Entities must disclose climate-related targets they have set, as well as targets they are required to meet by law or regulation.
Information should enable users to understand the target, the metric used, the period over which it applies, the baseline where relevant and progress toward achievement.
Where an entity has a transition plan, relevant information about its climate-related transition should also be disclosed.
Industry-based information
IFRS S2 includes industry-based disclosure requirements designed to provide information that is relevant to particular business models and activities.
Entities are required to refer to and consider the applicability of the ISSB’s industry-based guidance when identifying and disclosing relevant climate-related information.
Industry-specific information can make disclosures more comparable because the nature of climate risks and opportunities differs substantially between sectors.
For example, the climate-related exposures of an energy company may differ from those of a bank, manufacturer, transport company or agricultural business.
Industry-based information, therefore, complements the cross-industry requirements and helps users assess risks in the context of the entity’s actual activities.
Key practical considerations for entities
An entity preparing for IFRS S2 should establish clear governance responsibility for climate-related matters; identify material physical and transition risks and opportunities; assess their effects on the business model, value chain and financial prospects; integrate climate risks into enterprise risk management; establish reliable processes for collecting GHG and other climate data; determine relevant industry-based metrics; and monitor climate-related targets and progress.
Data quality and internal controls are particularly important.
Climate information may involve estimates, assumptions and information obtained from suppliers or other parts of the value chain.
Entities therefore need appropriate methodologies, documentation, review procedures and controls to support reliable disclosures.
Entities should also consider how climate-related disclosures connect with financial statements and other corporate reporting.
The objective is coherent reporting in which climate-related information is consistent with the entity’s strategy, risk management, financial position and performance.
Conclusion
IFRS S2 Climate-related Disclosures establishes a structured framework for communicating financially relevant information about climate-related risks and opportunities.
Its requirements are organised around governance, strategy, risk management, and metrics and targets.
Particular attention is given to physical and transition risks, climate resilience, scenario analysis, greenhouse gas emissions, industry-based information and climate-related targets.
Overall, IFRS S2 seeks to make climate-related information more consistent, comparable and useful for decisions about providing resources to an entity.
Successful application requires climate issues to be integrated into governance, strategy, risk management, data systems and financial reporting rather than treated as a stand-alone environmental report.
Stephen Mensah Dzodzodzi (PhD, CA, Ch. EE, Ch. PE, CGMA) is a chartered petroleum economist, a tax and management consultant and CEO of Centre for Professional Studies, Ho.
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