IFRS S2
Active
Climate-related Disclosures
Specifies climate-related disclosure requirements, including physical and transition risks, GHG emissions, scenario analysis, and industry-based metrics.
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Conceptual Framework Linkage
Why climate risk warranted the FIRST topic-specific standard
Climate change was identified by the ISSB as the MOST developed, urgent, and broadly consistent sustainability topic across jurisdictions – building directly on the pre-existing, widely adopted TCFD recommendations. IFRS S2 applies IFRS S1's general framework SPECIFICALLY to climate-related risks and opportunities, providing detailed, industry-tailored metrics that make the Framework's relevance objective CONCRETE for this particular, financially significant risk category.
HOW IFRS S2 MAPS TO THE FRAMEWORK
Relevance – climate risk can materially affect asset values, cost structures, and access to capital over multiple time horizons, directly relevant to investor decision-making Comparability – MANDATORY GHG emissions disclosure using the internationally recognised GHG Protocol methodology enables consistent comparison ACROSS entities and industries Faithful representation via scenario analysis – requiring disclosure of climate RESILIENCE under different future scenarios (rather than a single point estimate) better represents the genuine UNCERTAINTY inherent in long-term climate outcomes
IFRS S2 was the FIRST topic-specific ISSB standard issued (alongside IFRS S1) – reflecting the global convergence around TCFD as the most mature, broadly accepted foundation for climate disclosure standardisation.
The two fundamental risk categories
Risk categoryNature
Physical riskDirect impacts from climate change itself (acute events, chronic shifts)
Transition riskRisks arising from the SHIFT toward a lower-carbon economy (policy, technology, market changes)
This dual classification directly mirrors the TCFD's own foundational framework, which IFRS S2 builds upon almost entirely.
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Scope & Definitions
What IFRS S2 covers
IFRS S2 requires an entity to disclose information about climate-related risks and opportunities that could REASONABLY BE EXPECTED to affect its cash flows, access to finance, or cost of capital over the short, medium, or long term – applied TOGETHER with IFRS S1's general requirements, using the SAME core content structure (governance, strategy, risk management, metrics and targets).
IFRS S2 does NOT stand alone – it is a topic-specific application of IFRS S1's overarching framework, adding climate-specific detail (scenario analysis, GHG emissions metrics, industry-based metrics) on top of the general requirements.
Key definitions you must know
Physical risk
Risks resulting from climate change, comprising ACUTE risks (event-driven, e.g. floods, hurricanes) and CHRONIC risks (longer-term shifts, e.g. rising sea levels, temperature changes).
Transition risk
Risks arising from efforts to transition to a lower-carbon economy, including policy, legal, technology, market, and reputational risks.
Climate resilience
An entity's capacity to adjust to, or withstand, climate-related changes, developments, or uncertainties.
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Physical vs Transition Climate Risk
Two categories, each requiring distinct analysis
An entity discloses BOTH physical and transition risks separately, recognising they arise from FUNDAMENTALLY different underlying drivers and require different mitigation strategies.
Example 1: Distinguishing physical from transition risk for a coastal manufacturer
A manufacturer operates a factory on a coastline vulnerable to rising sea levels (a chronic PHYSICAL risk), and also relies heavily on a carbon-intensive production process that may face increasing carbon taxes as governments tighten climate policy (a TRANSITION risk).
The entity discloses BOTH risks SEPARATELY: the physical risk assessment addresses potential facility relocation costs or flood defence investment; the transition risk assessment addresses the potential financial impact of future carbon pricing on production costs and competitiveness – each requiring genuinely DIFFERENT strategic responses and disclosure content.
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Governance and Strategy Disclosures
Applying IFRS S1's pillars specifically to climate
Under GOVERNANCE, an entity discloses the board's oversight of climate-related risks/opportunities, and management's role in assessing/managing them. Under STRATEGY, an entity discloses the ACTUAL and POTENTIAL effects of climate-related risks/opportunities on its business model, strategy, and financial position over the short/medium/long term – including how these are factored into strategic planning and capital allocation decisions.
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Climate Resilience – Scenario Analysis
A genuinely distinctive IFRS S2 requirement
An entity USES CLIMATE-RELATED SCENARIO ANALYSIS to assess its climate resilience – considering AT LEAST one scenario ALIGNED with the latest international agreement on climate change (e.g. limiting global warming to 1.5°C), and (where relevant to the assessment) another scenario reflecting a MORE SEVERE climate outcome.
Example 2: Applying scenario analysis
An energy company assesses its resilience under a "1.5°C aligned" scenario (rapid transition, aggressive decarbonisation policy) versus a "higher warming" scenario (slower transition, more severe physical climate impacts).
Under the 1.5°C scenario, the company might disclose SIGNIFICANT transition risk to its fossil fuel assets (stranded asset risk from rapid decarbonisation policy). Under the higher warming scenario, it might disclose GREATER physical risk to its infrastructure from more severe weather events – disclosing BOTH gives users a far richer picture of resilience across genuinely DIFFERENT plausible futures, rather than a single deterministic forecast.
6
GHG Emissions – Scope 1, 2, and 3
A mandatory, universally applicable metric
An entity discloses its ABSOLUTE gross greenhouse gas emissions, measured in accordance with the GHG PROTOCOL methodology, separately for:
ScopeDefinition
Scope 1DIRECT emissions from sources the entity owns/controls
Scope 2INDIRECT emissions from purchased electricity, steam, heating, or cooling
Scope 3ALL OTHER indirect emissions occurring in the entity's VALUE CHAIN (upstream and downstream)
Example 3: Categorising a manufacturer's emissions
A manufacturer directly burns natural gas in its own factory boilers (500 tonnes CO2e), purchases grid electricity generating 300 tonnes CO2e at the power station, and its suppliers' production of raw materials generates an estimated 2,000 tonnes CO2e, while customer use of its products generates an estimated 4,500 tonnes CO2e.
Scope 1 = 500 tonnes CO2e (direct combustion, owned boilers)
Scope 2 = 300 tonnes CO2e (purchased electricity)
Scope 3 = 2,000 + 4,500 = 6,500 tonnes CO2e (upstream supplier emissions + downstream customer use emissions)
Scope 2 = 300 tonnes CO2e (purchased electricity)
Scope 3 = 2,000 + 4,500 = 6,500 tonnes CO2e (upstream supplier emissions + downstream customer use emissions)
Scope 3 emissions are typically the LARGEST category for most entities, yet also the MOST difficult to measure reliably, since they depend on data from suppliers and customers OUTSIDE the entity's direct control – a genuinely significant estimation challenge IFRS S2 explicitly acknowledges with transition relief provisions.
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Industry-based Metrics
SASB-derived, industry-specific disclosure requirements
IFRS S2 incorporates INDUSTRY-BASED metric requirements derived substantially from the SASB Standards – recognising that climate risk manifests very DIFFERENTLY across industries (e.g. an oil and gas company's material metrics differ substantially from a software company's), and providing tailored guidance rather than a single generic checklist.
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Cross-Industry Metrics & Targets
A common baseline applicable regardless of industry
In addition to industry-specific metrics, IFRS S2 requires certain CROSS-INDUSTRY metrics applicable to ALL entities – including GHG emissions (Section 6), climate-related transition risks/opportunities, physical risks, capital deployment toward climate-related risks/opportunities, internal carbon pricing (if used), and remuneration linked to climate-related considerations. Entities also disclose any climate-related TARGETS set, and progress toward them.
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Disclosure Requirements
Required disclosures under IFRS S2
Governance processes for overseeing climate-related risks/opportunities Strategy, including effects on business model, and climate resilience via scenario analysis Risk management processes for identifying/assessing/monitoring climate-related risks Scope 1, 2, and 3 GHG emissions, plus cross-industry and industry-based metrics Climate-related targets set, and progress toward achieving them
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Critical Judgments & Estimates
Where management judgement matters most
SIGNIFICANT JUDGEMENTS
Which physical and transition risks are material to the specific entity Selecting appropriate climate scenarios for resilience assessment Determining the boundary of the entity's value chain for Scope 3 purposes
SIGNIFICANT ESTIMATES
Scope 3 emissions, heavily reliant on third-party data and estimation methodologies Financial effects of climate risk under different scenarios
Scope 3 emissions measurement is widely regarded as the SINGLE most challenging aspect of IFRS S2 implementation, given the reliance on data quality and availability from entities OUTSIDE the reporting entity's direct control – IFRS S2 includes specific transition relief allowing additional time to build reliable Scope 3 measurement capability.
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IFRS S2 vs TCFD and Other Frameworks
Comparison – IFRS S2 vs TCFD and the EU's ESRS climate standard
FeatureIFRS S2TCFD / EU ESRS E1
Foundational structureDIRECTLY built on, and consistent with, TCFD's four pillarsTCFD itself; ESRS E1 shares many similar concepts but with EU-specific additions
Materiality basisSINGLE (financial/enterprise value) materialityESRS applies DOUBLE materiality – also requiring disclosure of the entity's climate IMPACT, not just risk exposure
GHG emissions scopeScope 1, 2, and 3 mandatory (with Scope 3 transition relief)Similarly comprehensive under ESRS, though with somewhat different specific methodological requirements
IFRS S2 is widely regarded as ESSENTIALLY codifying and formalising TCFD into a mandatory IFRS Sustainability Disclosure Standard – many jurisdictions ADOPTING IFRS S2 explicitly reference it as their formal replacement for voluntary TCFD reporting.
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Statement Mapping
Where every IFRS S2 disclosure lands
Disclosure itemLocationNotes
Governance, strategy, risk managementSustainability ReportPart of general purpose financial reporting
Scenario analysis and climate resilience assessmentSustainability ReportAt least one 1.5°C-aligned scenario required
Scope 1, 2, 3 GHG emissionsSustainability ReportGHG Protocol methodology; Scope 3 subject to transition relief
Industry-based and cross-industry metricsSustainability ReportSASB-derived, tailored by industry
Financial effects reflected in recognised amounts (where material)SOFP SOPLVia ordinary IFRS Accounting Standards (e.g. IAS 36, IAS 37)
Like IFRS S1, IFRS S2 is a DISCLOSURE standard – its metrics and narrative sit within the sustainability-related financial disclosures, explicitly connected to (but distinct from) the financial statements themselves.
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Related Standards
Cross-reference map
StandardConnection
IFRS S1Supplies the general framework (materiality, four pillars, connected information) that IFRS S2 applies specifically to climate
IAS 36Climate transition risk may affect impairment testing assumptions for long-lived, carbon-intensive assets
IAS 37Climate-related legal/regulatory risks may give rise to provisions or contingent liabilities
IAS 16 / IAS 38Useful life estimates for assets may need reassessment in light of climate transition plans
Quick-reference glossary
GHG Protocol
The internationally recognised methodology for measuring and reporting greenhouse gas emissions, mandated by IFRS S2 for Scope 1/2/3 disclosures.
Internal carbon price
A price an entity applies internally to its own greenhouse gas emissions, used in investment decision-making – disclosed as a cross-industry metric if used.
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Glossary
GHG Protocol
The internationally recognised methodology for measuring and reporting greenhouse gas emissions, mandated by IFRS S2 for Scope 1/2/3 disclosures.
Internal carbon price
A price an entity applies internally to its own greenhouse gas emissions, used in investment decision-making.
Physical risk
Risks resulting from climate change, comprising acute and chronic risks.
Transition risk
Risks arising from efforts to transition to a lower-carbon economy.
Climate resilience
An entity's capacity to adjust to, or withstand, climate-related changes, developments, or uncertainties.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows