A Necessary Flexibility: Why Allowing Alternatives to GICS Makes Sense - If Bound by Guardrails

As part of our submission to the ISSB’s Exposure Draft on amendments to IFRS S2, Eco Sustainability has formally registered its stance.

In this opinion editorial, we offer our insights and position. To view our Technical Opinion, please see the full text of our formal submission.

Full Text From ISSB Exposure Draft

Question 2—Use of the Global Industry Classification Standard in applying specific requirements related to financed emissions

Paragraphs 29(a)(vi)(2) and B62–B63 of IFRS S2 require entities with commercial banking or insurance activities to disclose additional information about their financed emissions. These entities are required to use the Global Industry Classification Standard (GICS) for classifying counterparties when disaggregating their financed emissions information in accordance with paragraphs B62(a)(i) and B63(a)(i) of IFRS S2.

(a) The ISSB proposes to amend the requirements in paragraphs B62(a)(i) and B63(a)(i) of IFRS S2 and to add paragraphs B62A–B62B and B63A–B63B that would provide relief to an entity from using GICS in some circumstances. Under the proposals, an entity can use an alternative industry-classification system in some circumstances when disaggregating financed emissions information disclosed in accordance with paragraphs B62(a)–B62(b) and B63(a)–B63(b) of IFRS S2.

Paragraphs BC25–BC38 of the Basis for Conclusions describe the reasons for the proposed amendment.

Do you agree with the proposed amendment? Why or why not?

• Broadly agree

• Broadly disagree

• Neither agree nor disagree

We Broadly Agree

Eco Sustainability broadly agrees with the proposed amendment to allow entities to use alternative industry classification systems, under limited and clearly justified circumstances, when disaggregating Scope 3 Category 15 financed emissions.

Why This Matters

GICS is a globally recognized system - but it isn’t universal. Many financial institutions in emerging markets lend to SMEs, unlisted companies, and informal sectors not well-captured by GICS. In these cases, regional systems (like ISIC, NAICS, or local taxonomies) may provide a more accurate picture of emissions exposure.

But flexibility must come with guardrails. Without a clear framework, this amendment could inadvertently enable misreporting or undermine year-on-year consistency.

Key Risks

• Baseline distortion: Changing classification systems midstream disrupts emissions tracking and target-setting.

• Coverage gaps: GICS may not classify certain counterparties common in local economies - such as informal agro-industrial cooperatives or microfinancing recipients.

• Data reliability: Financed emissions are already difficult to estimate. Layering on inconsistent classification increases uncertainty.

• Greenwashing risk: Entities may “shop around” for classifications that produce lower emissions numbers.

Our Recommendations

To safeguard integrity, we recommend:

• Mandatory disclosure and rationale. Entities must clearly state which classification system they used and explain why it was more suitable than GICS.

• Mapping tools and crosswalks. ISSB should provide or endorse mapping tools to reconcile different systems (e.g., ISIC vs. GICS), aiding transparency and comparability.

• Validation safeguards. Use of alternative classifications should be subject to internal validation or limited assurance to ensure methodological rigour.

Flexibility is especially needed in emerging markets - but should not come at the expense of trust or consistency. This amendment is appropriate if implemented with transparency and oversight.

Full Text From ISSB Exposure Draft

(b) The ISSB also proposes to add paragraphs B62C and B63C to require an entity to disclose the industry-classification system used to disaggregate its financed emissions information and, if the entity does not use GICS, to explain the basis for its industry-classification system selection.

Paragraphs BC25–BC38 of the Basis for Conclusions describe the reasons for the proposed disclosure requirements.

Do you agree with the proposed disclosure requirements? Why or why not?

• Broadly agree

• Broadly disagree

• Neither agree nor disagree

We Broadly Agree

We support the proposed disclosure requirements in paragraphs B62C and B63C. These provisions are critical to ensuring that the flexibility introduced under 2(a) is applied transparently and consistently.

Why This Matters

GICS remains the global benchmark, especially for cross-border investors and analysts. But local realities - such as regulatory mandates or sector-specific taxonomies - sometimes require alternative approaches.

Disclosure is the key safeguard here. Requiring entities to name, describe, and justify their chosen classification system helps maintain trust, and allows users to understand the implications.

We Recommend

• Require detailEntities should disclose the structure, coverage, and sector logic of the alternative classification system used.

• Highlight differencesWhere applicable, reporters should explain how their system differs from GICS in sector boundaries, granularity, or treatment of hybrid entities.

• Support harmonizationISSB should invest in creating or endorsing crosswalks between GICS and common alternatives, facilitating better global alignment.

This amendment allows for context-sensitive reporting while preserving the comparability and credibility needed for a global baseline.

Conclusion

Allowing alternatives to GICS is a welcome and pragmatic move—but it must be backed by rigorous disclosure, validation, and mapping. Done right, this amendment helps emerging markets step up without weakening global standards.

About Eco Sustainability

As a trusted advisor on sustainability and climate policy, Eco Sustainability is not only aligned with global standards - we help shape them by engaging in technical consultations and contributing to standard-setting processes.