ISSB S2 Climate Disclosure: A Practical Guide for Beginners

What is IFRS S2?

IFRS S2 (Climate-related Disclosures) is a global sustainability reporting standard issued by the International Sustainability Standards Board (ISSB). It requires companies to disclose climate-related risks and opportunities that could reasonably affect their financial position, performance, and cash flows.

Building on the TCFD framework, IFRS S2 is structured around four pillars: Governance, Strategy, Risk Management, and Metrics & Targets. Since January 2024, it has become the baseline for climate disclosure globally, with jurisdictions adopting or aligning their standards with ISSB requirements.

The Four Pillars of IFRS S2

1. Governance

Disclose how the board and management oversee climate-related risks and opportunities. This includes describing the governance body responsible, how climate is integrated into strategy discussions, and how performance is monitored.

• Board oversight of climate risks and opportunities
• Management's role in assessing and managing climate risks
• How climate considerations are integrated into remuneration policies

2. Strategy

Describe climate-related risks and opportunities that could affect your business model and value chain. This is where you explain the actual and potential impacts on your financial position.

• Physical risks - Acute (extreme weather events) and chronic (long-term shifts in climate patterns)
• Transition risks - Policy/legal, technology, market, and reputation risks from moving to a lower-carbon economy
• Climate-related opportunities - Resource efficiency, energy sources, products/services, markets, and resilience

3. Risk Management

Describe the processes used to identify, assess, prioritize, and monitor climate-related risks. Explain how these processes are integrated into your overall enterprise risk management.

4. Metrics and Targets

Disclose the metrics and targets used to measure, monitor, and manage climate-related risks and opportunities. Key requirements include:

• Scope 1 emissions - Direct GHG emissions from owned/controlled sources
• Scope 2 emissions - Indirect emissions from purchased energy
• Scope 3 emissions - All other indirect emissions in the value chain
• Industry-based metrics as defined by SASB standards
• Internal carbon prices if used
• Climate-related targets and progress

Physical vs Transition Risks

Scenario Analysis

IFRS S2 requires companies to use climate-related scenario analysis to assess resilience. At minimum, you should consider:

• 1.5°C scenario - Aligned with the Paris Agreement, aggressive transition, rapid decarbonization
• 2-3°C scenario - Moderate transition with higher physical risks
• 4°C+ scenario - Business-as-usual with severe physical impacts

Use publicly available scenarios from the IEA (Net Zero by 2050), NGFS, or IPCC pathways as starting points.

Getting Started: A 5-Step Approach

Step 1: Assess Materiality

Identify which climate risks and opportunities are material to your business. Consider your industry, geography, and value chain exposure.

Step 2: Calculate Your Carbon Footprint

Start with Scope 1 and 2 emissions using the GHG Protocol methodology. Then assess Scope 3 categories relevant to your industry.

Step 3: Map Your Governance

Document how climate oversight is structured in your organization. Identify gaps and assign clear responsibilities.

Step 4: Conduct Scenario Analysis

Even a qualitative analysis is a good starting point. Assess how different climate scenarios could affect your strategy and financial performance.

Step 5: Set Targets and Disclose

Set measurable climate targets aligned with science-based methodologies. Prepare your first disclosure following the ISSB structure.

Conclusion

IFRS S2 compliance may seem daunting, but starting early gives you a significant advantage. Begin with what you know, build your data infrastructure gradually, and iterate on your disclosures. The key is to start the process and improve over time.