17 Mar, 2025

IFRS S2: What you need to know

IFRS S2: What you need to know

As the climate crisis reshapes the global business landscape, investors, regulators, and stakeholders are demanding more rigorous, transparent, and forward-looking climate disclosures. The International Sustainability Standards Board (ISSB), through its IFRS S2 Climate-related Disclosures standard, provides a global framework for organizations to report on climate-related risks and opportunities with consistency and credibility.

Effective for annual reporting periods beginning January 1, 2024, IFRS S2 integrates with IFRS S1 and aligns closely with the Task Force on Climate-related Financial Disclosures (TCFD), bringing climate data into the heart of financial reporting.

IFRS S2 at a Glance: Purpose and Scope

The objective of IFRS S2 is to ensure that companies disclose climate-related risks and opportunities that could reasonably be expected to affect their financial performance, position, or access to capital over the short, medium, or long term. The standard focuses on:

  • Physical risks, such as rising sea levels, extreme weather, and temperature changes impacting operations or supply chains

  • Transition risks, stemming from policy, market, or technological shifts in the move to a low-carbon economy

  • Opportunities, such as innovation in clean technology, energy efficiency, or low-carbon products and services

These disclosures are designed to inform the decisions of capital providers and to ensure greater alignment between corporate strategy and climate realities.

Effective Date and Application

IFRS S2 is effective for annual reporting periods starting January 1, 2024. Early adoption is permitted—if and only if companies also apply IFRS S1 (General Requirements for Sustainability-related Financial Disclosures) simultaneously.

Early adopters must clearly state their compliance with both standards, ensuring a cohesive approach to sustainability-related financial disclosure.

Core Disclosure Pillars

1. Governance

Companies must disclose:

  • The governance body (e.g., board, committee, or executive function) responsible for overseeing climate-related matters

  • Management’s role in implementing and managing climate-related risks and opportunities

  • How climate governance is embedded in broader enterprise risk management and decision-making

This enables stakeholders to assess the quality of oversight and the integration of climate issues into leadership structures.

2. Strategy

Disclosures should outline:

  • Climate-related risks and opportunities that are likely to materially affect the business

  • Impacts on the company’s value chain, business model, and strategic decisions

  • Transition plans and how they align with national and international climate goals (e.g., the Paris Agreement)

  • The resilience of the business strategy under different climate scenarios

Companies are expected to explain how climate risks influence long-term planning, capital allocation, and enterprise resilience.

3. Risk Management

Organizations must provide transparency into their processes for:

  • Identifying, assessing, and prioritizing climate-related risks

  • Conducting scenario analysis to evaluate financial impacts of different temperature pathways

  • Integrating climate-related risk management into overall risk frameworks

  • Monitoring and reassessing risks on an ongoing basis

Robust climate risk management demonstrates preparedness and adaptability in a rapidly evolving regulatory and environmental context.

4. Metrics and Targets

IFRS S2 requires disclosure of both quantitative and qualitative performance indicators, including:

  • GHG emissions (Scope 1, 2, and 3), with clear reporting boundaries and methodologies

  • Asset or activity exposure to climate-related risks and alignment with climate opportunities

  • Capital expenditure and investment allocated to climate adaptation, mitigation, or innovation

  • Internal carbon pricing practices and pricing assumptions, where applicable

  • Executive remuneration linked to climate performance, with specific metrics and weighting

  • Climate-related targets, including:

    • The metric and rationale behind the target

    • Time horizons (short, medium, long-term)

    • Interim milestones and progress tracking

    • Comparison to global standards or sectoral pathways

    • Use of offsets and third-party validation, if relevant

This level of transparency helps stakeholders assess how effectively a company is managing and measuring its climate commitments.

Key Implications for ESG Leaders

IFRS S2 is more than a reporting requirement—it is a strategic framework for embedding climate risk into financial planning, governance, and performance measurement. To prepare, companies should:

  • Conduct a readiness assessment of existing climate disclosures

  • Enhance data collection systems across all emissions scopes and operational areas

  • Integrate scenario planning into enterprise risk management

  • Align governance structures with evolving oversight expectations

  • Define clear metrics and targets, ensuring credibility and alignment with investor expectations

Leveraging Technology to Support IFRS S2

Meeting the demands of IFRS S2 will require accurate, timely, and scalable data processes. Sustainability software platforms can support companies by:

  • Automating data collection across emissions scopes, regions, and business units

  • Enabling real-time performance monitoring against climate targets

  • Supporting scenario analysis and carbon pricing integration

  • Ensuring audit-ready records and traceability for assurance processes

  • Streamlining stakeholder communication with customizable dashboards and reports

With the increasing expectation for integrated, finance-grade ESG data, digital tools will be essential for compliance and performance.

Conclusion: A New Chapter in Climate Disclosure

IFRS S2 represents a major milestone in aligning climate-related risks with mainstream financial reporting. By adopting this standard, companies will not only meet regulatory and investor demands but also enhance their strategic positioning in a decarbonizing global economy.

For ESG leaders, IFRS S2 is a call to action—to transform climate-related information into actionable insights, drive accountability, and future-proof their organizations against the accelerating impacts of climate change.

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Have questions? Feel free to reach out to us at support@lonereport.com

© 2025 LoneReport

Have questions? Feel free to reach out to us at support@lonereport.com

© 2025 LoneReport