Metrics and Targets

Author

Shel

The objective of climate-related financial disclosures on metrics and targets is to help users of general purpose financial reports understand an organisation’s performance on climate-related risks and opportunities, including its progress towards set or legally required climate-related targets.

To meet this objective, the organisation should disclose:

information related to the cross-industry metric categories listed below;
industry-based metrics linked to its business model, activities or other common industry features; and
the targets it has set, and any it is required to meet by law or regulation, to address climate-related risks or opportunities, including the metrics used by its governance body or management to track progress.

Climate-related metrics

The organisation should disclose information relevant to the following cross-industry metric categories:

1. Greenhouse gas emissions

The organisation should:

disclose its total gross greenhouse gas emissions for the reporting period, in metric tonnes of CO₂ equivalent, classified as:
1. Scope 1 emissions
2. Scope 2 emissions
3. Scope 3 emissions
measure its emissions using the Greenhouse Gas Protocol (A Corporate Accounting and Reporting Standard (2004)), unless another method is required by a jurisdictional authority or a stock exchange.
disclose the approach used to measure emissions, including:
1. the measurement method, inputs and assumptions;
2. the reason for choosing them; and
3. any changes made during the reporting period and the reasons for them
for Scope 1 and Scope 2 emissions, split emissions between:
1. the consolidated accounting group (such as the parent and consolidated subsidiaries);
2. other investees not included above (such as associates, joint ventures and unconsolidated subsidiaries)
for Scope 2 emissions, disclose location-based emissions and provide any contractual details needed to help users understand those emissions.
for Scope 3 emissions, disclose:
1. the categories included, based on the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011);
2. additional information about Category 15 emissions (financed emissions), if the organisation is involved in asset management, commercial banking or insurance

An organisation might have a different reporting period than some or all of the organisations in its value chain. This means greenhouse gas emissions data from those other organisations might not be available for the organisation’s own reporting period. In this case, the organisation can use emissions data from different reporting periods if:

it uses the most recent data available without too much cost or effort;
the reporting periods are the same length; and
it explains the effects of any major events or changes related to emissions that happened between the value chain organisations’ reporting dates and its own reporting date.

An organisation is also required to disclose its total gross greenhouse gas emissions for the reporting period, measured in metric tonnes of CO₂ equivalent. To do this, the organisation must combine the seven greenhouse gases into CO₂ equivalent values.

If the organisation uses direct measurement to calculate its greenhouse gas emissions, it must convert the seven greenhouse gases into CO₂ equivalent using global warming potential values over a 100-year time horizon, based on the latest IPCC assessment available at the reporting date.

If it estimates its greenhouse gas emissions using emission factors, it must use the factors that best reflect its activities. If those emission factors have already been converted into CO₂ equivalent values, the organisation does not need to recalculate them using global warming potential values. However, if the emission factors are not in CO₂ equivalent values, the organisation must convert them using global warming potential values over a 100-year time horizon from the latest IPCC assessment available at the reporting date.

An organisation is required to measure its greenhouse gas emissions using the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004). However, the organisation should follow that Protocol only when it does not conflict with This standard. For example, while the Protocol does not require disclosure of Scope 3 emissions, This standard does require it.

An organisation must use the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) unless a jurisdictional authority or the exchange where it is listed requires a different method. In that case, the organisation can use the required method instead, for as long as the requirement applies.

In some cases, a jurisdiction might require an organisation to disclose greenhouse gas emissions for only part of the organisation or for specific types of emissions, such as only Scope 1 and Scope 2. However, this does not exempt the organisation from following This standard’s requirement to disclose Scope 1, Scope 2, and Scope 3 emissions for the entire organisation.

An organisation is required to explain the measurement approach, inputs and assumptions it uses to calculate its greenhouse gas emissions. This includes:

the measurement approach used under the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004);
the method and approach used if the organisation does not use the Greenhouse Gas Protocol; and
the emission factors used (see paragraph B29).

The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) allows different measurement approaches for greenhouse gas emissions. For example, if the organisation reports emissions using the Greenhouse Gas Protocol, it must apply the equity share or control approach. Specifically, the organisation must disclose:

the approach used to determine emissions (such as equity share or control); and
the reasons for choosing that approach and how it supports the disclosure objective of helping users understand its performance in relation to its climate-related risks and opportunities.

When an organisation measures its greenhouse gas emissions using a method other than the Greenhouse Gas Protocol, it should disclose:

the method and measurement approach used to calculate its emissions; and
the reasons for choosing that method and approach, and how they support the main objective of disclosing information on metrics and targets.

As part of an organisation’s disclosure of its measurement approach, inputs, and assumptions, it must provide information so users of its financial reports can understand which emission factors it uses to measure its greenhouse gas emissions. This standard does not specify which emission factors the organisation must use. Instead, it requires the organisation to use emission factors that best represent its activities as the basis for measuring its emissions.

An organisation is required to disclose its location-based Scope 2 greenhouse gas emissions and provide information about any contractual instruments it has entered into that could help users understand its Scope 2 emissions. To be clear, the organisation must disclose its Scope 2 emissions using the location-based method and provide information about contractual instruments only if they exist and help users understand the emissions.

Contractual instruments are contracts between an organisation and another party for buying or selling energy bundled with information about how the energy was generated, or for unbundled energy attribute claims. Unbundled energy attribute claims are when the energy is sold separately from the greenhouse gas attribute contracts. Different markets have different types of these contracts, and the organisation might include information about its market-based Scope 2 greenhouse gas emissions as part of its disclosure.

An organisation should disclose information about its Scope 3 greenhouse gas emissions in a manner that enables users of general purpose financial reports to understand the sources of those emissions. The organisation should consider its entire value chain, both upstream and downstream, and assess all 15 categories of Scope 3 emissions as outlined in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011). Additionally, the organisation should clearly disclose which of these 15 categories are included in its Scope 3 emissions disclosures.

Regardless of the method an organisation uses to measure its greenhouse gas emissions, it is required to disclose the categories included within its measure of Scope 3 greenhouse gas emissions.

In accordance with IFRS S1, on the occurrence of a significant event or a significant change in circumstances, an organisation should reassess the scope of all affected climate-related risks and opportunities throughout its value chain. This includes reassessing which Scope 3 categories and which entities in the value chain to include in the measurement of its Scope 3 greenhouse gas emissions.

A significant event or significant change in circumstances can occur without the organisation being directly involved in that event or change, or it can result from a change in what the organisation considers important to users of general purpose financial reports. Examples of such events or changes include:

a significant change in the organisation’s value chain, such as a supplier making a change that significantly alters the supplier’s greenhouse gas emissions;
a significant change in the organisation’s business model, activities, or corporate structure, for example through a merger or acquisition that expands the organisation’s value chain; and
a significant change in the organisation’s exposure to climate-related risks and opportunities, such as a supplier being affected by the introduction of an emissions regulation that the organisation had not previously anticipated.

An organisation is permitted, but not required, to reassess the scope of any climate-related risk or opportunity throughout its value chain more frequently than is required by IFRS S1.

In accordance with IFRS S1, to determine the scope of the value chain, including its breadth and composition, an organisation should use all reasonable and supportable information that is available to the organisation at the reporting date without incurring undue cost or effort.

An organisation that participates in one or more financial activities associated with asset management, commercial banking and insurance should disclose additional information about the financed emissions associated with those activities as part of the organisation’s disclosure of its Scope 3 greenhouse gas emissions.

An organisation’s measurement of Scope 3 greenhouse gas emissions is likely to include the use of estimation rather than solely comprising direct measurement. In measuring Scope 3 greenhouse gas emissions, an organisation should use a measurement approach, inputs and assumptions that result in a faithful representation of this measurement. The measurement framework described below provides guidance for an organisation to use in preparing its Scope 3 greenhouse gas emissions disclosures.

An organisation’s measurement of Scope 3 greenhouse gas emissions relies upon a range of inputs. This standard does not prescribe specific inputs that an organisation is required to use to measure its Scope 3 greenhouse gas emissions, but it does require the organisation to prioritise inputs and assumptions using the following identifying characteristics (which are listed in no particular order):

data based on direct measurement;
data from specific activities within the organisation’s value chain;
timely data that faithfully represents the jurisdiction of, and the technology used for, the value chain activity and its greenhouse gas emissions; and
data that has been verified.

An organisation is required to apply the Scope 3 measurement framework to prioritise inputs and assumptions even when the organisation is required by a jurisdictional authority or an exchange on which the organisation is listed to use a method other than the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) for measuring its greenhouse gas emissions, or when the organisation uses a transition relief.

An organisation’s prioritisation of the measurement approach, inputs and assumptions, and its considerations of associated trade-offs—based on the characteristics described above requires management to apply judgement. For example, an organisation might need to consider the trade-offs between timely data and data that is more representative of the jurisdiction and technology used for the value chain activity and its emissions. More recent data might provide less detail about the specific activity, including the technology that was used in the value chain and the location of that activity. On the other hand, older data that is published infrequently might be considered more representative of the specific activity and its greenhouse gas emissions.

Data based on direct measurement

There are two methods that are used to quantify Scope 3 greenhouse gas emissions: direct measurement and estimation. Of these two methods and with all else being equal, an organisation should prioritise direct measurement.

‘Direct measurement’ refers to the direct monitoring of greenhouse gas emissions and in theory provides the most accurate evidence. However, it is expected that Scope 3 greenhouse gas emissions data will include estimation due to the challenges associated with direct measurement of Scope 3 greenhouse gas emissions.

Estimation of Scope 3 greenhouse gas emissions involves approximate calculations of data based on assumptions and appropriate inputs. An organisation that measures its Scope 3 greenhouse gas emissions using estimation is likely to use two types of inputs:

data that represents the organisation’s activity that results in greenhouse gas emissions (activity data). For example, the organisation might use distance traveled as activity data to represent the transport of goods within its value chain.
emission factors that convert activity data into greenhouse gas emissions. For example, the organisation will convert the distance traveled (activity data) into greenhouse gas emissions data using emission factors.

Data from specific activities within the entity’s value chain

An organisation’s measurement of its Scope 3 greenhouse gas emissions will be based on data obtained directly from specific activities within the organisation’s value chain (primary data), data not obtained directly from activities within the organisation’s value chain (secondary data), or a combination of both.

In measuring an organisation’s Scope 3 greenhouse gas emissions, primary data is more likely to be representative of the organisation’s value chain activity and its greenhouse gas emissions than secondary data. Therefore, the organisation should prioritise the use of primary data, with all else being equal.

Primary data for Scope 3 greenhouse gas emissions includes data provided by suppliers or other organisations in the value chain that relates to specific activities within an organisation’s value chain. For example, primary data may be obtained from meter readings, utility bills or other methods that represent specific activities in the organisation’s value chain. This data can be collected internally (such as from the organisation’s own operational records) or externally (such as supplier-specific emission factors for purchased goods or services).

Data from specific activities within the organisation’s value chain offers a more accurate reflection of its actual value chain activities and therefore provides a stronger basis for measuring the organisation’s Scope 3 greenhouse gas emissions.

Secondary data for Scope 3 greenhouse gas emissions refers to data that is not obtained directly from specific activities within an organisation’s value chain. This type of data is often sourced from third-party providers and includes industry-average data such as that found in published databases, government statistics, academic studies, and reports from industry associations.

Secondary data may be used to approximate either activity data or emission factors. It also includes proxy data—primary data from one specific activity that is used to estimate greenhouse gas emissions for another, similar activity.

When an organisation uses secondary data to measure its Scope 3 greenhouse gas emissions, it should consider how faithfully the data represents its actual activities. The closer the secondary data reflects the organisation’s specific value chain activities and conditions, the more reliable it will be for greenhouse gas emissions estimation.

Timely data that faithfully represents the jurisdiction of, and the technology used for, the value chain activity and its greenhouse gas emissions

If an organisation uses secondary data to measure its Scope 3 greenhouse gas emissions, it should prioritise activity or emissions data that is based on, or represents, the specific technology used in the value chain activity that the data is intended to reflect.

For example, an organisation may collect primary data related to employee air travel—such as the specific aircraft model, distance traveled, and travel class—and then apply secondary data (such as emission factors) that accurately represent the greenhouse gas emissions associated with those variables.

If an organisation uses secondary data, it should prioritise activity or emissions data that is based on, or represents, the jurisdiction in which the activity happened. For example, an organisation should prioritise emission factors that relate to the jurisdiction in which the organisation operates or in which the activity has taken place. For example, an organisation should prioritise emission factors that correspond to the jurisdiction in which it operates or where the specific activity has taken place. Using jurisdiction-specific data enhances the accuracy and relevance of greenhouse gas emissions estimates by better aligning them with the actual conditions under which emissions are generated.

If an organisation uses secondary data, it shall prioritise activity or emissions data that is timely and representative of the organisation’s value chain activity during the reporting period. In some jurisdictions, and for some technologies, secondary data is collected on an annual basis and is therefore likely to reflect the organisation’s current practices. However, certain secondary data sources may be based on information from a reporting period that differs from the organisation’s own reporting period.

Verified data

An organisation should prioritise Scope 3 greenhouse gas emissions data that is verified. Verification helps users of general purpose financial reports trust that the information is complete, neutral and accurate.

Verified data might include data checked internally or externally. Verification can involve on-site checks, reviewing calculations, or cross-checking data with other sources. However, sometimes an organisation might not be able to verify its Scope 3 greenhouse gas emissions without undue cost or effort. For example, this could happen if there is too much data or if the data comes from entities in the value chain that are many tiers away and the organisation does not deal with them directly. In these cases, the organisation might need to use unverified data.

Disclosure of inputs to Scope 3 greenhouse gas emissions

An organisation should disclose information about the measurement approach, inputs and assumptions it uses to measure its Scope 3 greenhouse gas emissions. This disclosure should include information about data input characteristics. The purpose is to show users of general purpose financial reports how the organisation has prioritised the highest quality data that truly represents the value chain activity and its Scope 3 greenhouse gas emissions. It also helps users understand why the chosen measurement approach, inputs and assumptions are relevant.

To show how an organisation prioritises Scope 3 data following the measurement framework explained above, the organisation should disclose information that helps users of its financial reports understand:

how much of the organisation’s Scope 3 greenhouse gas emissions are measured using inputs from specific activities within its value chain; and
how much of the organisation’s Scope 3 greenhouse gas emissions are measured using verified inputs.

This standard assumes that Scope 3 greenhouse gas emissions can be reliably estimated using secondary data and industry averages. In rare cases when an organisation decides it is impracticable to estimate its Scope 3 greenhouse gas emissions, it should explain how it is managing those emissions. A requirement is impracticable when the organisation cannot apply it after making every reasonable effort.

Financed emissions

Organisations involved in financial activities face risks and opportunities related to the greenhouse gas emissions linked to those activities.

Counterparties, borrowers or investees with higher emissions may be exposed to risks from changes in technology, supply and demand, or policy, which can affect the financial institution providing them services. These risks can include credit, market, reputational and other financial or operational risks.

For example, credit risk can arise from financing clients affected by stricter carbon taxes, fuel efficiency rules or changes in technology. Reputational risk can come from financing fossil-fuel projects. Financial institutions such as banks, asset managers and insurers are increasingly measuring their financed emissions to manage these risks. This helps show their exposure to climate-related risks and how their financial activities may need to change over time.

An organisation is required to disclose its total gross Scope 3 greenhouse gas emissions for the reporting period, including both upstream and downstream emissions. An organisation involved in any of the following financial activities must also disclose specific information about its Category 15 emissions, also known as financed emissions:

asset management
commercial banking
insurance

a) Asset Management

An organisation that carries out asset management activities should disclose:

its total gross financed emissions, broken down into Scope 1, Scope 2 and Scope 3 greenhouse gas emissions;
for each item in (a), the total amount of assets under management (AUM) included in the financed emissions disclosure, reported in the organisation’s presentation currency;
the percentage of the organisation’s total AUM included in the financed emissions calculation. If this is less than 100%, the organisation should explain what was excluded, including the types of assets and the related amount of AUM;
the method used to calculate financed emissions, including how the organisation allocated its share of emissions based on the size of its investments.

b) Commercial Banking

An organisation involved in commercial banking should disclose:

its total gross financed emissions, broken down by Scope 1, Scope 2 and Scope 3 greenhouse gas emissions for each industry and asset class. When breaking down by:
1. industry: it should use the Global Industry Classification Standard (GICS) 6-digit code to classify counterparties, based on the latest version available at the reporting date;
2. asset class—the disclosure should include loans, project finance, bonds, equity investments and undrawn loan commitments. If the organisation includes other asset classes, it should explain why including them provides useful information.
its gross exposure to each industry by asset class, reported in the organisation’s presentation currency. For:
1. funded amounts: gross exposure should be calculated as the funded carrying amounts before deducting any loss allowance;
2. undrawn loan commitments: the full commitment amount should be disclosed separately from the drawn portion
the percentage of the organisation’s gross exposure included in the financed emissions calculation. The organisation should:
1. if less than 100% is included, explain the exclusions, including the type of assets excluded;
2. for funded amounts, exclude any impacts of risk mitigants;
3. separately disclose the percentage of undrawn loan commitments included.
the method used to calculate financed emissions, including how the organisation allocated its share of emissions based on the size of its gross exposure.

b) Insurance

An organisation involved in insurance-related financial activities should disclose:

its total gross financed emissions, broken down by Scope 1, Scope 2 and Scope 3 greenhouse gas emissions for each industry and asset class. When breaking down by:
1. industry: it should use the Global Industry Classification Standard (GICS) 6-digit code to classify counterparties, based on the latest version available at the reporting date;
2. asset class: the disclosure should include loans, bonds, equity investments and undrawn loan commitments. If the organisation includes other asset classes, it should explain why including them provides useful information;
the gross exposure for each industry by asset class, reported in the organisation’s presentation currency. For:
1. funded amounts: gross exposure should be calculated as the funded carrying amounts before deducting any loss allowance;
2. undrawn loan commitments: the full commitment amount should be disclosed separately from the drawn portion;
the percentage of the organisation’s gross exposure included in the financed emissions calculation. The organisation should:
1. if less than 100% is included, explain the exclusions, including the type of assets excluded
2. separately disclose the percentage of undrawn loan commitments included;
the method used to calculate financed emissions, including how the organisation allocated its share of emissions based on the size of its gross exposure.

2. Other disclosures

Climate-related transition risks: the amount and percentage of assets or activities exposed to these risks;
Climate-related physical risks: the amount and percentage of assets or activities exposed to these risks;
Climate-related opportunities: the amount and percentage of assets or activities aligned with these opportunities;
Capital deployment: the amount of capital expenditure, financing or investment allocated to climate-related risks and opportunities;
Internal carbon prices:
1. whether and how a carbon price is used in decision-making (such as investment decisions, transfer pricing or scenario analysis);
2. the price per metric tonne of emissions used.
Remuneration:
1. whether and how climate-related considerations are included in executive remuneration
2. the percentage of executive remuneration in the current period linked to climate-related factors

When preparing these disclosures, the organisation should:

consider the time frames over which climate-related risks and opportunities could reasonably be expected to happen.
consider where climate-related risks and opportunities are concentrated in its business model and value chain (such as geographic locations, facilities or asset types).
consider the information disclosed about the effects of climate-related risks and opportunities on its financial position, performance and cash flows for the reporting period.
consider whether industry-based metrics, including those in an applicable IFRS Sustainability Disclosure Standard or that otherwise meet the requirements in IFRS S1, can be used to meet the requirements in full or in part.

consider how this information connects with the related financial statements, as required by IFRS S1. This includes using consistent data and assumptions where possible, and linking the amounts disclosed to those recognised or disclosed in the financial statements. For example, the organisation would check that the asset values used are consistent with those in the financial statements and would explain any connections.

The organisation should disclose industry-based metrics linked to specific business models, activities or other shared characteristics typical of its industry. When deciding which metrics to disclose, the organisation should refer to and consider the relevant industry-based metrics in the Industry-based Guidance on Implementing IFRS S2.

Climate-related targets

An organisation should disclose the quantitative and qualitative climate-related targets it has set to track progress toward its strategic goals, and any targets it is legally required to meet, including greenhouse gas emissions targets.

For each target, the organisation should disclose:

the metric used to set the target;
the purpose of the target such as mitigation, adaptation or alignment with science-based initiatives;
the part of the organisation the target applies to, for example, the whole organisation or a specific business unit or region;
the time period the target covers;
the base period used to measure progress;
any milestones and interim targets;
if the target is quantitative, whether it is an absolute or intensity target; and
how the latest international climate agreement, including related jurisdictional commitments, has informed the target.

An organisation should disclose how it sets and reviews each target, and how it monitors progress, including:

whether the target and the method used to set it have been validated by a third party;
the organisation’s process for reviewing the target;
the metrics used to track progress toward the target; and
any changes made to the target and the reasons for those changes.

An organisation should disclose how it has performed against each climate-related target and provide an analysis of any trends or changes in its performance.

For each greenhouse gas emissions target, an organisation should disclose:

which greenhouse gases the target covers;
whether the target includes Scope 1, Scope 2 or Scope 3 emissions;
whether the target is for gross or net emissions. If it is a net target; the organisation should also disclose the related gross emissions target
whether the target was developed using a sectoral decarbonisation approach;
its planned use of carbon credits to meet any net emissions target, including:
1. how much the target depends on carbon credits;
2. which third-party schemes will verify or certify the credits;
3. the type of credit (for example, nature-based or technology-based, and whether it involves carbon reduction or removal);
4. any other details users need to understand the credibility and reliability of the credits, such as assumptions about the permanence of the offsets;

If the climate-related target is quantitative, an organisation should state whether it is an absolute target or an intensity target.

An absolute target refers to a total amount or change in a total amount.
An intensity target refers to a ratio or change in a ratio relative to a business metric.

If an organisation has a greenhouse gas emissions target, it should specify whether the target is gross or net.

Gross targets reflect the total planned changes in emissions within the organisation’s value chain.
Net targets are the gross emissions minus planned offsetting efforts, such as the use of carbon credits.

If the organisation has a net greenhouse gas emissions target, it should also disclose a gross emissions target. The net target cannot be used to hide information about the gross target.

The organisation is required to explain how it plans to use carbon credits, which are transferable or tradeable instruments, to offset emissions and meet any net greenhouse gas emissions targets it has set or is required to meet by law or regulation. The information should clearly show how much the organisation relies on carbon credits to meet its net targets.

The organisation should disclose only its planned use of carbon credits. However, it may also include information about carbon credits it has already bought and plans to use to meet its net greenhouse gas emissions target, if this helps users of financial reports understand the target.

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