As climate disclosure standards evolve, the International Sustainability Standards Board (ISSB) is leading the shift toward more structured reporting.
ISSB’s International Financial Reporting Standards (IFRS) S2 Climate-related Disclosures establishes clear requirements for identifying, assessing, and reporting climate-related risks and opportunities—ensuring greater transparency for investors and stakeholders.
The primary goal of IFRS S2 is to provide investors with actionable climate-related insights, enabling well-informed decision-making. While it focuses specifically on climate-related disclosures, compliance can be complex and resource-intensive, requiring both ESG and financial reporting expertise.
As a result, many businesses turn to ESG consultants for guidance. Consultants play a crucial role in interpreting IFRS S2 requirements, integrating climate risk into financial reporting, and developing best practices for long-term compliance.
What is IFRS S2?
IFRS S2 is an ISSB climate disclosure standard that outlines requirements for organizations to report on climate-related risks and opportunities that could affect their prospects, access to capital, and cash flows in the short, medium, and long term.
It mandates structured and transparent reporting, ensuring that climate disclosures are integrated into broader sustainability reporting to help investors make well-informed resource allocation decisions.
IFRS S2 aligns with IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information), creating a consistent approach to sustainability disclosures. It also builds on previous frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD), incorporating its four core pillars: governance, strategy, risk management, and metrics and targets.
Additionally, IFRS S2 draws industry-specific disclosure requirements from the Sustainability Accounting Standards Board (SASB) to enhance compatibility and investor relevance.
Who does IFRS S2 apply to?
IFRS S2 applies to entities required to disclose climate-related risks and opportunities in their financial statements. This includes publicly traded companies, financial institutions, and businesses with significant climate-related exposure, such as large corporations in the manufacturing and energy sectors—but only in jurisdictions that have adopted IFRS S1 and S2, like Australia, Bangladesh, and Chile, among others.
The standard also applies to private companies seeking to attract investors who factor climate-related risks and opportunities into their investment decisions.
What is the difference between IFRS S1 and S2?
Although IFRS S1 and IFRS S2 are both ISSB standards launched on June 26, 2023—effective for periods starting on or after January 1, 2024—they serve different purposes.
- IFRS S1 provides a broad framework for sustainability-related risks and opportunities, covering all environmental, social, and governance (ESG) factors.
- IFRS S2 is climate-specific, focusing exclusively on climate-related financial disclosures, ensuring transparency around climate risks, financial impacts, and mitigation efforts.
While IFRS S1 ensures comprehensive sustainability reporting, IFRS S2 mandates disclosures on how climate risks affect financial performance and long-term strategy.
What is changing compared to TCFD?
As mentioned, IFRS S2 builds upon TCFD recommendations, introducing changes in scope, standardization, and regulatory adoption. While both frameworks guide climate disclosures, IFRS S2 requires more granular reporting on climate-related risks over the short, medium, and long term.
Additionally, IFRS S2 establishes industry-specific disclosure metrics (based on SASB standards), allowing for more tailored and sector-relevant reporting.
Due to its comprehensive structure and standardization, IFRS S2 is positioned for wider regulatory adoption. At least +30 countries have already adopted or are in the process of implementing it. Some jurisdictions implement the standard as is, while others modify it to align with local regulations.
IFRS S2 also aligns with global climate disclosure requirements, such as the EU’s Corporate Sustainability Reporting Directive (CSRD). Both standards aim to standardize sustainability reporting and require entities to conduct materiality assessments and disclose material climate risks.
To help businesses comply with both frameworks, the European Financial Reporting Advisory Group (EFRAG) and ISSB have developed ESRS-ISSB Interoperability Guidance, streamlining sustainability reporting.
Key IFRS S2 requirements
IFRS S2 establishes four key disclosure requirements: governance, strategy, risk management, and metrics and targets. Here’s a closer look at each:
1. Governance
IFRS S2 requires organizations to disclose their governance structures, controls, and procedures for overseeing climate-related risks and opportunities. Entities must:
- Identify the bodies or individuals responsible for climate-related governance
- Demonstrate whether leadership has the necessary skills and competencies to manage these risks and opportunities
- Explain how governance teams oversee target setting and progress monitoring
- Describe management’s role in handling climate-related risks and opportunities to promote transparency and accountability in decision-making
2. Strategy
Organizations with transition plans must clearly outline them along with their strategic approaches to managing risks and opportunities. They also need to explain how these factors impact business models, financial planning, and long-term sustainability goals.
Specifically, IFRS S2 mandates that companies disclose:
- Climate-related risks and opportunities expected to impact their future prospects
- Current and anticipated effects of these risks and opportunities on their value chain and business model
- Implications for overall strategy and decision-making
- How these risks and opportunities affect their financial position, financial performance, and cash flows in the reporting period, as well as projected short-, medium-, and long-term impacts
- The climate resilience of their business model and strategy in the face of climate-related shifts and uncertainties
3. Risk management
IFRS S2 requires companies to disclose the processes used to identify, assess, prioritize, and monitor climate-related risks, including how these processes integrate into overall risk management frameworks. The goal is to help investors understand an entity’s risk profile so they can make educated decisions.
Specifically, IFRS S2 calls for organizations to disclose:
- The parameters and inputs used to determine risks
- How they prioritize risks
- How they monitor identified risks
- How they’ve adjusted their risk identification, assessment, and prioritization processes from their previous reporting periods
- If and how they integrate climate-related risks and opportunities into their overall risk management processes
- Whether the risks and opportunities inform their risk management frameworks
4. Metrics and targets
IFRS S2 requires businesses to disclose climate-related performance metrics and targets to help stakeholders assess their exposure to climate risks and track progress toward sustainability commitments. These disclosures should include cross-industry climate metrics, industry-based metrics, and entity-specific targets mandated by regulatory bodies or voluntary sustainability initiatives.
Climate-related metrics
The standard requires organizations to report on key climate change metrics across various industries, including:
- Greenhouse gas emissions (GHG), (Scope 1, 2, and 3)
- Energy consumption
- Carbon intensity
- Other sustainability indicators relevant to their operations
Organizations should also disclose:
- How they measure emissions
- Assets and business activities vulnerable to climate-related transition risks and physical risks
- Assets and business activities aligned with climate-related opportunities
- Financing allocated to identified risks and opportunities
Climate-related targets
IFRS S2 also expects entities to disclose both qualitative and quantitative targets, including their commitments to reducing emissions, improving energy efficiency, and aligning with global climate initiatives. Organizations must also report on:
- Metrics used in target setting
- Annual reporting periods for which the targets apply
- Goals of target setting
- Agreed-upon processes for reviewing targets
- Milestone targets
- How to monitor progress
These disclosures enhance transparency and allow stakeholders to track progress effectively.
How ESG consultants can help clients implement IFRS S2
ESG consultants play a crucial role in helping organizations comply with IFRS S2. They support businesses by conducting climate risk assessments, aligning IFRS S2 with other frameworks, integrating financial reporting, and leveraging technology for streamlined disclosures.
Conducting climate risk assessments
ESG consultants help organizations meet IFRS S2 requirements by identifying, assessing, and modeling climate-related risks. These assessments:
- Reveal physical and transition risks
- Determine the financial impact of these risks on business performance
- Enable organizations to make well-informed climate disclosures
- Support the development of risk mitigation strategies for business resilience
Aligning IFRS S2 with other ESG reporting frameworks
While IFRS S2 is a key framework, businesses often need to comply with additional standards, such as IFRS S1, CSRD, SASB, the Global Reporting Initiative (GRI), and the U.S. SEC’s climate-related disclosure rules.
To streamline reporting and maintain consistency, sustainability consultants can conduct gap analyses to ensure alignment across multiple frameworks and create harmonized reporting structures to reduce compliance burdens and costs.
Developing climate strategies and financial integration
IFRS S2 requires entities to not only disclose climate-related risks and opportunities but also integrate them into financial planning, risk management, and corporate strategy.
ESG consultants help businesses meet this requirement by working closely with financial experts, such as finance managers and auditors, to ensure that climate-related risks are accurately reflected in sustainability reports and financial statements.
Leveraging ESG technology and reporting solutions
IFRS S2 compliance is data-intensive, requiring accurate and efficient reporting processes. ESG consultants help organizations:
- Adopt ESG software, automation tools, and data analytics solutions
- Improve data accuracy and reporting efficiency
- Scale IFRS S2 climate-related disclosures while maintaining transparency and compliance
By implementing the right technologies, ESG consultants reduce manual effort and streamline compliance, so businesses can focus on core operations while ensuring regulatory alignment.
Reduce the burden of ESG compliance for your clients with Manifest Climate
As IFRS S2 adoption grows, businesses must ensure their climate-related disclosures meet regulatory expectations. However, compliance can be time-intensive, requiring in-depth assessments, standardized reporting, and continuous alignment with evolving frameworks.
ESG consultants play a vital role in guiding organizations through these requirements, but manual processes can slow reporting and increase the risk of errors.
Manifest Climate streamlines IFRS S2 compliance with AI-powered insights and rapid gap analyses. Designed by ESG experts, our platform helps consultants assess alignment with IFRS S2, automate disclosures, and eliminate manual inefficiencies—allowing them to focus on delivering high-value strategic guidance.
Need a smarter way to create an ESG compliance roadmap? Book a demo with Manifest Climate today.
