17 Mar, 2025
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.