Transition relief for Scope 3 GHG disclosures where entities have existing reduction targets
Transition relief for Scope 3 GHG disclosures where entities have existing reduction targets
Entities preparing Australian sustainability reports under AASB S2 Climate-related Disclosures can elect not to disclose their Scope 3 greenhouse gas (GHG) emissions in the first year that they apply AASB S2 (refer to AASB S2, paragraph C4(b)). The purpose of this one-time relief is to give companies time to develop systems and processes to properly measure their Scope 3 GHG emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004).
However, many entities already have existing Scope 3 GHG emissions reduction targets, which may have been communicated externally in a voluntary sustainability report or as part of other management commentary. These targets may or may not be calculated/determined on a basis that is consistent with the requirements of AASB S2 (i.e. in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004)). AASB S2 requires an entity to disclose information on the climate-related targets it has set and its performance against those targets.
Two questions arise regarding this transition relief.
- Does the scope of the transition relief extend more broadly to cover disclosures about the Scope 3 GHG emissions reduction target(s)?
- If an entity publishes its Scope 3 GHG emissions reduction targets, does it mean that it must disclose its Scope 3 GHG emissions in the first year (i.e. the transition relief would not be available)? The rationale for this is that entities publishing Scope 3 emissions reduction targets would be expected to have their Scope 3 GHG emissions information available, as this is needed to report progress against targets.
Does the transition relief also cover disclosure about Scope 3 GHG emissions reduction targets?
No. AASB S2, paragraph C4(b) states that an entity is not required to disclose its Scope 3 GHG emissions in the first annual reporting period in which an entity applies AASB S2, and specifically references paragraph 29(a) of AASB S2.
Paragraph 29(a) sets out the requirements for disclosing the absolute gross Scope 3 GHG emissions, and paragraph 29(a)(vi)(2) contains requirements for additional information about financed emissions if the entity participates in asset management, commercial banking or insurance activities.
This means that the relief in paragraph C4(b) is restricted to the disclosures required by paragraph 29(a). There is no transitional relief from paragraphs 33 and 35, which require disclosure of performance against climate-related targets, including any GHG emissions reduction targets.
If an entity publishes its Scope 3 GHG emissions reduction target(s), does this override the transition relief, meaning that Scope 3 emissions must be disclosed in year one?
In other words, does the existence of Scope 3 GHG emissions reduction target(s) indicate that the Scope 3 GHG emissions data is available and, therefore, required to be disclosed?
While the existence of Scope 3 GHG emissions reduction targets appears to indicate that the Scope 3 GHG emissions data is available, Basis for Conclusions to IFRS S2, paragraphs BC170 and BC171 state that the transitional relief in paragraph C4(b) was introduced to address concerns about the availability and quality of data, and acknowledge the temporary nature of the relief. This could be taken to mean that, if information about Scope 3 GHG emissions is available, it must be disclosed if the related targets are disclosed.
However, the Basis for Conclusions paragraph BC171 explicitly confirms that the relief in paragraph C4(b) is available regardless of the availability and quality of data. It is also not dependent on whether any associated disclosures are made (such as for Scope 3 GHG emissions reduction targets).
Therefore, an entity can apply the transition relief in paragraph C4(b) in the first year it applies AASB S2, and not disclose its Scope 3 GHG emissions, even if:
- It has information about its Scope 3 GHG emissions
- It has a Scope 3 GHG emissions reduction target.
Although not required, an entity should consider whether it is appropriate to disclose its use of this transitional relief in its sustainability-related financial disclosures.
How BDO can help
Preparing climate-related disclosures under AASB S2 requires careful judgement, particularly when assessing organisational and operational boundaries.
Contact our sustainability reporting team to discuss how we can support your carbon accounting and AASB S2 reporting journey.
