IFRS S2 Category 15 and Financed Emissions: What Financial Institutions Must Report

Financial institutions often use “portfolio emissions”, “financed emissions”, “facilitated emissions”, “insurance-associated emissions” and “Category 15” in the same programme. Those labels can refer to different activities, boundaries and denominators. IFRS S2’s amended architecture makes the hierarchy explicit: total Scope 3 contains Category 15; Category 15 can contain financed emissions and other financial activities; and the financed-emissions subtotal is followed by additional business-line disclosures for asset management, commercial banking and insurance.

A credible system therefore begins with a financial-activity taxonomy, not a final emissions table. It identifies the legal entity and business line, asset class, funded or undrawn status, accounting carrying amount or AUM, counterparty or investee, industry classification, emissions scopes, allocation method, data quality, exclusions and reporting-period treatment. Without that structure, totals can appear plausible while coverage, gross exposure and Category 15 reconciliation remain wrong.

Figure 1. Category 15, financed emissions and institution-specific disclosure architecture. London Reporting Academy learning visual.

Paragraph 29A permits, but does not require, an entity to limit Category 15 to emissions attributed to loans and investments. The amended text identifies loans, project finance, bonds, equity investments and undrawn loan commitments. For asset management, financed emissions include emissions attributed to assets under management. Emissions attributable to derivatives may be excluded for this limitation.

The decision should be applied consistently and documented across products, legal entities and reporting periods. If the group also measures facilitated, advisory, underwriting-associated or other financial-service emissions for management or voluntary initiatives, those measures need separate definitions and should not be blended into the IFRS S2 financed-emissions subtotal without a supported basis.

Paragraph 29C requires a transparent hierarchy whenever Category 15 is included in the Scope 3 measure. The entity discloses the total Category 15 amount and the financed-emissions subtotal included within it. This structure is required whether or not the two amounts happen to be equal under the entity’s approved boundary.

An entity participating in asset management discloses absolute gross financed emissions, disaggregated by the investees’ or counterparties’ Scope 1, Scope 2 and Scope 3. For each emissions scope, it also discloses the amount of assets under management included, expressed in the presentation currency of the financial statements, the percentage of total AUM covered, exclusions where coverage is below 100%, and the methodology including allocation.

A common control issue is using net asset value, committed capital, market value or regulatory AUM interchangeably. IFRS S2 refers to AUM included and total AUM; the entity should define the operational source, measurement date, currency conversion and treatment of multi-manager, fund-of-funds, cash, derivatives and mandates consistently and explain exclusions.

Commercial banks disclose financed emissions by investee or counterparty Scope 1, Scope 2 and Scope 3 for each industry by asset class, together with gross exposure to each industry by asset class. Funded gross exposure is the funded carrying amount before loss allowance. Undrawn loan commitments are disclosed at the full commitment amount separately from the drawn portion. For funded amounts, the gross exposure excludes the effects of risk mitigants such as collateral or guarantees, if applicable.

Entities participating in financial activities associated with insurance disclose financed emissions and gross exposure by industry and asset class, coverage and exclusions, undrawn commitments and methodology. The funded amount and undrawn commitment treatment broadly follows the specified presentation, but the mandatory insurance asset classes differ from commercial banking: loans, bonds, equity investments and undrawn loan commitments. Project finance is not listed as a mandatory insurance asset class, although another asset class can be added where its inclusion provides relevant information and the entity explains why.

For commercial banking and insurance, the selected industry-classification system must enable users to understand transition-risk exposure by industry. A commonly used system is more likely to support comparability, and if it provides equally useful information it is prioritised over an entity-specific system. The entity discloses the system and explains how its selection meets the transition-risk objective.

A diversified group does not have to force banking and insurance onto one system. Different systems can be used where appropriate. The key controls are version, counterparty mapping, primary-industry judgement, overrides, unclassified balances, changes from the previous period and the connection to risk-management reporting.

Financed-emissions data can be missing, lagged, estimated or unavailable by counterparty scope. IFRS S2’s Scope 3 measurement framework still applies: use reasonable and supportable information, prioritise data characteristics with judgement, and disclose methods and limitations. A low-quality data segment is not automatically excluded. The system should preserve counterparty-reported data, estimated emissions, factor source, financial data, allocation, reporting-year mismatch, verification status and quality tier.

Context. Meridian Financial Group contains an asset manager, a commercial bank and an insurer. It also has an investment-banking advisory business and trades derivatives. The group applies the paragraph 29A limitation to Category 15, defining derivatives using the financial-instrument taxonomy used in its financial statements and excluding advisory and facilitated activities from the financed-emissions measure. Those activities are monitored separately for management purposes and are not described as financed emissions.

Data architecture. The asset manager reports financed emissions by investee Scope 1, Scope 2 and Scope 3 and ties included AUM to the AUM system. The bank reports the same emissions scopes by industry and by loans, project finance, bonds, equity investments and undrawn commitments. The insurer uses loans, bonds, equity investments and undrawn commitments. Banking and insurance use different commonly used industry systems because each aligns more closely with its risk reporting, and the rationale is documented.

Disclosure result. Group Scope 3 includes a Category 15 total of 12.8 million tCO2e and a financed-emissions subtotal of 12.1 million tCO2e. The remaining 0.7 million tCO2e relates to another included Category 15 activity under the group policy. The note then presents the institution-specific tables, coverage percentages, excluded AUM and exposure, data-quality limitations, allocation methods and comparative changes.

Context. Illustrative diversified group with asset-management, banking and insurance activities.

Why the wording is useful

Evidence needed

Financial-activity universe and approved Category 15 boundary memo.

Derivative taxonomy and excluded-activity register.

AUM, funded carrying amount and undrawn commitment reconciliations.

Counterparty/investee emissions, estimates, factors and data-quality records.

Allocation calculations and position-to-portfolio aggregation.

Industry and asset-class mapping, overrides and system-version evidence.

Coverage percentages, exclusions and associated AUM/exposure amounts.

Total Scope 3, Category 15 and financed-emissions reconciliation.

Comparative-change and governance approval records.

Practical consequence. A single portfolio-emissions number is not enough for users to understand concentration, coverage, data quality or transition-risk exposure.

Prerequisite: IFRS S2 Scope 3: How to Assess All 15 Categories and Improve Data Quality

Boundary foundation: GHG Protocol and IFRS S2: Organisational Boundaries, Methods and Required Disclosures

Transition: IFRS S2 GHG Amendments 2025: What Changed and How to Prepare for 2027

Sector application: IFRS S2 for Banks: Credit Portfolios, Financed Emissions and Transition Risk