Climate Reporting
A company’s climate report answers two different questions in one document. How much does the business add to climate change? And how much could climate change — and the policies meant to stop it — cost the business? For years the first question got all the attention. The rules now being written into law are mostly about the second.
Climate reporting is the emissions inventory plus the risk story around it, prepared to a standard and increasingly checked by an auditor.
Climate reporting is a company’s disclosure of its greenhouse-gas emissions and of the climate-related risks and opportunities that affect it, covering governance, strategy, risk management and targets. Most rules now follow the ISSB’s IFRS S2, which grew out of the TCFD.
What climate reporting is
Climate reporting — also called climate-related disclosure — is the part of a company’s reporting that deals with climate change. It has two halves: the company’s own greenhouse-gas emissions, and the climate-related risks and opportunities that could affect its finances.
It is the climate subset of ESG reporting. Where an ESG report also covers water, workforce, human rights and governance in general, a climate report stays on one topic and goes deeper: emissions across scopes 1, 2 and 3, reduction targets and the transition plan to meet them, and an assessment of how a warming world and the response to it could change the business.
The second half is what distinguishes modern climate reporting from a carbon footprint. Climate risk comes in two kinds: physical risk, from floods, heat, drought and storms damaging assets and supply chains; and transition risk, from carbon prices, regulation, technology shifts and changing demand as economies decarbonise. A climate report is expected to say which of these matter to the company, over what time horizon, and what it is doing about them — usually tested against more than one future through scenario analysis.
The structure almost every rulebook now uses came from the Task Force on Climate-related Financial Disclosures (TCFD), whose 2017 recommendations organised climate disclosure into four pillars. The TCFD was disbanded in 2023 once the International Sustainability Standards Board had written those recommendations into a standard, IFRS S2.
Definition at a glance
| What it is | Disclosure of a company’s emissions and of the climate-related risks and opportunities that affect it |
|---|---|
| Also called | Climate-related disclosure; climate-related financial disclosure; TCFD reporting |
| Structure | Four pillars: governance, strategy, risk management, metrics and targets |
| Global baseline | IFRS S2 Climate-related Disclosures (ISSB, 2023) |
| EU equivalent | ESRS E1 Climate Change, under the CSRD |
| Core numbers | Scope 1, 2 and 3 emissions; targets and progress; exposure to physical and transition risk |
| Part of | ESG reporting |
How IFRS S2 defines it
Objective. IFRS S2 requires a company “to disclose information about its climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.”
Governance. The aim 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.”
Metrics and targets. The aim 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.”
Two words in that objective do a lot of work. Primary users means investors, lenders and other creditors — IFRS S2 is written for capital markets, not for the public at large. And risks and opportunities means the report is about what climate change does to the company. The company’s own emissions are still required, as a metric, but the standard’s centre of gravity is financial. The EU’s ESRS E1 asks the same questions and adds the company’s impact on the climate as a reporting objective in its own right — the double materiality view.
The four pillars
IFRS S2, ESRS E1 and the national rules built on them all keep the TCFD’s four-part structure. The pillars are not sections to fill in separately; each one depends on the others.
| Pillar | The question it answers | What it typically contains |
|---|---|---|
| Governance | Who oversees climate, and how? | Board and management oversight, skills, how climate feeds into decisions and pay |
| Strategy | How does climate change affect the business model? | Risks and opportunities by time horizon, financial effects, transition plan, scenario analysis and resilience |
| Risk management | How are climate risks found and managed? | Processes to identify, assess and prioritise climate risks, and how they feed into overall risk management |
| Metrics and targets | How is the company performing? | Scope 1, 2 and 3 emissions, the cross-industry metrics below, industry metrics, targets and progress |
Strategy is where most first reports are thinnest. Naming risks is easy; quantifying their effect on cash flows, assets and the cost of capital, and testing the business against several warming and policy scenarios, is the work that regulators and investors now look for. IFRS S2 allows a proportionate approach to scenario analysis for smaller companies, but not silence.
A climate report without a scope 3 figure tells you about the factory. A climate report without scenario analysis tells you about last year. The rules now ask for both the full value chain and the future.
The numbers a climate report must contain
IFRS S2 paragraph 29 lists seven cross-industry metric categories that every company must consider, whatever its sector:
- Greenhouse gases — absolute gross scope 1, scope 2 and scope 3 emissions, measured under the GHG Protocol.
- Climate-related transition risks — the amount and share of assets or business activities vulnerable to them.
- Climate-related physical risks — the same, for physical risks.
- Climate-related opportunities — the amount and share aligned with them.
- Capital deployment — capital expenditure, financing or investment directed at climate-related risks and opportunities.
- Internal carbon prices — whether and how the company applies a carbon price in decisions, and at what level.
- Remuneration — whether and how climate considerations factor into executive pay.
The emissions metric is the foundation of the others: a company cannot set a credible target, price its carbon exposure or show progress without a GHG inventory it trusts. That inventory is the same one reported under ESRS E1-6, GRI 305 and California’s SB 253, so the work is done once and mapped to each rulebook.
Where it is mandatory
As of 1 October 2026:
| Jurisdiction | Rule | Status |
|---|---|---|
| European Union | ESRS E1 under the CSRD | Climate is one of the ESRS topics; after the Omnibus I directive the CSRD applies to companies with more than 1,000 employees and over €450 million turnover. |
| Australia | AASB S2 | Mandatory for Group 1 entities for annual reporting periods beginning on or after 1 January 2025, phasing in further groups. |
| Japan | SSBJ standards | Required for Prime Market companies with market capitalisation of ¥3 trillion or more from the fiscal year ending March 2027, then smaller companies in stages. |
| United Kingdom | UK SRS S2 | Published 25 February 2026, based on IFRS S2; voluntary while the government and the FCA consider requirements. TCFD-aligned rules already apply to large companies. |
| California | SB 253 | Companies with revenue over $1 billion doing business in California report scope 1 and 2 emissions by 10 November 2026. |
| United States (federal) | SEC climate rule | Adopted 2024, never in effect; rescission proposed 29 May 2026. |
The climate disclosure obligation finder checks which of these reach a given company, and the climate disclosure calculators cover the regime-specific tests.
Worked micro-example
A manufacturer prepares its first IFRS S2 report. Its emissions inventory and its target set in the base year give the core of the metrics-and-targets pillar. Figures are illustrative.
| Item | Value |
|---|---|
| Total, scopes 1–3 | 44,800 tCO₂e |
| Scope 3 share of total | 84.8% |
| Target: scope 1 + 2 down 42% from 2023 base year (8,000 tCO₂e) by 2030 | 4,640 tCO₂e in 2030 |
| Progress so far: 8,000 → 6,800 tCO₂e | −15.0% (36% of the way to −42%) |
Three things a reviewer checks first: that scope 3 is reported at all (here it is 85% of the total), that the target names its base year and scopes, and that progress is stated against the target rather than as a bare year-on-year change. The other six metric categories — exposure to transition and physical risk, opportunities, capital deployment, internal carbon price and remuneration — sit beside these numbers.
Common mistakes
- Reporting emissions and calling it climate reporting. The rules require the risk and strategy pillars too. A carbon footprint alone covers one metric category of seven.
- Treating the pillars as separate chapters. Targets must connect to the transition plan, risks to the financial statements, and governance to how decisions are actually made.
- Leaving out scope 3. IFRS S2 and ESRS E1 require it, with transition reliefs in the first years.
- Scenario analysis without consequences. Naming scenarios is not enough; say what each would do to the business and how resilient the strategy is.
- Targets without a base year or boundary. State the base year, scopes covered and whether the target is absolute or intensity-based.
- Ignoring the financial statements. Climate assumptions in the report should be consistent with those used for impairment, asset lives and provisions in the accounts.
Check which climate disclosure rules apply, then work through the IFRS S2 requirements pillar by pillar.
Frequently asked questions
Climate reporting is a company’s disclosure of its greenhouse-gas emissions and of the climate-related risks and opportunities that could affect it. It is organised into four pillars — governance, strategy, risk management, and metrics and targets — and most mandatory regimes now base it on the ISSB’s IFRS S2 standard, which grew out of the TCFD recommendations.
Climate reporting is the climate-change part of ESG reporting. ESG reporting also covers other environmental topics such as water and biodiversity, social topics such as the workforce and human rights, and governance. Climate reporting goes deeper on one topic: emissions, targets, transition plans and the financial effects of climate risk.
Governance, strategy, risk management, and metrics and targets. They come from the TCFD’s 2017 recommendations and are kept in IFRS S2, ESRS E1 and the national rules based on them. Governance covers oversight, strategy covers the effects on the business model, risk management covers how risks are identified and managed, and metrics and targets covers emissions and progress.
For large companies in a growing number of jurisdictions. Australia requires it for its largest entities from periods beginning 1 January 2025, Japan from the fiscal year ending March 2027 for its biggest listed companies, the EU through ESRS E1 under the CSRD, and California requires scope 1 and 2 emissions from companies with over $1 billion in revenue. More than 40 jurisdictions are adopting the ISSB standards.
Under IFRS S2 and ESRS E1, yes: scope 3 is part of the required greenhouse-gas metric, with transition reliefs in the first reporting years. Some regimes start narrower — California’s first SB 253 reports cover scopes 1 and 2 only. For most companies scope 3 is the largest share of emissions, so a report without it understates the footprint.
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