IFRS S2, an integral part of the broader IFRS framework, has been developed to tackle the challenges posed by climate change. Its primary objective is to ensure that organisations worldwide provide comprehensive and consistent disclosures related to climate risks, opportunities, and targets. By doing so, it empowers stakeholders to make informed decisions and promotes sustainability.
One of the cornerstones of IFRS S2 is the requirement for organisations to disclose climate-related information within specified metric categories. These categories encompass various aspects of climate-related risks and opportunities. To fulfil this requirement, organisations must consider several factors.
Firstly, they must assess the time horizons over which the effects of climate-related risks and opportunities could reasonably be expected to occur. This consideration aligns with paragraph 10 of the standard, emphasising the importance of forward-looking information.
Secondly, organisations need to identify where in their business model and value chain climate-related risks and opportunities are concentrated. This could pertain to geographical areas, specific facilities, or types of assets. The aim here is to pinpoint areas where climate factors are most relevant.
Additionally, IFRS S2 stresses the need to connect climate-related disclosures with financial statements. This integration ensures consistency and transparency by aligning the data and assumptions used in both disclosures. For instance, entities should ensure that the carrying amount of assets used is consistent with financial statement amounts and elucidate the connections between the two sets of information.
Another crucial aspect of IFRS S2 pertains to climate-related targets. Entities are mandated to disclose both quantitative and qualitative climate-related targets, including greenhouse gas emissions targets. To provide a comprehensive view, they must describe several characteristics of these targets.
Entities need to specify whether their climate-related targets are absolute or intensity targets. Absolute targets refer to a total amount or a change in the total amount of a measure. In contrast, intensity targets are ratios of a measure or changes in such ratios to a business metric.
Moreover, organisations are encouraged to consider a wide range of metrics, including both cross-industry and industry-based metrics, when setting and measuring progress towards their targets. If an entity has developed its metric for this purpose, it should disclose information about that metric in accordance with paragraph 50 of IFRS S1.
A significant focus of IFRS S2 is on greenhouse gas emissions targets. Organisations with such targets must specify whether they are gross greenhouse gas emissions targets or net greenhouse gas emissions targets. Gross targets reflect the total changes in greenhouse gas emissions planned within an entity's value chain, while net targets consider the planned offsetting efforts, such as the use of carbon credits to counter emissions.
It is crucial to note that if an entity discloses a net greenhouse gas emissions target, this disclosure must not obscure information about its gross greenhouse gas emissions targets.
Entities planning to use carbon credits to offset emissions to achieve net greenhouse gas emissions targets are required to disclose this intention. This disclosure should be clear and demonstrate the extent to which carbon credits are relied upon to meet these targets. Additionally, entities may choose to include information about carbon credits they have already purchased if it aids in understanding their greenhouse gas emissions targets.
The overarching objectives of IFRS S2 Climate-Related Disclosures are clear and impactful. First and foremost, the framework aims to enhance transparency significantly. By mandating comprehensive disclosures, it ensures that stakeholders have access to detailed information about an entity's climate risks, opportunities, and targets.
Moreover, IFRS S2 facilitates effective risk management. It empowers organisations to proactively identify and address climate-related risks, potentially reducing adverse impacts and leveraging opportunities in a changing climate landscape.
Furthermore, the framework promotes global consistency. It encourages organisations to adopt a standardised approach to reporting climate-related information, making comparisons across industries and jurisdictions more meaningful and actionable.
Lastly, IFRS S2 encourages integration. It emphasises the need for organisations to seamlessly incorporate climate-related disclosures into their financial statements. This integration ensures that stakeholders have a comprehensive view of an entity's financial and climate performance, fostering greater understanding and trust.
The introduction of IFRS S2 Climate-Related Disclosures represents a milestone in climate reporting. Organisations that embrace this framework not only fulfil regulatory requirements but also play a vital role in addressing climate change and transitioning to a more sustainable future. By proactively managing climate-related risks and seizing opportunities, entities contribute to a global effort to mitigate the impacts of climate change.
In conclusion, IFRS S2 is a pivotal tool in the fight against climate change. It equips organisations with the means to understand, manage, and communicate their climate-related performance effectively. As climate concerns continue to mount, embracing IFRS S2 is not just a compliance matter; it is a commitment to sustainability and a brighter future for our planet.