Aligning for Impact: IFRS and GHG Protocol Announces Partnership

Aligning for Impact: IFRS and GHG Protocol Announces Partnership

Published on June 25, 2024

The landscape of sustainability reporting took a significant step forward on June 24, 2024, with the official announcement of a partnership between the IFRS Foundation and the Greenhouse Gas Protocol (GHG Protocol). This collaboration, formalized through a memorandum of understanding (MoU), aims to guide future collaboration and work between the GHG Protocol and the International Sustainability Standards Board (ISSB).

Understanding the key players

The International Financial Reporting Standards (IFRS) Foundation

The International Financial Reporting Standards (IFRS) Foundation, a non-profit organization, operates on the core belief that better information leads to more informed decisions. Recognizing the need for investors to have access to reliable, transparent, and globally comparable data about companies, the IFRS Foundation develops high-quality IFRS Standards. These standards empower companies worldwide to provide investors with the information they need to make sound investment choices. Ultimately, the IFRS Foundation’s mission is to promote transparency, accountability, and efficiency within capital markets around the globe.

The Greenhouse Gas (GHG) Protocol

The Greenhouse Gas Protocol (GHG Protocol) plays a critical role in establishing comprehensive, standardized frameworks for measuring and managing greenhouse gas (GHG) emissions. These frameworks encompass private and public sector operations, value chains, and mitigation actions. Building on a long-standing partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol collaborates with a diverse range of stakeholders, including governments, industry associations, NGOs, businesses, and other organizations.

The Greenhouse Gas Protocol (GHG Protocol) has made a significant impact on how greenhouse gas emissions are reported in capital markets. Their Corporate Standard (2004) serves as the foundation for the measurement and disclosure requirements outlined in IFRS S2, the International Financial Reporting Standard specifically focused on climate-related disclosures. Both IFRS S2 and other sustainability disclosure standards are set by the International Sustainability Standards Board (ISSB), which operates under the umbrella of the IFRS Foundation.

An overview of the Memorandum of Understanding (MoU)

This Memorandum of Understanding (MoU) formalizes a commitment between the IFRS Foundation and the GHG Protocol to collaborate closely. Their primary goals are to ensure compatibility between existing and future standards and to guarantee that the information reported by companies addresses the specific needs of global capital markets. The MoU outlines key principles for ongoing cooperation and strengthens the relationship between the two organizations in developing new standards and guidance.

By working together, they aim to minimize the burden on companies that report under these standards and the users who interpret the information. Ultimately, this collaboration seeks to ensure that general-purpose financial reports provide the information needed by capital market participants. The MoU also establishes a governance structure to actively involve the ISSB in updates and decisions related to the GHG Protocol Corporate Standard. This includes appointing an ISSB representative as an observer on the GHG Protocol Independent Standards Board.

IFRS-GHG Protocol partnership: A significant stride in sustainability reporting

The partnership between the IFRS Foundation and the GHG Protocol represents a significant advancement in the field of sustainability reporting. This collaboration offers several key benefits that will positively impact the way companies report on their environmental impact:

Enhanced Consistency and Comparability

Prior to this partnership, companies faced a fragmented landscape of greenhouse gas (GHG) reporting requirements. This inconsistency created unnecessary burdens and hindered meaningful comparisons across companies and sectors. By leveraging the well-established GHG Protocol standards as a foundation for the ISSB’s sustainability disclosure standards, this partnership ensures a more consistent approach to measurement and reporting. This consistency will provide stakeholders with a clearer picture of a company’s environmental footprint, facilitating informed decision-making.

Streamlined Reporting Processes

The historical burden of navigating various and often conflicting GHG reporting requirements is significantly reduced through this partnership. Companies can now streamline their reporting processes by aligning with a single, globally recognized framework. This translates to reduced administrative costs and allows companies to dedicate more resources to driving down emissions and implementing effective sustainability strategies.

Improved Transparency and Accountability

The partnership fosters a more transparent and accountable environment for corporate climate action. Investors and other stakeholders gain access to reliable and comparable information regarding a company’s GHG emissions. This transparency allows for a better assessment of a company’s environmental performance and commitment to sustainability goals. Furthermore, the formalized collaboration positions the GHG Protocol to actively participate in the ISSB’s standard-setting process, ensuring that future sustainability disclosure standards remain aligned with best practices in GHG accounting and reporting.

The IFRS and GHG Protocol partnership signifies a pivotal moment in the evolution of sustainability reporting. The collaboration establishes a more consistent and streamlined framework, fostering greater transparency and accountability in corporate climate action. This advancement empowers companies to focus their efforts on reducing their environmental impact while enabling stakeholders to make informed decisions.

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