What Is IFRS S2: Key Climate Disclosure Requirements Explained

Key Takeaways

• What is IFRS S2? IFRS S2 outlines the requirements for the disclosure of information regarding climate risks and opportunities that are material to the company.
• Is IFRS S2 mandatory in India? No, IFRS S2 is not yet officially mandated as a wholesale reporting standard for corporate entities in India.
• What changed in 2025 with regard to IFRS S2? There were issued targeted GHG disclosure amendments in December 2025 which become effective for annual reporting periods starting from 1 January 2027.

Comprehensive Summary of IFRS S2

IFRS S2 Climate Disclosure Requirements

IFRS S2 requires the disclosure of material information about climate-related risks and opportunities that may affect the prospects of the company.

IFRS Standards and Climate Reporting

IFRS S2 forms part of the IFRS Sustainability Disclosure Standards and works with IFRS S1 to provide a broader sustainability reporting framework.

IFRS S1 and IFRS S2

IFRS S1 defines the requirements for general sustainability disclosure, whereas IFRS S2 relates specifically to climate risks and opportunities.

GHG Emissions Under IFRS S2

IFRS S2 has the requirements for the disclosure of Scope 1, Scope 2 and Scope 3 greenhouse gas emissions as required and subject to transition provisions.

IFRS S2 Global Adoption

The IFRS Foundation defines the global baseline, while each jurisdiction determines the adoption of IFRS S2, if any.

IFRS S2 Compliance Process

To get ready for the adoption of the standard, companies should assess material climate risks, set up the governance, measure GHG emissions, perform the scenario analysis and determine the necessary targets.

What Is IFRS S2, and What Does It Cover?

IFRS S2 is the ISSB standard dealing with the climate risks and opportunities that are reasonably likely to have an impact on cash flow, access to finance and the cost of capital of the entity in the short, medium and long term.

The standard was published in June 2023 and became effective for annual reporting periods starting from 1 January 2024, early application being allowed when applying IFRS S1.

IFRS S2 covers:

• Climate-related physical risks.
• Climate-related transition risks.
• Climate-related opportunities.
• Governance and oversight.
• Climate-related strategy.
• Risk-management processes.
• Metrics and targets.
• Greenhouse gas emissions.
• Industry-based climate information.

The standard is designed to provide investors and other primary users of general purpose financial reports with decision-useful information rather than creating a separate environmental report disconnected from financial considerations.

Who Created IFRS S2, and Why Does It Exist?

IFRS S2 was written by the ISSB (International Sustainability Standards Board), which operates within the IFRS Foundation, and aims to set a standard for climate-related financial disclosures around the world.

The IFRS Foundation creates the general institutional base, whereas the ISSB develops the IFRS Sustainability Disclosure Standards. 

The origin of IFRS S2 is connected to the need to have more consistent information regarding how the risks and opportunities that are related to climate impact the potential business of the entity and the investor.

The standard:

• Builds on the work of the Task Force on Climate-related Financial Disclosures (TCFD).
• Incorporates industry-based disclosure requirements derived from the SASB Standards.
• Focuses on information relevant to investors.
• Supports greater comparability between companies.
• Provides a global baseline for climate-related disclosures.

The IFRS Foundation explains that jurisdictions determine how ISSB Standards are adopted or otherwise used within their own regulatory frameworks.

For professionals studying accounting standards and IFRS, IFRS S2 is therefore an important development because sustainability information is becoming increasingly connected with corporate reporting and financial decision-making.

How Do IFRS S1 and IFRS S2 Differ?

Both IFRS S1 and IFRS S2 have been drafted with an intention to complement each other; however, both of these standards relate to separate spheres of activities.

What IFRS S1 Covers

IFRS S1 provides general requirements for sustainability-related financial disclosures.

• Covers sustainability-related risks and opportunities.
• Establishes broader disclosure principles.
• Applies beyond climate-related matters.
• Provides the general reporting architecture.
• Works alongside IFRS S2.

What IFRS S2 Covers

IFRS S2 focuses specifically on climate-related risks and opportunities.

• Physical climate risks.
• Transition risks.
• Climate-related opportunities.
• GHG emissions.
• Climate-related targets.
• Industry-based climate information.

How Both Standards Work Together

IFRS S1 provides the broader sustainability reporting requirements, while IFRS S2 provides specific climate-related requirements within that framework.

In this context, the distinction becomes very important during the study of IFRS standards since IFRS S2 cannot replace IFRS S1 and is meant to be used along with it.

What Are the Four Core Pillars of IFRS S2?

IFRS S2 relies on the four pillars of disclosure: governance, strategy, risk management, and metrics and targets. These four pillars reflect the TCFD framework, which was included in the ISSB Standards.

Pillar 1: Governance

Disclosure of the way the climate-related risks and opportunities are managed by the board and management of the entity.

Disclosures may cover:

• Board committees responsible for oversight.
• Management responsibilities.
• Reporting lines.
• Skills and competencies.
• How climate matters are considered in decision-making.

Pillar 2: Strategy

Companies must explain how climate-related risks and opportunities affect their business model, strategy and financial planning.

This can include:

• Current and anticipated effects.
• Business model changes.
• Investment decisions.
• Financing decisions.
• Climate resilience.
• Transition plans.
• Scenario analysis.

Pillar 3: Risk Management

Companies must explain how climate-related risks and opportunities are identified, assessed, prioritised and monitored.

The disclosure can address:

• Risk identification.
• Risk assessment.
• Prioritisation.
• Monitoring.
• Integration with overall risk management.

Pillar 4: Metrics and Targets

Companies must provide information about relevant climate-related metrics and targets.

These may include:

• Scope 1 emissions.
• Scope 2 emissions.
• Scope 3 emissions.
• Emissions intensity.
• Climate-related targets.
• Progress against targets.
• Industry-based metrics.
• Planned use of carbon credits where applicable.

What Types of Climate-Related Risks Does IFRS S2 Cover?

IFRS S2 requires companies to consider physical risks, transition risks and climate-related opportunities that could affect their prospects.

Physical Risks: Acute and Chronic

Physical climate risks result from the direct effects of climate change and can be acute or chronic.

• Acute risks: Floods, storms, wildfires and other extreme weather events.
• Chronic risks: Long-term changes such as rising temperatures and sea-level changes.
• Business effects: Asset damage, operational disruption, supply-chain issues and higher costs.

Transition Risks: Policy, Technology, Market and Reputational

Transition risks arise as economies, regulations, technologies and markets move toward lower-carbon models.

• Policy risks: New climate regulations or carbon-pricing mechanisms.
• Technology risks: Existing products or processes becoming less competitive.
• Market risks: Changes in demand, pricing or customer preferences.
• Reputational risks: Changing expectations around climate performance.

Climate-Related Opportunities

Opportunities related to climate change may emerge as a result of changes in technology, market, customer preferences and resource usage.

Examples include:

• Renewable energy.
• Energy-efficient products.
• Low-carbon technologies.
• New markets.
• Resource efficiency.
• Climate-focused products and services.

What Are the GHG Emissions Disclosure Requirements Under IFRS S2?

GHG emissions play an important role in IFRS S2, as they allow understanding the exposure of a company to climate-related transition risks and its performance towards its climate objectives.

Scope 1 Emissions

Scope 1 emissions are the direct greenhouse gas emissions from sources owned or controlled by the entity.

Examples include:

• Company-owned vehicles.
• Industrial processes.
• Fuel combustion.
• Controlled production facilities.

Scope 2 Emissions

Scope 2 emissions generally relate to indirect emissions associated with purchased or acquired electricity, steam, heating or cooling consumed by the company.

Companies need appropriate data collection and measurement processes to report these emissions consistently.

Scope 3 Emissions and Value Chain Reporting

Scope 3 emissions cover other indirect emissions occurring across an entity’s value chain and can involve suppliers, customers, investments and other activities.

As a consequence, Scope 3 reporting can be complicated, as the required information is often provided by third parties.

In 2025 amendments to IFRS S2 were introduced, certain relief and clarification concerning GHG reporting, among them being Scope 3 Category 15 and financed emissions.

How Does Scenario Analysis Work Under IFRS S2?

Scenario analysis helps businesses evaluate the resilience of their business and strategic models in certain climate-related conditions.

Companies may consider:

• Physical climate changes.
• Regulatory developments.
• Technology transitions.
• Energy-market changes.
• Supply-chain disruption.
• Changes in customer behaviour.
• Effects on business strategy.

Scenario analysis does not require companies to predict one exact future; instead, it helps explain resilience under different plausible climate-related conditions.

What Are the Industry-Specific Disclosure Requirements Under IFRS S2?

IFRS S2 requires companies to consider industry-based information when identifying relevant climate-related risks, opportunities and metrics.

The industry-based requirements are supported by guidance derived from the SASB Standards.

This means the information relevant to a bank may differ from that relevant to an energy company or manufacturer.

Companies should therefore consider:

• Industry-specific climate risks.
• Relevant performance metrics.
• Sector-specific opportunities.
• Industry exposure to transition risks.
• Climate-related business impacts.

What Key Metrics and Targets Must Companies Disclose?

It is recommended for companies to reveal metrics and targets which will allow users to evaluate their performance and progress on climate-related issues.

Relevant information may include:

• Absolute GHG emissions.
• Emissions intensity.
• Scope 1, Scope 2 and Scope 3 emissions.
• Climate-related targets.
• Progress against targets.
• Industry-based metrics.
• Internal carbon pricing where applicable.
• Planned use of carbon credits where relevant.

The exact metrics will depend on the company’s circumstances, industry and applicable requirements.

What Special Disclosures Apply to Financial Institutions?

Financial institutions may have a considerable climate risk through their lending, investment, insurance, and other financial services activities.

Thus, IFRS S2 has special requirements which apply to financed emissions for those entities engaged in activities like asset management, commercial banking, and insurance.

The 2025 amendments provide further clarification on reporting in relation to Scope 3 Category 15 and allow certain entities to apply the requirement of measuring and disclosing emissions only up to those that are defined as financed emissions in IFRS S2.

This is especially relevant for financial institutions because of the climate exposure arising from financial activities rather than activities of the entity itself.

Who Needs to Comply With IFRS S2?

IFRS S2 does not automatically become mandatory for every company worldwide.

Although IFRS S2 was issued by the IFRS Foundation, whether the ISSB Standards become mandatory, allowed, or even incorporated depends on the decision of the jurisdiction.

It means that companies should examine:

• Applicable jurisdictional requirements.
• Whether IFRS S2 has been adopted or incorporated.
• Which entities fall within the reporting scope.
• Applicable reporting periods.
• Local transition provisions.
• Any jurisdiction-specific modifications.

It is critical to make this distinction since the date of effective application of the standard does not necessarily imply that all companies across the globe will be obliged to comply with IFRS S2.

Which Countries Have Mandated or Adopted IFRS S2?

Global use of IFRS S2 is developing through different regulatory approaches, including adoption, incorporation and other forms of use.

The IFRS Foundation maintains jurisdictional profiles showing the progress of countries that have finalised their regulatory approaches to ISSB Standards.

For companies operating internationally, it is important to determine:

1. Which jurisdiction’s reporting rules apply.
2. Whether IFRS S2 has been adopted or otherwise used.
3. Which companies fall within the local scope.
4. What reporting date applies.
5. Whether local reliefs or modifications are available.

The IFRS Foundation’s jurisdictional information is updated as regulatory approaches are finalised, so companies should check the latest local requirements rather than relying on a static country list.

How Do IFRS S2, TCFD and CSRD Compare?

IFRS S2, TCFD and CSRD-related requirements all address climate or sustainability reporting, but they are not identical frameworks.

IFRS S2 incorporates the TCFD recommendations, and companies applying IFRS S1 and IFRS S2 meet the TCFD recommendations because the TCFD architecture has been incorporated into the ISSB Standards.

IFRS S2 also contains additional requirements, including industry-based metrics, information about planned carbon-credit use and additional financed-emissions information.

The scope of CSRD and ESRS standards is broader and encompasses not only climate but also other sustainability topics, including environment, society, and governance.

What Changed in the 2025 Amendments to IFRS S2 GHG Requirements?

In December 2025, ISSB released targeted amendments to the IFRS S2 standards concerning GHG disclosures. The amendments focus on solving the issues that appeared in connection with the implementation of the standard.

The amendments include:

• Clarification of Scope 3 Category 15 reporting.
• Relief allowing certain entities to limit Category 15 measurement and disclosure to financed emissions.
• Alternative classification systems for certain financed-emissions disclosures.
• Clarification of jurisdictional relief related to the GHG Protocol.
• A new relief concerning global warming potential values.

The amendments are effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted.

What Transitional Relief Provisions Apply to First-Year Reporters?

IFRS S2 includes transition provisions intended to help entities manage the initial reporting burden.

For example, in the first annual reporting period in which an entity applies IFRS S2, it is permitted to omit Scope 3 GHG emissions disclosures, including specified additional financed-emissions information where applicable.

This relief is subject to the detailed transition requirements in IFRS S2, so companies should review the standard rather than assuming that every transition provision applies in every situation.

How Can Companies Prepare for IFRS S2 Compliance Step by Step?

Preparing for IFRS S2 requires companies to connect climate information with governance, risk management, strategy, data and reporting controls.

Step 1: Conduct a Climate Materiality Assessment

Determine climate-related risks and opportunities that may be expected to impact the organisation’s future prospects.

Step 2: Document Your Governance Structure

Identify the duties of the company’s board and management to govern climate change risks and opportunities.

Step 3: Calculate Scope 1, 2 and 3 Emissions

Develop a process for gathering, calculating, assessing, and documenting the relevant information about GHG emissions.

Step 4: Run Climate Scenario Analysis

Consider the impacts of various scenarios associated with climate change on business strategy and operations.

Step 5: Set Targets, Track Progress and Disclose

Determine relevant targets and ensure proper performance measurement and controls to ensure proper climate reporting.

Students of accounting standards and IFRS can use the above-described procedure to learn about links between technical reporting requirements, governance and risk management, and business strategy.

What Are the Common Challenges in IFRS S2 Implementation?

Several practical difficulties may arise during the implementation of climate-related financial disclosures.

• Data availability: Climate data may come from multiple internal and external sources.
• Scope 3 measurement: Value-chain emissions can be difficult to calculate consistently.
• Governance: Responsibilities may not be clearly assigned across departments.
• Scenario analysis: Climate scenarios involve assumptions and uncertainty.
• Industry metrics: Relevant measures vary significantly between sectors.
• Data controls: Sustainability information may require stronger review and documentation.
• Regulatory differences: Local adoption can change scope, timing and requirements.
• Technical knowledge: Finance teams may need additional knowledge of sustainability reporting and climate-related disclosures.

For accounting professionals, this is one reason why understanding what is IFRS today involves more than traditional financial reporting requirements.

Conclusion

IFRS S2 provides a structured approach for reporting material climate-related risks and opportunities through governance, strategy, risk management, and metrics and targets.

For companies, the first practical decision is to determine whether IFRS S2 applies under the relevant jurisdiction and understand the applicable reporting period, scope and transition provisions.

Companies preparing for compliance should:

• Confirm applicable jurisdictional requirements.
• Understand IFRS S1 and IFRS S2 together.
• Establish clear climate governance.
• Build reliable Scope 1, Scope 2 and Scope 3 data processes.
• Assess climate-related risks and opportunities.
• Develop appropriate scenario-analysis processes.
• Review the 2025 GHG amendments.
• Document targets, metrics and reporting controls.

For finance and accounting professionals, knowledge of IFRS S2 can also provide greater insights into modern sustainability reporting and its relationship with accounting standards and IFRS.

Professionals who want specialised knowledge on international financial reporting can also go for a Diploma in IFRS course, especially if the career requires them to do international accounting, financial reporting or other related compliance.

FAQs on IFRS S2

What Is IFRS S2 in Simple Terms?

IFRS S2 is a climate-related disclosure standard that requires relevant companies to report material information about climate-related risks and opportunities that could affect their prospects.

Is IFRS S2 Mandatory?

IFRS S2 is mandatory where the jurisdiction or the regulatory framework mandates or incorporates it.

What Is the Effective Date of IFRS S2?

IFRS S2 becomes applicable to annual reporting periods commencing 1 January 2024, while the amendments for 2025 related to GHG disclosures take effect for annual reporting periods starting on 1 January 2027.

What Is the Difference Between IFRS S1 and IFRS S2?

While IFRS S1 focuses on general financial disclosures concerning sustainability, IFRS S2 is concerned with climate-related risks and opportunities.

What Are Scope 1, 2 and 3 Emissions Under IFRS S2?

Scope 1 emissions include direct emissions, Scope 2 includes indirect emissions from energy purchases, while Scope 3 emissions include other indirect emissions from the value chain.

Current Role

Co-Founder & CEO at Zell Education

Education

• ACCA – Association of Chartered Certified Accountants, Finance (2011 – 2014)
• Bachelor of Commerce (BCom), Financial Markets from H.R. College Of Commerce & Economics (2010 – 2013)

Location

Mumbai, India

Expertise

ACCA Certified