reinforce that financed emissions disclosure is now a core part of financial reporting under IFRS S2.
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