The UN-convened Net-Zero Asset Owner Alliance (NZAOA), a group of 74 leading institutional investors managing US$10.6 trillion in assets, supports and warmly welcomes the Exposure Draft IFRS S2 Climate-related Disclosures (Climate Exposure Draft) from the International Sustainability Standards Board (ISSB).

NZAOA members have publicly committed – at the CEO level – to decarbonising their investment portfolios in line with a 1.5°C pathway, and to achieving net zero greenhouse gas emissions by 2050 at the latest. Alliance members have, in addition, committed to setting science-based intermediate targets on a five-year cycle (in line with Article 4.9 of the Paris Agreement) and to reporting on their progress. A key aspect of this commitment is tracking emissions attributable to our portfolio holdings and supporting the reduction of carbon emissions in the real economy.

Yet at present, the absence of standardised, comparable and granular climate-related disclosure from companies imposes significant barriers and costs to asset owners. The lack of reliable data limits our ability to incorporate climate-related issues into investment decision-making, and to implement effective stewardship and portfolio design strategies. The climate exposure draft from the ISSB represent a landmark opportunity to change this.

In particular, NZAOA members wish to:

1. Recognise the progress made with the establishment of the ISSB and its climate exposure draft.

The Alliance welcomes that the Climate Exposure Draft aims to act as a global baseline, building on the TCFD recommendations and SASB standards, containing guidance and disclosures rooted in well-established climate reporting concepts. We believe this will facilitate a common set of climate-related reporting requirements. However, we note that the SASB standards are broadening, and observe that there are timing issues in this broadening that need to resolve to arrive at a fit-for-purpose ISSB standard.

2. Highlight areas where the Alliance recommends that the ISSB goes further to ensure the consistency and appropriate granularity of disclosures, even for a global baseline. Notably:
  • Removing or defining the word “significant” climate-related risks and opportunities within the S2 Climate Change Exposure Draft. This term is not used in existing climate reporting frameworks and is at risk of being open to interpretation and inconsistently applied. The term is also not consistent with previous IFRS guidance; a 2018 IFRS staff memo[1], for example, recommended revising IAS 1 to refer to “materiality” instead of “significant” as this would better guide decision-making on what should be disclosed. Therefore, removing or defining the term “significance” is recommended, as it would ensure that all material climate-related information is disclosed.
  • As 90% of the world’s GDP is covered by net-zero pledges[2], the ISSB should expressly integrate this development into transition plans and target-setting in countries covered by such government pledges.
  • Transition plans. The Alliance recommends additional disclosure requirements should be incorporated into transition plans, such as agreed near-term actions to deliver on the underlying strategy, alignment of engagement activities, information on financing the transition, and details on individuals and governance structures responsible for implementation.
  • Target-setting template. To better support the comparability of a company’s target reporting, the use of a common target-setting template is recommended (see annexe 2).
  • Require the use of climate scenario analysis in company reporting. Reporting by companies on the resilience of their business strategy to climate scenarios is important to investment and voting decisions since it demonstrates that companies understand that the materiality of climate change will not be static and are paying attention to the issue. Disclosure of a climate scenario analysis is not necessarily a quantitative exercise but could be narrative-based, seeking to commence a learning process on how climate-related risks and opportunities could evolve over time. Scenario analysis should evaluate the degree of alignment of the company’s business model and investment plans with the Paris Agreement 1.5°C scenario (or an updated internationally recognised standard).
  • Industry metrics and targets. Sector targets are the most relevant means for financial institutions to evaluate and track real-world emission reductions. The targets can enable asset owners to provide capital support to companies which are the best carbon performers within their sectors and can guide asset owners in supporting the financing of the global economy’s transition to net zero. Therefore, the Alliance recommends:
    • The ISSB should require different disclosures of industry metrics for the 12 most energy-intensive sectors listed in annexe 3, based on the SASB proposals; these should be consistent and comparable to the maximum possible extent.
    • While emission reporting on scopes 1, 2 and 3 form part of the cross-industry metrics, which we highly appreciate, these are not incorporated consistently with the Appendix B Industry-Based Disclosure Requirements (some of which only require disclosure on scope 1 emissions, for example, B11 oil and gas exploration and production). These sector-specific proposals should be aligned with the cross-industry proposals and should, thus, include scope 1, 2 and, where material[3], scope 3 emissions. In addition, aside from historical data, sector-specific proposals should include requirements on a forward-looking basis (at five and ten-year intervals).
  • Revise the industry sector requirements on methane, a major greenhouse gas that is significant in a number of key energy industries, such as oil and gas and the utility sector. The Alliance recommends that methane emissions are reported separately and not as aggregated CO2e. Furthermore, there should be a disclosure of the measure of methane volume per metric ton and the measure of methane intensity in the oil and gas and utility sector (Appendix B Industry-Based Disclosure requirements).
3. Interoperability.

The Alliance strongly supports the ISSB’s mission to deliver a high-quality global baseline of climate-related financial disclosures and encourages continued engagement between ISSB and national and regional regulators to ensure interoperability of sustainability-related reporting standards. This should limit the reporting burdens on organisations and lead to the alignment of key concepts, terminologies and metrics on which disclosure requirements are built.

Globally consistent, comparable, and reliable reporting is needed for a clear and accurate picture of an organisation’s progress, and for investors to incorporate this information into investment decisions.


[1] IFRS staff paper: significance and materiality

[2] Climate Action Tracker

[3] When considering whether to disclose Scope 3 GHG emissions, organizations should consider whether such emissions are a significant portion of their total GHG emissions. For example, see discussion of 40% threshold in the SBTi Criteria and Recommendations, Version 4.2, April 2021, Section V, p. 10.

About the UN-convened Net-Zero Asset Owner Alliance

The 74 members of the UN-convened Net-Zero Asset Owner Alliance have committed i) to transitioning their investment portfolios to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial levels; ii) to establishing intermediate targets every five years, and iii) to regularly reporting on progress. The Alliance is convened by UNEP’s Finance Initiative and the Principles for Responsible Investment (PRI). The Alliance is supported by WWF and Global Optimism. Further information on NZAOA can be found here