Why the ISSB is Letting Financial Institutions Breathe Easier on Scope 3

Imagine this scenario. You’re leading a large financial institution. Your company doesn’t own factories. You’re not shipping goods. There’s no carbon smoke coming out of your office rooftop. Yet somehow, you’re being asked to measure and report the carbon emissions of businesses you invest in, deals you help make, and clients whose risks you insure.

That’s the world of Scope 3 emissions—the indirect, often invisible carbon footprints that extend far beyond your organisation’s walls. They're difficult to measure. Messy to estimate. And yet, more important than ever.

These days, tracking emissions isn't just a CSR task tucked into the sustainability team’s to-do list. It's a serious boardroom agenda. It affects investment decisions. It influences public reputation. And for banks, insurance firms, and investment houses, Scope 3 reporting has become one of the toughest challenges in the ESG landscape.

That’s why the International Sustainability Standards Board (ISSB)—the global body behind IFRS sustainability standards—has stepped in with a set of proposed changes. These aren’t loopholes or escape routes. Instead, they’re targeted reliefs—practical tweaks to help financial institutions report better without drowning in complexity.

Because let’s face it: what good is a disclosure if it's so hard to produce, it ends up being unreliable?

This blog breaks down what the ISSB is proposing, why it matters globally, and what it could mean for Indian institutions still getting comfortable with IFRS S2 and India’s own BRSR Core guideline

ISSB's new Scope 3 reliefs under IFRS S2.

What is the ISSB—and Why Are People Talking About It Now?

You may not have heard of the ISSB before. And honestly, that’s fair. The International Sustainability Standards Board doesn’t exactly sound like something that would pop up in your daily business conversations. But if your company deals with investors, operates across markets, or is trying to stay ahead in the sustainability game, this is a name worth knowing.

The ISSB was created by the IFRS Foundation—the same body responsible for the global accounting standards most finance teams already use. But instead of financial statements, this board focuses on something just as critical today: climate and sustainability reporting.

And here’s the thing—until recently, this space was all over the place. Companies were choosing from a long list of frameworks—GRI, TCFD, SASB, CDP—each with its own style and rules. Some covered climate risk. Others focused on impact. Many overlapped. Few aligned. And the result? Confusion. Lots of it.

That’s what the ISSB is trying to fix. Their goal is to create a single, reliable set of standards that everyone—from investors to regulators to companies—can work with. Something that helps tell a clear story about how a company is handling sustainability and climate risks.

In mid-2023, the ISSB launched its first two major standards:

• IFRS S1, which covers general sustainability disclosures, and

• IFRS S2, which deals specifically with climate—things like emissions, transition plans, and yes, those tricky Scope 3 numbers.

And this isn’t just theory. Countries are already picking it up. India’s market regulator, SEBI, is aligning its BRSR Core framework with ISSB’s approach. So even if your business isn’t reporting under ISSB directly, you’re still going to feel its ripple effects.

Now, here’s where things get interesting. The ISSB recently proposed a few changes—small, but meaningful—mainly to ease the pressure on financial institutions when it comes to Scope 3 emissions.

It’s a sign that the board is paying attention. That it’s not just laying down rules from a distance, but actually listening to companies trying to work through them.

The Big Bad Wolf: Scope 3 Emissions Explained

If greenhouse gas emissions were characters in a movie, Scope 1 and 2 would be the stars you see on screen—visible, manageable, and easy to track. But Scope 3? That’s the plot twist no one sees coming.

Let’s start with the basics:

• Scope 1: Direct emissions from things a company owns or controls. Think factory smoke, fuel-burning generators, company-owned vehicles.

• Scope 2: Indirect emissions from the energy a company buys. Like the electricity that keeps the office lights on or runs your data centers.

• Scope 3: Everything else. Yes, everything. From employee commuting to business travel. From the carbon footprint of your suppliers to how your products are used and disposed of. In the case of financial institutions, it also includes emissions from the companies they invest in, lend to, insure, or facilitate deals for.

In fact, for many financial firms, Scope 3 makes up over 90% of their total emissions. That’s right—ninety percent of their carbon footprint doesn’t even come from their own operations.

Let that sink in.

So, while a bank might pride itself on using green buildings and LED lighting (Scope 1 & 2 wins!), the bulk of its climate impact comes from financing emissions-heavy industries, underwriting carbon-intensive projects, or managing portfolios full of fossil-fuel companies. And those emissions are… wait for it… very hard to measure.

Why? Because:

• The data is scattered across thousands of clients and investments.

• Different industries report differently—or not at all.

• Financial institutions don’t have operational control over these emissions, but they're still expected to track, calculate, and disclose them.

That’s the paradox of Scope 3. It's the most meaningful indicator of a company’s climate impact, but it's also the most painful and expensive to report.

And this brings us to the big news: The ISSB has seen the struggle, especially in the financial sector—and it’s now proposing a smarter, more flexible approach.

Let’s dive into what that actually looks like.

The Market Said “Help”—And ISSB Listened

As more financial institutions started applying the ISSB’s climate disclosure standard, one thing became clear: reporting Scope 3 emissions at scale is not just difficult—it’s almost unworkable without massive resources, perfect data, and a crystal ball.

You had global banks raising red flags. Investment houses mumbling “compliance fatigue.” Insurers asking for a more reasonable path forward. The message was loud and clear:

“We’re not against climate reporting—we just need a more realistic way to do it.”

To their credit, the ISSB didn’t dig in their heels. Instead, they did what more regulators should do—they listened. They acknowledged that early implementation brought up challenges that couldn't be ignored. And they responded in record time.

In May 2025, the ISSB proposed a series of targeted amendments to its flagship standard, IFRS S2, specifically aimed at easing the Scope 3 reporting burden on the financial sector. And before you worry—no, this isn’t a regulatory rollback or a loophole party.

In the words of Sue Lloyd, ISSB Vice-Chair:

“We have taken steps to respond in a timely manner by proposing targeted amendments helping preparers where possible, without causing too much disruption and ensuring that our Standards continue to enable the provision of decision-useful information to investors.”

In short: they’re not letting anyone off the hook. But they’re making the hook a bit easier to manage.

The ISSB’s approach here is worth noting. This is not a pause or a retreat. It’s a recalibration. An effort to balance ambition with achievability. And a reminder that sustainability standards must evolve with the real-world complexities of the industries they serve.

So, what exactly are these amendments? And how will they affect the way financial institutions report their emissions going forward?

Let’s break it down.

What’s Changing: Relief Measures in Plain Speak

So, the ISSB heard the cries for help and has offered a few lifelines—not to dilute climate disclosures, but to make them actually doable for financial institutions. These proposed reliefs are optional, smartly crafted, and most importantly, aimed at reducing chaos, not accountability.

Let’s look at the three key relief measures—and what they really mean if you're a bank, insurer, or investment firm.

1. Relief from Derivative, Facilitated, and Insurance-Linked Emissions

If you’re a financial institution, one of the toughest nuts to crack in Scope 3 is this:

How do you even begin to estimate the emissions linked to things like derivatives, underwriting, or insurance contracts?

Answer: You don’t—at least not anymore, if you opt in.

The ISSB is now proposing that institutions can exclude certain hard-to-measure emissions from their Scope 3 Category 15 (Investments) reporting. Specifically, you can skip:

• Derivatives (e.g. complex financial instruments like swaps or options)

• Facilitated transactions (like loans or deals where you’re the middleman)

• Insurance-related emissions (linked to underwriting or policies sold)

But—and this is a big but—you’re not getting off the grid entirely.

You’ll still need to disclose the volume or value of activities you’re excluding. In other words, transparency stays; estimation strain reduces.

Why this matters: 

For global banks handling thousands of transactions daily, this takes a massive weight off their shoulders—while still allowing investors to assess what’s missing from the full picture.

2. No Mandatory Use of GICS for Disaggregating Financed Emissions

For those unfamiliar, GICS (Global Industry Classification Standard) is a widely used method to sort companies into sectors—like IT, Energy, Healthcare, etc.

Previously, ISSB standards asked financial institutions to break down financed emissions by sector using GICS.

Now? The amendment proposes more flexibility.

If using GICS doesn’t make sense for your business model—or if your jurisdiction already requires another classification—you can use that instead.

Why this matters: 

Institutions that lend to niche industries or follow jurisdiction-specific classifications no longer need to shoehorn their data into a one-size-fits-all global format. That means less friction, fewer adjustments, more relevant data.

3. Flexibility in Global Warming Potential (GWP) Values & Measurement Methods

This one’s a bit technical—but incredibly important.

Under the earlier ISSB rules, institutions were expected to use the latest IPCC values for measuring the warming impact of different greenhouse gases (this is what “Global Warming Potential” or GWP refers to).

Now, the ISSB says:

“You can use the GWP values required by your jurisdiction, even if they’re not the latest IPCC version.”

They’re also allowing companies to use alternative greenhouse gas measurement methodologies, if that’s what your national or regional regulators demand.

Why this matters: 

This removes the clash between global and local standards. For example, if India's regulator mandates a different emissions calculation method than what ISSB prescribes—you now don’t have to do both. Just follow your national guidance and still stay compliant.

Bottom Line: Relief, Not Retreat

Let’s be clear. These changes don’t mean financial firms can just skip Scope 3 altogether. Instead, the ISSB is saying:

“You don’t have to twist yourself into knots trying to calculate what you literally can’t track reliably. Focus your energy where it counts most—and keep it transparent.”

The emphasis is still on investor-useful information. If an emission can't be calculated accurately without guesswork, it's better to disclose the gap honestly than to fill it with questionable data.

And perhaps most importantly—these reliefs are optional. Companies that can report comprehensively still should. This isn’t about lowering the bar. It’s about making the bar more climbable.

So, What Does This Mean for Financial Institutions?

Let’s take a moment to imagine the average sustainability or risk team at a bank or insurance company. They’re not climate scientists. They’re analysts, compliance heads, reporting leads. Every quarter, they’re drowning in emails, chasing portfolio companies for emission data, trying to make sense of opaque disclosures, and burning weekends trying to fit it all into neat Scope 3 boxes.

What the ISSB is offering them now is not a shortcut—it’s a seat at the adult table.

Clarity Over Confusion

The new reliefs reduce the fog around what must be reported, how it must be calculated, and where flexibility is allowed. That clarity alone is a massive operational advantage. No more second-guessing if you're following the “right” protocol or if you'll be flagged for non-compliance.

Instead, institutions can make informed decisions, document them, and move forward with confidence.

Lower Compliance Costs

Let’s face it—Scope 3 reporting is expensive. It involves data collection, estimation models, scenario analyses, consultancy fees, and in many cases, bespoke tools that few can afford.

By excluding ultra-complex emissions categories (like derivatives and insurance-linked transactions), institutions can cut costs without cutting corners. Resources can now be redirected to improving data quality where it really matters—like high-emission sectors or long-term lending portfolios.

Conclusion: A Step Forward, Not a Step Back

Let’s be clear—the climate crisis isn’t slowing down, and neither should our efforts to tackle it. But for climate disclosure to truly drive change, it needs to be practical, transparent, and grounded in the realities of the industries it hopes to influence. That’s exactly what the ISSB’s proposed reliefs aim to do.

By easing some of the most complex Scope 3 reporting requirements for financial institutions—without compromising on transparency—the ISSB has shown that it is not just a rule-maker, but a real-world enabler. It’s helping banks, insurers, and asset managers move away from checkbox compliance and toward credible, decision-useful disclosures that actually inform strategy and spark transformation.

This isn’t about giving up on ambition. It’s about building a system that scales. A system where climate data doesn’t just sit in reports—but leads to rethinking investments, restructuring portfolios, and reimagining risk.

And for India’s growing financial sector—which is fast aligning with global norms—this is a timely opportunity. One to shape disclosures that are globally credible, locally relevant, and operationally doable.

Because in the end, climate reporting is not the goal. Climate action is. And better reporting—clearer, cleaner, and more achievable—is what gets us there faster.

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