Making Sense of Sustainability Reporting Requirements

August 22, 2023

In previous blog posts, professor and transportation expert Alex Scott examined current standards for measuring truck emissions and proposed a science-based, data-driven method for improving how Scope 3 truck emissions are measured.

Written by Alex Scott

Sustainability reporting requirements were recently published that could become the standard worldwide. The International Sustainability Standards Board (ISSB), a group based in London under the umbrella of the International Financial Reporting Standards (IFRS) organization, released documents outlining the who, what, and how of sustainability reporting for companies.

These standards could soon be required by the SEC, the state of California, and the European Union. Because they are relevant to companies with public commitments, such as net-zero pledges, regardless of laws and regulations, companies must understand what the standards require.

In a series of posts, I will summarize what these standards mean for supply chain managers and discuss methods of measuring emissions that align with the ISSB’s guidance. As part of the educational goal of these posts, I refer to the relevant sections of the standards so readers can formulate their own opinions. To be clear, these are my interpretations of the ISSB standards, with an emphasis on educating supply chain practitioners. The standards are, of course, subject to change and open to different interpretations.


Corporate sustainability reporting has increased dramatically over the last decade as companies seek to communicate their impact on the environment and community, often in response to investor pressure. Because there are no universally accepted standards, these reports are often incomplete and inconsistent across companies (unlike, e.g., balance sheets and income statements). In response to the need to standardize, the ISSB released comprehensive standards in two documents: IFRS S1 and IFRS S2.[1] The standards define the information that should be included in sustainability reports and how that information should be collected and calculated.

In some cases, the standards rely on documents from the Greenhouse Gas Protocol, an organization specializing in greenhouse gas (GHG) emissions reporting. There is particular emphasis on Scope 3 emissions (i.e., those not directly emitted by a company’s assets); In these cases, the ISSB relies on Scope 3 reporting guidance from the Greenhouse Gas Protocol. Combined, these documents, which number in the hundreds of pages, define how emissions in a supply chain should be measured, categorized, and reported.

Interpreting the Guidelines

The standards are general guidelines with room for interpretation. The words “reasonable” and “reasonably” appear in IFRS S1 and IFRS S2 71 times. Other phrases that allow for interpretation, such as “without undue cost or effort,” “requires management to apply judgement ,” and “faithful representation,” are used throughout the document. Because there is often no clear-cut rule to guide sustainability reporting, managers should consider the defensibility of their decisions when applying the standards, perhaps by imagining a skeptical third party such as a judge or ESG investor on the other side.

When measuring and reporting Scope 3 emissions, the standard states that “an entity is required to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort when the entity selects the measurement approach, inputs and assumptions it uses in measuring Scope 3 greenhouse gas emissions.”[2]

What does “undue cost or effort” in measuring Scope 3 emissions mean? The answer to this will be context-specific and subject to individual judgment. Consider the example of Scope 3 truck emissions from my earlier blog post, where a shipper hires a carrier to haul a load in their supply chain. At one end of the spectrum, requiring a shipper to install tailpipe monitoring technology on their carriers to measure emissions would entail “undue cost or effort” because tailpipe monitoring is very uncommon, expensive, and impracticable due to the fragmented and dynamic nature of the trucking market. On the other hand, using a single emissions factor for all carriers and trucks could significantly underestimate emissions. Getting carrier-specific emissions factors is relatively straightforward, so the “undue cost or effort” sweet spot would likely lie somewhere between tailpipe monitoring on trucks and using a single emissions factor.

Who must comply with the standards?

The ISSB standards are designed for for-profit companies, regardless of the accounting principles—IFRS or GAAP—used by the company.[3] They can apply to public and private companies, depending on relevant laws and regulations. For example, the SEC could require public corporations to adhere to the standards. Or California could require reporting by all companies operating in the state that do more than $1 billion in business, even if that simply means advertising through Google, which is based in California. Apart from laws and regulations, the standards also apply to companies that voluntarily set emissions targets, such as net-zero pledges.[4] For example, IFRS S1 paragraph 46(b)(ii) states that “an entity shall disclose…metrics the entity uses to measure and monitor…its performance in relation to that sustainability-related risk or opportunity, including progress towards any targets that entity has set, and any targets it is required to meet by law or regulation.”

Thus, a company that promises to reduce emissions (perhaps with organizations such as the UN’s “Race To Zero” campaign or Climate Action 100+) commits to measure and report emissions in accordance with the ISSB or similar standards. Failure to do so, according to legal experts, could result in legal exposure (e.g., here is a lawsuit disputing carbon neutrality claims). According to one large national law firm, “‘net zero’ claims – presenting plans that a company will have no carbon dioxide emissions in the future – are likely to occasion litigation against various entities in the coming years.” In summary, even if no laws or regulations are passed, companies that publicly commit to emissions reductions or net-zero targets are binding themselves to standards like those by the ISSB.

What must be reported?

The standards require that companies report material information, another term not often used by supply chain practitioners. According to ISSB standards, material information is that which “could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports, which include financial statements and sustainability-related financial disclosures and which provide information about a specific reporting entity.”[5] Materiality, which is defined in detail in the appendix of IFRS S1, is based on the nature and/or magnitude of the information.[6] Consistent with much of the standards, materiality is open to interpretation and can be company specific.[7]

For companies required to do so by either law or regulation or that have set emissions targets, this requirement means that emissions from sources that comprise a significant portion of overall Scope 3 emissions should be reported. This is true because Scope 3 emissions must be reported,[8] as well as progress made towards achieving emissions targets.[9]

From a supply chain perspective, this means that emissions emanating from manufacturing, sourcing, transporting, and distributing product need to be measured and reported.

How should it be done?

In the next post, I will review the principles proposed by the ISSB with respect to measuring Scope 3 emissions and discuss how to measure them in a way that is consistent with the standards. For more information, please reach out to me at or

Alex Scott is an associate professor of supply chain management and the Gerald T. Niedert Professor in the Haslam College of Business at the University of Tennessee, Knoxville. He has spent the last two decades researching and working in the transportation industry.

Listen to Alex Scott discuss the University of Tennessee, Knoxville – project44 Fleet Sustainability Index and what it could mean for supply chains.

[1] The documents can be found (for free) here: You must sign up for an account to access them.

[2] IFRS S2, paragraph B38. Emphasis is my own.

[3] IFRS S1, paragraphs 8 and 9.

[4] For example, IFRS S1, paragraphs 25(d), 45, 46(b)(ii), and 51.

[5] IFRS S1 paragraph 18.

[6] IFRS S1 paragraph 14.

[7] IFRS S1 paragraphs 14 and B19.

[8] IFRS S2 paragraphs 29(a)(i)(3) and 29(a)(vi).

[9] IFRS S1 paragraph 25(d).