History of IFRS S2

Related In­ter­pre­ta­tions

• None

Amendments under consideration by the ISSB

• None

Summary of IFRS S2

Objective and scope

The objective of IFRS S2 is to require an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. [IFRS S2:1] These are climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. [IFRS S2:2]

IFRS S2 applies to: [IFRS S2:3]

• (a) climate-related risks to which the entity is exposed, which are:
  • (i) climate-related physical risks; and
  • (ii) climate-related transition risks; and
• (b) climate-related opportunities available to the entity.

Climate-related risks and opportunities that could not reasonably be expected to affect an entity’s prospects are outside the scope of IFRS S2. [IFRS S2:4]

Governance

The objective of climate-related financial disclosures on governance is to enable users of general purpose financial reports to understand the governance processes, controls and procedures an entity uses to monitor, manage and oversee climate-related risks and opportunities. [IFRS S2:5]

To achieve this objective, an entity is required to disclose information about the governance body(s) (which can include a board, committee or equivalent body charged with governance) or individual(s) responsible for oversight of climate-related risks and opportunities. Specifically, the entity is required to identify the body(s) or individual(s). [IFRS S2:6(a)]

An entity is also required to disclose information about management’s role in the governance processes, controls and procedures used to monitor, manage and oversee climate-related risks and opportunities. [IFRS S2:6(b)]

Strategy

The objective of climate-related financial disclosures on strategy is to enable users of general purpose financial reports to understand an entity’s strategy for managing climate-related risks and opportunities. [IFRS S2:8]

Specifically, an entity is required to disclose information to enable users of general purpose financial reports to understand: [IFRS S2:9]

• (a) the climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects;
• (b) the current and anticipated effects of those climate-related risks and opportunities on the entity’s business model and value chain;
• (c) the effects of those climate-related risks and opportunities on the entity’s strategy and decision-making, including information about its climate-related transition plan;
• (d) the effects of those climate-related risks and opportunities on the entity’s financial position, financial performance and cash flows for the reporting period, and their anticipated effects on the entity’s financial position, financial performance and cash flows over the short, medium and long term taking into consideration how those climate-related risks and opportunities have been factored into the entity’s financial planning; and
• (e) the climate resilience of the entity’s strategy and its business model to climate-related changes, developments and uncertainties—taking into consideration the entity’s identified climate-related risks and opportunities.

Risk management

The objective of climate-related financial disclosures on risk management is to enable users of general purpose financial reports to understand an entity’s processes to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process.[IFRS S2:24]

To achieve this objective, an entity is required to disclose information about: [IFRS S2:25]              

• (a) the processes and related policies the entity uses to identify, assess, prioritise and monitor climate-related risks, including information about:
  • (i) the inputs and parameters the entity uses (for example, information about data sources and the scope of operations covered in the processes);
  • (ii) whether and how the entity uses climate-related scenario analysis to inform its identification of climate-related risks;
  • (iii) how the entity assesses the nature, likelihood and magnitude of the effects of those risks (for example, whether the entity considers qualitative factors, quantitative thresholds or other criteria);
  • (iv) whether and how the entity prioritises climate-related risks relative to other types of risk;
  • (v) how the entity monitors climate-related risks; and
  • (vi) whether and how the entity has changed the processes it uses compared with the previous reporting period.
• (b) the processes the entity uses to identify, assess, prioritise and monitor climate-related opportunities, including information about whether and how the entity uses climate-related scenario analysis to inform its identification of climate-related opportunities; and
• (c) the extent to which, and how, the processes for identifying, assessing, prioritising and monitoring climate-related risks and opportunities are integrated into and inform the entity’s overall risk management process.

Metrics and targets

The objective of climate-related financial disclosures on metrics and targets is to enable users of general purpose financial reports to understand an entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation. [IFRS S2:27]

To achieve this objective, an entity is required to disclose: [IFRS S2:28]

• (a) information relevant to the cross-industry metric categories;
• (b) industry-based metrics that are associated with particular business models, activities or other common features that characterise participation in an industry; and
• (c) targets set by the entity, and any targets it is required to meet by law or regulation, to mitigate or adapt to climate-related risks or take advantage of climate-related opportunities, including metrics used by the governance body or management to measure progress towards these targets.

Climate-related metrics and targets

An entity is required to disclose information relevant to the cross-industry metric categories of: [IFRS S2:29]

• (a) greenhouse gases—the entity is required to:
  • (i) disclose its absolute gross greenhouse gas emissions generated during the reporting period, expressed as metric tonnes of CO2 equivalent, classified as scope 1, 2 and 3 greenhouse gas emissions;
    
  • (ii) measure its greenhouse gas emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) unless required by a jurisdictional authority or an exchange on which the entity is listed to use a different method for measuring its greenhouse gas emissions;
  • (iii) disclose the approach it uses to measure its greenhouse gas emissions including:
    • (1) the measurement approach, inputs and assumptions the entity uses to measure its greenhouse gas emissions;
    • (2) the reason why the entity has chosen the measurement approach, inputs and assumptions it uses to measure its greenhouse gas emissions; and
    • (3) any changes the entity made to the measurement approach, inputs and assumptions during the reporting period and the reasons for those changes.
  • (iv) for Scope 1 and Scope 2 greenhouse gas emissions, disaggregate emissions between:
    • (1) the consolidated accounting group (for example, for an entity applying IFRS Accounting Standards, this group would comprise the parent and its consolidated subsidiaries); and
    • (2) other investees excluded from the consolidated accounting group (for example, for an entity applying IFRS Accounting Standards, these investees would include associates, joint ventures and unconsolidated subsidiaries .
  • (v) for Scope 2 greenhouse gas emissions, disclose its location-based Scope 2 greenhouse gas emissions, and provide information about any contractual instruments that is necessary to inform users’ understanding of the entity’s Scope 2 greenhouse gas emissions; and
  • (vi) for Scope 3 greenhouse gas emissions, disclose:
    • (1) the categories included within the entity’s measure of Scope 3 greenhouse gas emissions, in accordance with the Scope 3 categories described in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011); and
    • (2) additional information about the entity’s Category 15 greenhouse gas emissions or those associated with its investments (financed emissions), if the entity’s activities include asset management, commercial banking or insurance;
• (b) climate-related transition risks—the amount and percentage of assets or business activities vulnerable to climate-related transition risks;
• (c) climate-related physical risks—the amount and percentage of assets or business activities vulnerable to climate-related physical risks;
• (d) climate-related opportunities—the amount and percentage of assets or business activities aligned with climate-related opportunities;
• (e) capital deployment—the amount of capital expenditure, financing or investment deployed towards climate-related risks and opportunities;
• (f) internal carbon prices—the entity is required to disclose:
  • (i) an explanation of whether and how the entity is applying a carbon price in decision-making (for example, investment decisions, transfer pricing and scenario analysis); and
  • (ii) the price for each metric tonne of greenhouse gas emissions the entity uses to assess the costs of its greenhouse gas emission; and
• (g) remuneration—the entity is required to disclose:
  • (i) a description of whether and how climate-related considerations are factored into executive remuneration; and
  • (ii) the percentage of executive management remuneration recognised in the current period that is linked to climate-related considerations.

In addition, an entity is required to disclose the quantitative and qualitative climate-related targets it has set to monitor progress towards achieving its strategic goals, and any targets it is required to meet by law or regulation, including any greenhouse gas emissions targets. For each target, the entity is required to disclose: [IFRS S2:33]

• the metric used to set the target;
• the objective of the target (for example, mitigation, adaptation or conformance with science-based initiatives);
• the part of the entity to which the target applies (for example, whether the target applies to the entity in its entirety or only a part of the entity, such as a specific business unit or specific geographical region);
• the period over which the target applies;
• the base period from which progress is measured;
• any milestones and interim targets;
• if the target is quantitative, whether it is an absolute target or an intensity target; and
• how the latest international agreement on climate change, including jurisdictional commitments that arise from that agreement, has informed the target.

Industry-based guidance

Industry-based Guidance on Implementing IFRS S2 suggests possible ways to apply some of the disclosure requirements in IFRS S2. The guidance does not create additional requirements. Specifically, the guidance suggests ways to identify and disclose information about climate-related risks and opportunities associated with particular business models, activities or other common features that characterise participation in an industry. In applying IFRS S2, an entity is required to refer to and consider the applicability of the information set out in the guidance. [IFRS S2:IB1]

The industry-based guidance has been derived from Sustainability Accounting Standards Board (SASB) Standards, which are maintained by the ISSB. Because the guidance is industry-based, only a subset is likely to apply to any entity. [IFRS S2:IB2]

Effective date and transition

An entity is required to apply IFRS S2 for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted. If an entity applies IFRS S2 earlier, it is required to disclose that fact and apply IFRS S1 at the same time. [IFRS S2:C1]

An entity is not required to provide the disclosures specified in IFRS S2 for any period before the beginning of the annual reporting period in which an entity first applies IFRS S2 (the date of initial application). Accordingly, an entity is not required to disclose comparative information in the first annual reporting period in which it applies IFRS S2. [IFRS S2:C3]

In the first annual reporting period in which an entity applies IFRS S2, the entity is permitted to use one or both of the following reliefs: [IFRS S2:C4]

• (a) if, in the annual reporting period immediately preceding the date of initial application of IFRS S2, the entity used a method for measuring its greenhouse gas emissions other than the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004), the entity is permitted to continue using that other method; and
• (b) an entity is not required to disclose its Scope 3 greenhouse gas emissions which includes, if the entity participates in asset management, commercial banking or insurance activities, the additional information about its financed emissions.

If an entity uses either of these reliefs, the entity is permitted to continue to use that relief for the purposes of presenting that information as comparative information in subsequent reporting periods. [IFRS S2:C5]