iFRS Sustainability Standard 2 (IFRS S2) is the 2nd of the 2 new sustainability standards issued recently by the International Sustainability Standards Board (ISSB).
In this article we will discuss the basic information you need to know about IFRS S2 including it’s effective date, objective, overview and historical background.
IFRS S2 Effective Date
IFRS S2 is effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted as long as IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is also applied.
Objective Of IFRS S2
The objective of IFRS S2 is to require an entity to disclose information about its climate-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity.
These are climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.
Scope Of IFRS S2
IFRS S2 applies to climate-related risks to which the entity is exposed (climate-related physical risks and climate-related transition risks) and climate-related opportunities available to the entity.
Overview Of IFRS S2
The following are the some of the key disclosure requirements of IFRS S2:
1. IFRS S2 Disclosure Requirement On Governance
The objective of climate-related financial disclosures on governance is to enable users of general purpose financial reports to understand the governance processes, controls and procedures an entity uses to monitor, manage and oversee climate-related risks and opportunities. The standard sets out the disclosures required to achieve this objective.
2. IFRS S2 Disclosure Requirement On Strategy
The objective of climate-related financial disclosures on strategy is to enable users of general purpose financial reports to understand an entity’s strategy for managing climate-related risks and opportunities. The standard sets out the disclosures required to achieve this objective.
3. IFRS S2 Disclosure Requirement On Risk management
The objective of climate-related financial disclosures on risk management is to enable users of general purpose financial reports to understand an entity’s processes to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process. The standard sets out the disclosures required to achieve this objective.
4. IFRS S2 Disclosure Requirement On Metrics and targets
The objective of climate-related financial disclosures on metrics and targets is to enable users of general purpose financial reports to understand an entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation. The standard sets out the disclosures required to achieve this objective.
Basic Requirement Of IFRS S2
IFRS S2 requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (collectively referred to as ‘climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
IFRS S2 Application
IFRS S2 applies to:
climate-related risks to which the entity is exposed, which are:
climate-related physical risks; and
climate-related transition risks; and
climate-related opportunities available to the entity.
IFRS S2 sets out the requirements for disclosing information about an entity’s climate-related risks and opportunities. In particular, IFRS S2 requires an entity to disclose information that enables users of general purpose financial reports to understand:
Brief History Of IFRS S2
In March 2022, the International Sustainability Standards Board (ISSB) published Exposure Draft IFRS S2 Climate-related Disclosures, integrating and building on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and incorporating industry-based disclosure requirements derived from SASB Standards.
The ISSB redeliberated the proposals after considering the feedback on the Exposure Draft.
In June 2023 the ISSB issued IFRS S2 Climate-related Disclosures
For a more detailed information on this standard visit IFRS website.
Further Background Information On IFRS S2
The ISSB was established in November 2021 to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. In March 2022, the ISSB launched a consultation on its first draft IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2). After a consultation period of 120 days, the ISSB redeliberated the proposals in the draft Standards and decided to finalise the proposals.The main requirements in IFRS S2 broadly reflect the proposals in ED/2022/S2 ‘Climate-related Disclosures’ with changes introduced in the following areas:
Strategy and decision-making, including transition planning Climate resilience Greenhouse gas emissions Industry-based requirements Proportionality of the requirements Current and anticipated financial effects of sustainability-related and climate-related risks and opportunities on an entity’s financial performance, financial position and cash flows
The key requirements are as already discussed above under the overview.
For additional information and analysis on this standard, visit IASplus (Delloite) website