On 31st January 2022, the Climate Disclosure Standards Board (CDSB) was consolidated into the IFRS Foundation to support the work of the newly established International Sustainability Standards Board (ISSB). While this site and its resources remain relevant for preparers looking to improve sustainability disclosure until such time as the ISSB issues its IFRS Sustainability Disclosure Standards on such topics, no further work or guidance will be produced or published by CDSB. For further information please visit the IFRS website.

Why the CDSB Framework doesn't and won't (yet) include Scope 3

Answering the question: Why doesn't the CDSB Reporting Framework require Scope 3 emissions information?

Here at the CDSB Secretariat we are continually asked as to why the CDSB Framework does not require measurement and reporting of Scope 3 GHG emissions in the same way as CDP’s questionnaires or the GHG Protocol. This is not because we don’t think Scope 3 is important. The most significant environmental and financial benefits may be found outside a company’s organizational boundaries in the supply chain.

The reason the CDSB Framework does not require measurement of Scope 3 GHG emissions is that the objective of the Framework is to support compliance with obligations to report on climate change (and in due course water and forest commodities) through mainstream reporting channels such as a companies annual report.  We therefore follow the boundaries set by most mainstream reporting requirements, which, in turn are often established by financial reporting standards (see paragraph 4.23 of Edition 1.1 for an explanation). In particular, mainstream reporting requirements normally apply to information relating to the entity or group of entities for which consolidated financial statements are prepared. Information relating to that entity or group of entities is often only required to the extent that the entity or activity is controlled or significantly influenced by the reporting entity/group.

The mainstream reporting structure imposes these restrictions. CDSB took a similar approach because we want the scope of information reported about climate change in a mainstream report to match the established scope of information reported for financial reporting purposes. This is not to say that the CDSB Framework precludes Scope 3 reporting. It just does not require Scope 3 GHG emissions to be measured. Paragraph 4.27 of Edition 1.1 of the Framework states that where Scope 3 emissions expose the reporting organization to risks, opportunity or financial impacts, the effect should be disclosed. The International Integrated Reporting Framework takes a similar approach. So in short, the CDSB Framework deliberately aligns with the organizational boundaries most commonly set for mainstream reporting purposes because its objective is to support disclosures through mainstream reporting channels for which boundaries are already set. Additionally CDSB has been told by some of our corporate contributors that reporting beyond those boundaries in mainstream reports presents legal challenges.

Certain companies in the UK are now required by law (the Companies Act) to report on the GHG emissions “for which they are responsible” (which arguably takes us into Scope 3 territory). We have seen a number of companies reporting that they are not “responsible” for GHG emission from outsourced or subcontracted activities. The objective of mainstream reporting is in many cases to inform investors and potential investors of the financial performance and position of the reporting entity. As noted above, where issues beyond the financial reporting boundary actually or potentially threaten the financial performance or position of the reporting entity/group the CDSB Framework does require that those issues are reported, in the same way that management commentary/MD&A would require reporting. The difference is that the Framework does not require measurement of the Scope 3 GHG emissions. We are working within the parameters of an established and fairly entrenched mainstream reporting system. There is a tension between wanting to change it and acknowledging its power as the prevailing system. At the moment, CDSB are doing the latter on “reforming from within” basis.

However, where the objective of a reporting scheme is to help readers to determine the actions a company has taken to minimise its environmental impacts, understanding Scope 3 is important.  CDSB are interested in particular whether and to what extent the pursuit of reporting beyond the boundary can meaningfully contribute to sustainability and exploring further the notion of context based reporting so that all natural capital disclosures are understood in the context of planetary limits. This should in time give investors and others greater imperative to use Scope 3 information.

Further reading: Corporate Environmental Sustainability Beyond Organizational Boundaries: Market Growth, Ecosystems Complexity and Supply Chain Structure as Co-Determinants of Environmental Impact, Journal of Environmental Sustainability

Image source: Tanti Ruwani/flickr