IFRS S2 Climate-Related Disclosures: Scope, Metrics, and Targets

IFRS S2 climate-related disclosure requirements ask a company to explain, in its annual financial reporting, how climate-related risks and opportunities affect its business and finances, and to back that narrative with quantitative data on greenhouse gas emissions and financial effects. Issued by the International Sustainability Standards Board in June 2023 and effective for annual reporting periods beginning on or after January 1, 2024, the standard organizes those disclosures under four pillars drawn from the Task Force on Climate-related Financial Disclosures and adds industry-specific metrics derived from SASB Standards.¹

Who Has to Apply the Standard

IFRS S2 applies to any entity that prepares general purpose financial reports and is exposed to climate-related risks or opportunities that could reasonably affect its prospects.² The text itself does not limit application to listed or profit-oriented entities, but jurisdictions that have transposed the standard into local law have generally focused on listed companies and large reporting entities. Whether a specific company is in scope, and what the consequences of non-compliance look like, is a question of local regulation: the ISSB does not itself enforce the standards.

IFRS S2 does not stand alone. Any entity applying it must also apply IFRS S1, the general framework for sustainability-related financial disclosures, and any entity that adopts IFRS S1 early must simultaneously adopt IFRS S2.³ The two travel together.

The Four Pillars of Disclosure

IFRS S2 organizes its requirements around governance, strategy, risk management, and metrics and targets.¹ These are not four separate reports. They form a single narrative connecting how the board oversees climate issues, how those issues shape the business, how management handles them, and how the company measures progress.

Under governance, an entity describes the board’s oversight of climate-related risks and opportunities, management’s role in assessing them, how frequently the governing body engages with the topic, and whether climate-related performance factors into executive remuneration.

Under strategy, disclosures cover how climate-related risks and opportunities affect the business model, value chain, decision-making, and financial planning over the short, medium, and long term. If the entity has a transition plan, it discloses that here. The strategy pillar also carries the climate resilience assessment.

Under risk management, the entity explains the processes it uses to identify, assess, prioritize, and monitor climate-related risks, and how those processes sit within its wider enterprise risk framework.

Under metrics and targets, the entity reports quantitative data across six cross-industry metric categories, any industry-specific metrics that apply, and the targets it has set for managing climate risks and tracking opportunities.

Physical and Transition Risks

Disclosures must address both types of climate-related risk. Physical risks arise from the climate itself. Acute physical risks are event-driven, like wildfires, floods, and hurricanes that damage assets or disrupt supply chains in concentrated periods. Chronic physical risks develop gradually: sustained higher temperatures, shifting precipitation, rising sea levels. The entity must explain how these changes could impair assets, raise operating costs, or alter revenue.

Transition risks come from the shift to a lower-carbon economy rather than from the climate. A new carbon-pricing regime could raise production costs. Consumer preferences could move away from carbon-intensive products. Technology could make existing equipment obsolete. Regulation could restrict certain activities entirely. Disclosures must be specific about which transition risks apply to the entity, not generic statements about the energy transition. The standard expects a clear link between the identified risk and its financial consequence for that particular business.

Current and Anticipated Financial Effects

IFRS S2 pushes beyond narrative and asks entities to quantify financial consequences wherever possible. An entity discloses how climate-related risks and opportunities have affected its financial position, financial performance, and cash flows during the reporting period, and how it expects those to change over the short, medium, and long term.⁴

Specifically, the entity identifies climate-related risks and opportunities for which there is a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next annual reporting period. Longer-horizon projections draw on the entity’s scenario analysis, transition plan, targets, and the nature of the risks it faces. Quantitative information is the expectation; if the entity cannot provide it, it must explain why and provide qualitative information instead.

The standard also requires disclosure of the amount of capital expenditure, financing, or investment deployed toward climate-related risks and opportunities during the reporting period. That figure directly answers the investor question of how much the company is actually spending.

Greenhouse Gas Emissions: Scope 1, 2, and 3

Measuring and reporting greenhouse gas emissions is the most data-intensive part of the standard. Entities must follow the GHG Protocol Corporate Standard as the common methodology, express emissions as absolute gross figures in metric tonnes of carbon dioxide equivalent, and cover seven gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, nitrogen trifluoride, perfluorocarbons, and sulphur hexafluoride.⁵

Scope 1 covers direct emissions from sources the entity owns or controls, like fuel burned in company-operated vehicles, furnaces, or manufacturing equipment. Scope 2 captures indirect emissions from purchased electricity, steam, heating, or cooling. Together they show the carbon footprint of the entity’s own operations and energy use.

Scope 3 is broader and harder. It covers all other indirect emissions across the value chain, both upstream and downstream. An entity must consider all fifteen categories defined by the GHG Protocol’s Corporate Value Chain Standard and disclose which categories it has included.⁶ Upstream categories include purchased goods and services, capital goods, fuel- and energy-related activities not captured in Scope 1 or 2, upstream transportation and distribution, waste from operations, business travel, employee commuting, and upstream leased assets. Downstream categories include downstream transportation and distribution, processing of sold products, use of sold products, end-of-life treatment of sold products, downstream leased assets, franchises, and investments.

Collecting Scope 3 data means pulling information from suppliers, customers, and third-party partners, which is why it remains the single most difficult disclosure for most companies. The ISSB granted a first-year exemption to reflect that reality.

Cross-Industry Metrics and Targets

Every entity, whatever its industry, reports against six cross-industry metric categories: greenhouse gas emissions, climate-related transition risks, climate-related physical risks, climate-related opportunities, capital deployment, and internal carbon prices. The illustrative guidance offers examples for each, such as the percentage of revenue from carbon-intensive activities for transition risk, or the proportion of assets in flood-prone areas for physical risk.⁷

Internal carbon pricing deserves particular attention. If an entity applies a carbon price in investment analysis, transfer pricing, scenario analysis, or similar decision-making, it must disclose that fact and state the price per metric tonne of greenhouse gas emissions.⁸ The standard distinguishes between a shadow price used to evaluate trade-offs and an internal fee actually charged to business units based on their emissions. Both require disclosure.

For targets, an entity discloses the specific climate-related goals it has set, including any emissions reduction targets, the timeframe, the base year, and how progress is measured. If targets reference an external framework such as the Paris Agreement, the entity says so. The entity also discloses whether its targets were validated by a third party and how its performance compared to those targets during the reporting period.

Climate Resilience and Scenario Analysis

Every entity must assess its climate resilience and disclose the results. Climate resilience here means the capacity to manage climate-related risks and benefit from climate-related opportunities, including the ability to respond and adapt to physical and transition risks. The assessment must be informed by climate-related scenario analysis, using an approach proportionate to the entity’s circumstances.⁹

Proportionality matters. Not every company needs sophisticated quantitative modeling. An entity evaluates its exposure to climate-related risks and opportunities, then considers the skills, capabilities, and resources it has. A company with low exposure and limited analytical resources can use a simpler qualitative approach. A large emitter with in-house expertise would be expected to use more advanced quantitative modeling. Whichever approach is used, the entity discloses the inputs, the key assumptions, and when the analysis was performed.

The resilience assessment happens annually, but the underlying scenario analysis does not need to be refreshed every year; at a minimum, it is updated in line with the entity’s strategic planning cycle. The disclosure covers three things: how the entity would need to adjust or adapt its strategy and business model given the effects identified, the significant areas of uncertainty it considered, and its capacity to make those adjustments over the short, medium, and long term.

Industry-Specific Disclosures

IFRS S2 layers industry-specific requirements on top of the cross-industry ones. Disclosure topics and metrics derived from SASB Standards recognize that the climate risks facing a mining company look nothing like those facing a software firm. The accompanying Industry-based Guidance identifies specific metrics for dozens of industries, covering topics like water stress for beverage producers, fleet fuel efficiency for transportation companies, or energy management for data center operators.

An entity uses those industry-based metrics as a reference point when identifying relevant disclosures, but the guidance is not a ceiling. If an entity identifies climate-related risks or opportunities material to its business that fall outside its designated industry metrics, it still discloses them. The ISSB has ongoing work to enhance the SASB-derived guidance, so the industry-specific requirements will continue to evolve.

Financed Emissions for Banks, Asset Managers, and Insurers

Financial institutions face additional disclosures because their climate exposure sits mostly in the portfolios they finance rather than in their own operations. IFRS S2 requires these entities to disclose financed emissions as part of Scope 3 Category 15, with granular breakdowns that go well beyond a single aggregate figure.²

A commercial bank reports its absolute gross financed emissions disaggregated by Scope 1, 2, and 3 for each industry and asset class, covering loans, project finance, bonds, equity investments, and undrawn loan commitments. It also discloses gross exposure to each industry by asset class and the percentage of total exposure included in its financed emissions calculation. An asset manager faces parallel requirements using assets under management as the denominator. Both must explain the allocation methodology used to attribute emissions to their share of the investment.

A 2025 amendment allows entities to limit their Category 15 measurement to financed emissions from loans and investments, excluding emissions attributable to derivatives. Entities that use this limitation must explain what they treated as a derivative and describe the financial activities they excluded.¹⁰ The amendment takes effect for annual reporting periods beginning on or after January 1, 2027, with earlier application permitted.

Where and When the Disclosures Appear

Climate disclosures belong inside the entity’s general purpose financial reports, not in a separate sustainability document published months later. IFRS S1 sets the timing rule: sustainability-related financial disclosures are reported at the same time as the related financial statements and cover the same reporting period.³ Information must be cross-referenced to related items in the financial statements, so a reader can trace the connection from a climate risk described in the sustainability disclosures to an asset impairment or provision recognized in the financials. If an entity publishes interim financial reports, it may need to update investors on significant climate-related developments during those periods.

First-Year Transition Reliefs

The ISSB built several practical accommodations into IFRS S2 for entities applying it for the first time. These reliefs do not reduce long-term requirements; they give preparers time to build the data collection processes and internal expertise that full compliance demands.

In the first annual reporting period, an entity is not required to provide comparative disclosures for any prior period.² It is also not required to disclose Scope 3 greenhouse gas emissions in that first year, and the exemption extends to the financed emissions disclosures for banks, asset managers, and insurers.¹⁰ If an entity used a greenhouse gas measurement methodology other than the GHG Protocol Corporate Standard in the period immediately before initial application, it can continue using that method during the first year.

Where an entity uses any of these reliefs, it can continue presenting the same information as comparative data in subsequent periods, avoiding the distortion of restating first-year figures against a different methodology.

What About External Assurance

IFRS S2 itself does not mandate third-party assurance of climate disclosures. Whether assurance is required depends on the jurisdiction adopting the standard. Many countries adopting IFRS S2 are introducing assurance requirements alongside it, typically starting with limited assurance and planning a transition to reasonable assurance over time, but the specifics vary by jurisdiction.

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IFRS Foundation. Disclosing Information About Anticipated Financial Effects Applying IFRS S2
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IFRS Foundation. Greenhouse Gas Emissions Disclosure Requirements Applying IFRS S2 Climate-related Disclosures
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IFRS. Scope 3 GHG Emissions Applying IFRS S2
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IFRS Foundation. IFRS S2 Climate-related Disclosures Illustrative Guidance
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IFRS Foundation. IFRS S2 Climate-related Disclosures
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IFRS Foundation. IFRS S2 Climate-related Disclosures – Climate-related Scenario Analysis
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IFRS Foundation. Amendments to Greenhouse Gas Emissions Disclosures – Amendments to IFRS S2