How to leverage Supplier Data for Climate Disclosure according to ISSB IFRS S2

Your Quick Guide to leverage supplier-specific data for ISSB IFRS S2 climate reporting requirements.

We have seen this year, that the international landscape of sustainability reporting has undergone a significant shift.

In Europe the CSRD is asking more than 50.000 companies to report on their sustainability efforts, whereas internationally the International Sustainability Standards Board (ISSB) is taking the reins from the Task Force on Climate-Related Financial Disclosures (TCFD).

In June 2023, the ISSB introduced its inaugural sustainability disclosure standards, including the IFRS S2, which focuses on climate-related disclosures. These standards, while not redefining industry-specific metrics, build on established frameworks such as the Sustainability Accounting Standards Board (SASB) and Climate Disclosure Standards Board (CDSB), now under ISSB's stewardship.

In the following, we explore what supplier climate data has specifically to do with IFRS S2.

Why Supplier Data is Crucial for Sustainability Reporting

Supplier data, particularly greenhouse gas (GHG) emissions data, plays a pivotal role in a company's Scope 3 decarbonization strategy. While it profoundly impacts financial disclosures, it in general impacts the capability of a company to reach its climate targets. Surprisingly, many companies however underestimate the significance of engaging suppliers in this process, often neglecting the limitations of relying solely on spend-based estimates for emissions.

Key Highlights of Effective Supplier Data for Climate Disclosure

When driving decarbonization, companies benefit tremendously from supplier specific data. It supports:

• Prioritizing primary supplier data for accurate Scope 3 reporting.

• Assessing climate maturity of suppliers for supply chain transparency and credibility.

• Enhancing mitigation efforts by focusing on improving suppliers' climate maturity.

• Recognizing the necessity of supplier-reported data for credible progress tracking.

Get Started: Unpacking ISSB Guidance on Supplier Data

Biggest insights to note: It's not enough to estimate Scope 3 emissions!

IFRS S2's requirement to disclose mechanisms for overseeing progress toward climate targets highlights the that estimated emissions data do not work for any company with credible Scope 3 targets.

Here's why:

• Inconsistent updates in emissions factors databases hinder progress monitoring.

• Industry averages fail to identify reduction opportunities, when you strive to reduce emissions.

• The absence of a verifiable way to attribute upstream reductions to Scope 3 emissions.

Supplier Data Governance goes from Progress Monitoring Towards Targets

IFRS S2 shows, that for a comprehensive understanding of the supply chains' climate maturity, a company must go beyond merely identifying and engaging Tier 1 suppliers.

A thorough climate supply chain strategy rather includes:

1. Mapping the entire supply chain (beyond Tier 1) according to segments, categories and relevance.

2. Assessing the climate risks by a supplier screening approach upfront of the upstream suppliers.

3. Contacting and engaging suppliers with high risk profiles to align with climate targets.

Moving towards Shared Climate Strategy to Address Value Chain Vulnerabilities

To respond effectively to existing climate risks and meet set reduction targets, companies rely on supplier data. It addresses not only their data need for disclosure and reporting requirements, but allows to create a foundation for a shared agenda in the supply chain.

With companies gain valuable insights about the climate targets set, emission data and reduction efforts taken in their supply chain, suppliers can benchmark their climate maturity and become preffered suppliers if they implement rapid actions.

A shared climate supply chain program therefore holds the potential to support a collaborative decarbonization journey, that empowers companies and suppliers alike to lead in the current the market transition.

How to Scale: Collecting and Utilizing Supplier Climate Data Effectively

IFRS S2 underscores the importance of supplier-reported data for disclosing value chain activities, and associated Scope 3 emissions.

However, engaging suppliers presents typically a unique set of challenges:

• Low response rates

• Inconsistent or low-quality data

• Incomplete supplier coverage

• Time-consuming processes

• Limited post-data collection supplier engagement

Working with companies across industries, find here our Best Practices for Engaging Suppliers

Map your suppliers (entire supply chain) based on spend-based estimations first.

Then:

1. Screen supplier data upfront using an AI-Pipeline before sending out surveys.

2. When starting your supplier survey program, focus on clear communication of simple data requests with an easy Climate Readiness Check.

3. Adopt a data-driven solution for streamlined data collection and analysis.

4. Start simple first, but increase your data granularity over time! Focus on data verification, e.g. with a Climate Performance Assessment of Top Suppliers.

5. Integrate climate data into your existing systems, for enhanced cross-team decision-making!

Conclusion

Every buying decision is a climate decision, support your team in taking smart climate choices!

Doing so, supplier-reported data is integral, also for the IFRS S2 framework. If requires effective supply chain engagement to meet your climate targets, work on reduction efforts and report transparently on the climate actions taken in your supply chain.

For a practical guide on Engaging Suppliers for Scope 3, explore our Climate Playbook 'Making Decarbonization happen in Scope 3', and apply to participate in our limited 'Scope 3 Action Group 2024'.