Qatar’s alignment with the IFRS S1 and S2 standards requires companies to have a clear understanding of how both standards are applied in principle. The ISSB issued the IFRS S2 Climate-related disclosures which set out the requirements for entities to disclose information about their climate-related risks and opportunities.
Under the IFRS S2 Disclosure Standards, companies are required to disclose their absolute gross Scope 1, 2, and 3 emissions to ensure investors have a clear understanding of the entity’s climate situation. This article provides professional insight into understanding the IFRS S2 climate disclosures and the importance of disclosing scope 1-3 emissions.
What are IFRS S2 Climate-related Disclosures?
The objective of the IFRS Climate-related disclosures is to require an entity to disclose information about its climate-related risks and opportunities which are useful to users of general purpose financial reports in making decisions relating to providing resources to the entity. The IFRS S2 is structured to apply to:
- Climate-related risks to which the entity is exposed which are:
- Climate-related physical risks
- Climate-related transition risks
- Climate-related opportunities available to the entity.
It is important to note that climate-related risks and opportunities that could not reasonably be expected to affect an entity’s prospects are deemed to be outside the scope of IFRS S2.
Governance
Another crucial aspect of the IFRS S2’s objective is to ensure users of general purpose financial reports are able to understand the governance processes, controls and procedures being used by an entity to monitor, manage and oversee climate-related risks and opportunities. This objective is achieved by the entity disclosing information about the governance body(s) which can include a board, committee or equivalent body responsible for governance of individual(s) responsible for oversight of climate-related risks and opportunities.
Strategy
The purpose of climate-related financial disclosures on strategy is to enable users of general purpose financial reports to understand an entity’s strategy for managing climate-related risks and opportunities.
Risk management
The objective of climate-related financial disclosures on risk management is to give users of general purpose financial reports the opportunity to understand an entity’s processes to identify, assess, prioritize and monitor climate-related risks and opportunities, including the system through which these processes are integrated into and inform the entity’s overall risk management process.
Metrics and targets
Metrics and targets of climate-related financial disclosures are provided to enable users of general purpose financial reports to understand an entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any target it is required to meet by law or regulation.
What are Scope 1, 2 and 3 Emissions?
In line with its sustainability commitments to reduce emissions, it is vital for firms working with the Qatar Financial Centre and the implementation of the Sustainable Finance Framework to be aware of the various emissions scopes.
It is worth mentioning that the three scopes are a way of categorizing the different kinds of emissions a company creates in its operations and in its wider value chain i.e. suppliers and customers. These scopes can be further understood thus;
Scope 1 emissions
Scope 1 covers emissions from sources that an organization owns or controls directly e.g. emissions from industrial surfaces.
Scope 2 emissions
Scope 2 relates to emissions that a company causes indirectly and originates from where the energy it purchases and uses is produced. For instance, the emissions caused when generating the electricity used in industrial complexes.
Scope 3 emissions
Scope 3 covers emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by them, but by those that it’s indirectly responsible for up and down its value chain. Examples of this is when we buy, use and dispose of products from suppliers. In practice, it is worth noting that scope 3 emissions include all sources not within the scope 1 and 2 boundaries.
Why Do Scope 1, 2 and 3 Emissions Disclosures Matter for QFC Firms?
The QFC Regulatory Authority (QFCRA) currently mandates sustainability reporting for firms based in Qatar. These rules require adherence to the International Sustainability Standards Board (ISSB) standards, specifically IFRS S1 and S2, which mandate comprehensive reporting of GHG emissions.
Understanding these emissions allows firms to prepare for future regulatory changes, such as potential carbon pricing or stricter environmental laws.
Investors are also increasingly focused on working with companies with strong ESG (Environmental, Social, and Governance) track record. These emissions disclosures will guarantee that firms can get access to funding for key projects while improving reputation among stakeholders.
Practices for Assessing and Monitoring Scope 1, 2, and 3 Emissions Disclosures
Companies that proactively measure, manage, and report their scope 1, 2, and 3 emissions are better positioned to navigate Qatar’s evolving regulatory landscape. These are some practices that can make the process more manageable and effective:
Establish a clear framework and strategy: This involves clearly defining the objectives of the emissions assessment and the boundaries of your continuous
monitoring analysis. You can also utilize established frameworks such as the GHG Protocol to ensure consistency and accuracy in your emissions reporting.
Pre-Screen suppliers: You can build comprehensive supplier profiles which can be used to compare and monitor supplier demographics, fourth-party technologies, ESG scores, sustainability ratings, recent business and reputational insights.
Include sustainability KPIs in supplier contracts: Centralize your onboarding, distribution, discussion, retention and review of supplier contracts, and leverage workflow to automate the contract lifecycle, ensuring enforcement of ESG requirements. You can develop key performance indicators (KPIs) to track progress towards your sustainability targets with suppliers.
Perform comprehensive and continuous sustainability assessments: Start by conducting an initial baseline assessment to understand your current emissions profile.Your company can also implement a system for continuous ESG monitoring and regular updates to capture changes over time.
Conclusion
Understanding IFRS S2 climate-related disclosures is vital to ensuring your company is perfectly aligned with Qatar’s sustainability future. Scope 1, 2 and 3 emissions are a crucial aspect of this disclosure objective and understanding your assessment and monitoring options will increase corporate access to sustainable funding and QFC regulatory ease.
References
- IFRS S2 Climate-related Disclosures, https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s2-climate-related-disclosures/
- Sustainable Finance Framework, https://www.qcb.gov.qa/Documents/Sustainable%20Lending%20-%20English.pdf