How GNFZ strengthens ISSB Standard disclosures
GNFZ and IFRS S1 and S2 do not substitute each other, but rather are complementary to each other. ISSB standards emphasize financially material sustainability issues, including what can affect a company’s cash flows, cost of capital and valuation; while GNFZ’s net zero certification focuses on environmental performance and footprint, whether or not directly financially material in the short term. A robust sustainability strategy involves both: transparently disclosing relevant risks, assumptions and progress to stakeholders while aiming (and being certified) for net zero performance is a win-win.
What is GNFZ net zero certification?
GNFZ’s net zero certification programs recognize an organization’s GHG accounting, net zero commitments and transition plans. As a performance-based certification, it ensures companies and buildings can credibly claim net zero with independent third-party verification.
GNFZ certification is based on the GHG Protocol, a global framework for measuring, managing and reducing emissions from private and public sector operations, value chains, products, cities and policies. GNFZ certification is rating system agnostic; aligns with the Paris Agreement and provides a path to calculate and eliminate Scope 1, 2 and 3 emissions. Built with total flexibility in mind, you can leverage the standard or framework of your choice to decarbonize and achieve certification for your building, portfolio or business.
Achieving GNFZ certification supports and aligns with most of the current ESG centric standards and frameworks for various countries and regions, focused on the “environmental” pillar of ESG. This has been discussed in our previous crosswalk comparing and showing alignments between GRI and GNFZ.
What is ISSB and IFRS S1 and S2?
The International Financial Reporting Standards (IFRS) are globally applicable accounting and sustainability standards issued by the IFRS Foundation, comprising the independent standard setting bodies the International Sustainability Standards Board (ISSB) and the International Accounting Standards Board (IASB). The ISSB developed and maintains the IFRS Sustainability Disclosure Standards, including IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures).
IFRS S1 and IFRS S2 were issued to set a global baseline for sustainability and climate disclosures aimed at investors and capital markets so they can better integrate sustainability factors into capital allocation. These standards ensure consistency, comparability and transparency across more than 100 countries, including the European Union and a majority of the G20 nations, and are especially important for publicly listed companies operating internationally by facilitating access to global capital markets.
The 4 principles of IFRS are:
Clarity
Reliability
Relevance
Comparability
IFRS S1 establishes requirements for reporting sustainability-related risks, opportunities and their financial impacts, whereas IFRS S2 is a thematic standard that focuses specifically on climate risks and opportunities. These are reporting and disclosure standards, telling companies what and how to report (governance, strategy, risk management, metrics and targets), and do not offer achievement certification. The standards require disclosure of Scope 1, 2 and 3 emissions (where material) under S2.
How does GNFZ certification support IFRS S1 and S2?
There are multiple areas of overlap where GNFZ certification provides a strong data foundation for supporting the IFRS S1 and S2.
Governance and Accountability
IFRS requires business entities to disclose governance over sustainability and climate risks and opportunities.
Though GNFZ doesn’t directly require documentation of governance structure, the process followed during certification requires a governance and oversight of internal organizational processes, quality control and more related to certification. An internal lead is assigned for net zero planning and data collection, and policies must be established for emissions monitoring and verification — which overlaps with IFRS disclosures for facilitation and enablement.
GNFZ also recommends annual documentation as part of ongoing monitoring and reporting to stay on the organization’s net zero plan. This ongoing reporting is consistent with the IFRS clause that the entity must disclose changes, updates, restatement of metrics, new assumptions, emerging risks and governance updates year over year. GNFZ’s requirement for annual updates is aligned with good practice for continuing disclosure.
Strategy
GNFZ certification requires organizations to strategize around climate-related risks and opportunities and develop a net zero plan including baseline, targets, emissions reduction pathways, and elimination strategy. GNFZ certification includes milestones for assessment, plan development and certification.
IFRS requires disclosures of the methodology, assumptions, boundary (in which emissions are included) and consistency over time. All of these are part of the net zero plan under GNFZ certification.
There is a strong overlap between IFRS and GNFZ on the strategy pillar with regards to:
The Scope 1, 2, and 3 emissions baseline and assessment stages of GNFZ certification. IFRS S2 requires disclosure of GHG emissions (Scope 1, 2 and, where material, Scope 3) with metrics, intensity, trends and narrative. GNFZ’s assessment baseline provides essential input for that. The difference is that GNFZ’s emission baseline is part of a certification process with verification; IFRS S2 disclosure does not mandate certification, only reporting.
IFRS S2 requires that entities disclose their strategy for climate risks and opportunities, including transition plans, scenario analysis and how actions will unfold over time. The GNFZ plan becomes the evidence or basis for those disclosures. IFRS demands more forward-looking and scenario-based evidence, which may require augmenting a GNFZ roadmap with sensitivity or alternatives.
IFRS expects disclosure of progress toward targets and any re-baselining or re-statement. GNFZ’s intermediate certificates help in providing credible milestones that directly feed into IFRS narrative for strategy that is adaptable to changing environment and circumstances.
If an entity claims “net zero,” IFRS requires disclosures around residual emissions, use of offsets, assumptions and uncertainties. A GNFZ net zero certificate provides strong external validation, which can strengthen the credibility of the “net zero” claim in disclosures. However, the entity must still disclose all supporting assumptions, limitations and risks per IFRS rules.
So, GNFZ certification offers an incremental approach that aligns with the strategic imperative of IFRS. The fact that GNFZ allows entities to start from any maturity level is beneficial in practice as well. IFRS does not require maturity thresholds before disclosure — even entities early in their journey must disclose what is material to investor decision-making.
Risk Management
The GNFZ certification process covers the “environmental” aspect of ESG by way of establishing an emissions baseline assessment across Scopes 1, 2 and 3, as applicable to the project scope. It encourages identification of transition risks (carbon pricing, regulation) as well as physical risks relevant to operations that will be alleviated in due time by achieving the net zero certification as part of net zero planning. Such risk mitigation strategies can be disclosed for IFRS compliance.
Additionally, GNFZ certification includes a net zero roadmap and plan with reduction pathways and actions. IFRS S2 requires that entities disclose their strategy for climate risks and opportunities. The GNFZ plan then becomes the evidence or basis for those disclosures.
Metrics and Targets
GNFZ metrics feed IFRS metrics, and the net zero achievement plan and milestone tracking feeds the disclosures on targets.
GNFZ certification quantifies Scope 1, 2 and 3 emissions using the GHG Protocol, requires the entity to define interim and long-term targets toward net zero and tracks annual emissions reductions.
IFRS requires disclosures of the methodology, assumptions, boundary (in which Scope 1, 2 and 3 emissions are included) and consistency over time. GNFZ emissions assessments, certification metrics and regular net zero plan milestones and targets tracking directly feed these disclosures.
All the key features of GNFZ’s process are in alignment with the disclosure narrative that IFRS requires, which includes an incremental approach with milestone recognition and intermediate certificates, building a net zero roadmap and plan with reduction pathways and actions, achieving a final net zero certification and annual documentation with ongoing monitoring and reporting.
Verification and Validation
GNFZ provides third-party verification of emissions, plans and performance (required for certification). This is complementary with IFRS. While IFRS does not universally mandate external verification of sustainability disclosures (this depends on jurisdiction), the external validation inherent to GNFZ certification can bolster the credibility of the disclosed information under IFRS. Entities should disclose the level of assurance (if any) obtained and who performed it.
GNFZ and ISSB in Practice
GNFZ and ISSB can complement each other quite well. For example, a company could pursue GNFZ certification to internally validate and signal its progress toward net zero while also complying with ISSB disclosures so that investors understand how climate and sustainability factors affect financial value:
The data collected for net zero certification (emissions baselines, reduction plans, metrics) can feed into disclosures under IFRS S1 and S2 (governance, targets, metrics and scenario analysis).
The credibility from GNFZ certification (especially with third-party verification) can strengthen the credibility of disclosures under ISSB.
For organizations mainly in early stages of decarbonization, achieving net zero may be years away. The incremental and adaptable approach offered by GNFZ helps by providing tracking against milestones, so that disclosures are still meaningful even before “net zero” is reached. It can be a parallel journey with both complementing each other along the way.
At the same time, the rigor of assurance and verification under each protocol can differ: a certification may impose stricter validation protocols, whereas assurance of disclosures may be at varying levels depending on regulation or jurisdiction. ISSB mandates are relatively new, and adoption is evolving and varies. In some jurisdictions, reporting under them may be voluntary or partially required, meaning disclosures may not yet be fully comparable globally.