IFRS S2 Climate-Related Disclosures — The Definitive Reference

Executive Summary

IFRS S2 Climate-related Disclosures is the climate-specific standard within the ISSB’s IFRS Sustainability Disclosure Standards family, issued by the International Sustainability Standards Board in June 2023 and effective for annual reporting periods beginning on or after 1 January 2024. It is, in the language the IFRS Foundation uses about itself, the global baseline — the disclosure framework that any jurisdiction seeking investor-grade comparability on climate-related risks and opportunities can adopt directly into law, or interoperate with through a jurisdictional equivalent. By May 2026, that ambition is no longer theoretical. Twenty-one jurisdictions have made the standard mandatory or voluntary at the regulatory level; another thirty-six are in the adoption pipeline; Australia, Hong Kong, Brazil, Chile, Mexico, Qatar, Pakistan, Nigeria, and Türkiye are running on it now, with the UK, Canada, Singapore, Malaysia, Japan, and New Zealand at various stages of finalisation.

Three things distinguish IFRS S2 from its TCFD predecessor and from every prior voluntary climate disclosure framework. First, the four-pillar architecture — Governance, Strategy, Risk Management, Metrics & Targets — is mandatory at paragraph level, not aspirational. Second, the Scope 1, 2, and 3 disclosure regime is anchored to the GHG Protocol Corporate Standard with IPCC latest-assessment GWP values, and is required (not recommended) for every reporting entity. Third, the standard mandates industry-based metrics drawn from the SASB Standards through Appendix B, covering eleven sectors and seventy-seven industries, that no purely voluntary framework had previously imposed.

On 11 December 2025 the ISSB issued targeted amendments to the standard’s GHG emissions disclosure requirements, providing four specific reliefs: limiting Scope 3 Category 15 to financed emissions (excluding facilitated and insurance-associated emissions); extending the existing jurisdictional relief on measurement methods to apply to part of an entity; introducing a new jurisdictional relief allowing GWP values other than the latest IPCC assessment where required by a jurisdiction; and permitting industry-classification systems other than GICS for financed-emissions disaggregation. The amendments are effective for reporting periods beginning on or after 1 January 2027, with early application permitted. They do not rewrite the standard — they clarify scope and ease specific implementation challenges that surfaced as companies began applying it.

The standard sits at the apex of the corporate climate disclosure stack. It consumes the GHG Protocol Corporate Standard for Scope 1, 2, and 3 accounting and the GHG Protocol Land Sector and Removals Standard for the removals and storage components. It interoperates with CSRD ESRS E1 through joint guidance the IFRS Foundation and EFRAG published in May 2024. It substitutes operationally for the SEC climate disclosure rule that the U.S. Commission withdrew defense of in March 2025. And it is the framework that SBTi target reporting, CDP submission, and credit-rating climate analytics increasingly assume as the baseline data layer. For any company with cross-border capital-market exposure in 2026, IFRS S2 is not an option to consider; it is the framework whose adoption their regulators are now timing, and whose reporting infrastructure they need in place.

What IFRS S2 Is — and What It Is Not

IFRS S2 is a disclosure standard. It is not an accounting standard, not a target-setting framework, not a crediting mechanism, and not a measurement methodology in its own right. Its purpose is to specify, in technically auditable terms, what an entity must disclose to general purpose financial report users about its climate-related risks and opportunities — specifically those risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance, or cost of capital over the short, medium, or long term. The accounting methodology underneath the disclosure is the GHG Protocol Corporate Standard. The measurement methodology for Scope 2 is the GHG Protocol Scope 2 Guidance, applied in the dual-reporting form. The Scope 3 methodology is the GHG Protocol Corporate Value Chain Standard. IFRS S2 mandates that these methodologies be used; it does not replace them.

This distinction matters because it shapes how the standard is enforced. Under the IFRS S1 / S2 architecture, the entity reporting under IFRS S2 is making an assertion: my disclosures comply with the requirements of IFRS S2 as adopted in my jurisdiction. The assurance provider tests that assertion against the standard’s paragraph-level requirements — did the entity disclose what paragraph 17 requires? Did the metrics meet the requirements of paragraph 29? Was the Scope 3 materiality assessment performed in line with paragraph 29(a)(i)(3)? The underlying measurement quality — whether the Scope 1 figure is accurate, whether the Scope 3 boundary is complete — is tested against the methodological standards the disclosure points to, primarily the GHG Protocol. IFRS S2 is the disclosure layer; the GHG Protocol is the measurement layer; ISAE 3000 and ISAE 3410 are the assurance layer that audits both.

What IFRS S2 is, structurally, is a re-engineering of the TCFD voluntary recommendations into a mandatory ISSB standard. The four pillars are preserved verbatim — Governance, Strategy, Risk Management, Metrics & Targets — but every “recommended disclosure” in TCFD becomes a “shall disclose” requirement in IFRS S2, with paragraph-level granularity that audit engagements can test. The disclosure of cross-industry metrics that TCFD treated as a set of suggestions becomes the seven cross-industry metric categories in paragraph 29. The industry-based metrics that TCFD signposted as the responsibility of other bodies becomes the SASB-derived industry guidance through Appendix B. The scenario analysis that TCFD recommended becomes a strategic resilience assessment required by paragraph 22.

What IFRS S2 is not is equally important. It is not a double-materiality framework — the materiality test is single-materiality and investor-focused, asking what could affect the entity’s prospects, not what the entity’s activities do to the environment. It does not set targets or evaluate target ambition — that is the SBTi’s remit. It does not credit removals or rule on the integrity of carbon credits — that is the GHG Protocol Land Sector and Removals Standard, the voluntary carbon market crediting programmes, and the Article 6 Paris Agreement mechanism. It does not impose a transition plan — it requires disclosure of the plan an entity has, if any. It does not apply automatically — it applies where a jurisdiction has adopted it into law, or where an entity voluntarily applies it.

Why IFRS S2 Exists

The reason IFRS S2 exists is the reason the ISSB exists, and the reason the ISSB exists is a specific institutional failure that the climate disclosure landscape arrived at by 2020. The TCFD recommendations, published by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures in 2017, had become the dominant voluntary framework for corporate climate disclosure within five years of publication. By 2020 the major capital-market jurisdictions were converging on TCFD as the de facto standard — the UK had mandated TCFD-aligned reporting, the EU was incorporating TCFD into the CSRD’s predecessor regime, the SEC was preparing a TCFD-aligned rule, jurisdictions across Asia were building TCFD into listing rules. Convergence was the visible story. Beneath the convergence, three problems were widening.

The first was that TCFD was voluntary at its foundation, and voluntary standards do not generate auditable disclosures. Companies could claim TCFD alignment by addressing the four pillars at any level of detail they chose. Two companies in the same sector, with comparable climate exposure, could publish TCFD-aligned reports of radically different depth and rigour, both technically compliant with the framework. For investors trying to compare climate risk across portfolios, the disclosures were not comparable in any disciplined sense. The framework needed mandatory granularity, and mandatory granularity required a standard-setter with the authority to specify it.

The second was that cross-jurisdictional fragmentation was accelerating. The EU was building ESRS, which would mandate the CSRD double-materiality regime with hundreds of datapoints. The US SEC was drafting a climate rule with a different materiality test and different reporting boundaries. The UK was building its own framework on top of TCFD. Japan, Singapore, Hong Kong, and Australia were each in their own consultation processes. Without a global baseline that the jurisdictional standards could converge on, every multinational company faced the prospect of four to seven parallel reporting streams, with overlapping but non-identical requirements, each requiring separate assurance.

The third was that the standard-setter authority for global capital-market reporting already existed, in the IFRS Foundation, the body that publishes the IFRS Accounting Standards used in more than 140 jurisdictions for financial reporting. The IFRS Foundation has the institutional infrastructure for global standard-setting — a public consultation process, a trustees structure, IOSCO endorsement, a relationship with national accounting standard-setters — that no purely voluntary body has. At COP26 in November 2021, the IFRS Foundation announced the creation of the International Sustainability Standards Board to develop a global baseline for sustainability disclosure, taking direct responsibility for the TCFD monitoring function from the Financial Stability Board. IFRS S2 is the consequence: a TCFD-based, ISSB-issued, IFRS Foundation-governed climate disclosure standard that any jurisdiction can adopt and that investors across markets can rely on as a common reference.

What IFRS S2 fixes is the gap between TCFD’s framework strength and TCFD’s framework status. The four pillars, the scenario analysis, the metrics-and-targets architecture — all of these were already there in TCFD. What was missing was the standard-setter authority that turns recommendations into requirements, the paragraph-level granularity that turns flexible reporting into auditable reporting, and the global institutional backing that lets jurisdictions adopt with confidence that other major markets will adopt in parallel.

Publication History and Status

The path from TCFD to IFRS S2 ran across nine years and four institutional handoffs.

Governance: ISSB, IFRS Foundation, IOSCO

IFRS S2 is issued by the International Sustainability Standards Board, a standard-setting body of the IFRS Foundation. The IFRS Foundation is a not-for-profit, public interest organisation established in 2001 with the mission of developing globally accepted accounting and sustainability standards. The Foundation is governed by Trustees who oversee the work of the IASB (which issues IFRS Accounting Standards) and the ISSB (which issues IFRS Sustainability Disclosure Standards), with strategic oversight from the Monitoring Board, a body of capital-market authorities including the European Commission, the U.S. SEC, the Japan Financial Services Agency, IOSCO, and the Basel Committee on Banking Supervision.

The ISSB itself comprises fourteen full-time and part-time members drawn from across the major capital-market jurisdictions, supported by a technical staff in Frankfurt, Montréal, and other locations. Decision-making follows the IFRS Foundation’s due process: public consultation on exposure drafts, public comment review, redeliberation in open meetings, and ultimate decision by the board on a comply-or-explain transparency basis. The Sustainability Standards Advisory Forum brings together the world’s leading sustainability standard-setters — including national accounting standard-setters, EFRAG, the Japan SSBJ, and others — for technical advice on the standard-setting work programme.

IOSCO’s July 2023 endorsement of IFRS S1 and S2 is the institutional mechanism that turned the ISSB Standards into a global baseline rather than another voluntary framework. IOSCO membership comprises securities regulators from more than 130 jurisdictions covering the bulk of global capital markets. The endorsement calls on those regulators to consider how IFRS S1 and S2 can be incorporated into their regulatory frameworks — either through direct adoption, through a jurisdictional equivalent, or through reference within existing disclosure regimes. The IFRS Foundation publishes jurisdictional profiles documenting the adoption status of each jurisdiction that has progressed past the consultation stage; as of June 2025 the first seventeen profiles were published, with more added on a rolling basis.

The relationship with SASB is particular. The Value Reporting Foundation, which housed the SASB Standards, merged into the IFRS Foundation in August 2022. The SASB Standards are now an IFRS Foundation property, and the seventy-seven industry-specific standards form the basis of the industry-based metrics that IFRS S2 Appendix B requires. The ISSB continues to maintain and update the SASB Standards, including the consequential amendments to three financed-emissions SASB Standards published alongside the December 2025 IFRS S2 amendments.

The Relationship Between IFRS S1 and IFRS S2

IFRS S1 and IFRS S2 are companion standards issued together and intended to be applied together. IFRS S1 specifies the general requirements for the disclosure of sustainability-related financial information — the materiality framework, the reporting boundary, the connected-information requirements, the comparative information rules, the location of disclosures, the assurance and verification expectations. IFRS S2 specifies the climate-specific disclosure requirements within the IFRS S1 framework.

The architectural relationship is that IFRS S1 supplies the connective tissue and IFRS S2 supplies the climate-specific content. Under IFRS S1, the entity must disclose material information about sustainability-related risks and opportunities that could reasonably be expected to affect its prospects. For climate-related risks and opportunities specifically, IFRS S2 supplies the disclosure content — what to disclose under each of the four pillars, which metrics to report, how to perform scenario analysis, what to say about transition plans. For sustainability topics other than climate, IFRS S1 currently requires the entity to consider whether there are material sustainability-related risks and opportunities and to disclose them, drawing on the SASB Standards and other guidance — the ISSB’s announced biodiversity work programme will fill the climate-shaped gap in the standard family for nature-related disclosure over coming years.

The materiality test is set by IFRS S1 and applied by IFRS S2. Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports. Primary users are existing and potential investors, lenders, and other creditors. This is the enterprise-value lens — what matters is what affects the value of the enterprise to those users. It is single-materiality, not the double-materiality regime of CSRD ESRS, where impacts on people and environment also enter the materiality assessment regardless of their financial impact on the enterprise. The single-materiality framing is the single most consequential structural difference between IFRS S2 and ESRS E1, and it shapes everything downstream from Scope 3 boundary determination to transition plan disclosure granularity.

An entity reporting under IFRS S2 alone, without IFRS S1, is non-compliant by construction — the standards are issued together and cite each other. An entity reporting under IFRS S1 alone, without applying IFRS S2 to its climate-related risks and opportunities, is similarly non-compliant for any reporting period in which climate is among the entity’s sustainability-related risks and opportunities (which, for any material reporter, it will be).

The Four-Pillar Architecture

The four-pillar architecture is the structural backbone of IFRS S2, inherited verbatim from the 2017 TCFD recommendations and operationalised at paragraph level through the standard’s main body (paragraphs 5–36). Each pillar maps to a specific question that primary users of general purpose financial reports need answered to assess climate-related risks and opportunities, and each pillar’s disclosures are specified in the standard with the granularity that audit engagements can test.

The pillars are sequenced to mirror how an investor would assess a company’s climate position: who governs it, what the strategy is, how the risks are managed, and what the numbers say. Each subsequent pillar requires the disclosures of the prior pillars to be already in place to make sense — the metrics of pillar 4 are meaningful only in the context of the strategy of pillar 2 and the risks of pillar 3, which in turn are credible only against the governance of pillar 1. The architecture is integrative by design; disclosures cannot be cherry-picked across pillars without losing the structural intent of the standard.

Pillar 1: Governance Disclosures

The governance pillar (paragraphs 5–7) requires disclosure of how the governance body or bodies (typically the board, sometimes a board committee) oversee climate-related risks and opportunities, and the role of management in assessing and managing those risks and opportunities. The disclosures must be specific enough that a reader can identify which body has oversight, how that body discharges its responsibility, what information it receives, and how that information flows from management.

For the board or oversight body, IFRS S2 paragraph 6(a) requires disclosure of: the identification of the body or bodies (or individuals) responsible for oversight of climate-related risks and opportunities; how their responsibilities are reflected in terms of reference, mandates, and other documents; how the body ensures appropriate skills and competencies are available; how and how often it is informed; how it considers climate-related risks and opportunities when overseeing strategy, decisions on major transactions, and risk management processes; how it oversees the setting of targets; and how performance metrics are integrated into remuneration policies.

For management, paragraph 6(b) requires disclosure of management’s role in assessing and managing climate-related risks and opportunities, including whether the role is delegated to a specific position or committee, the position or committee’s responsibility for monitoring climate-related risks and opportunities, and the controls and procedures used.

What pillar 1 surfaces is the integration of climate into corporate decision-making at the top of the organisation. A company whose board reviews climate-related information only annually, has no climate competence among directors, and ties no executive remuneration to climate outcomes is disclosing one set of governance facts. A company with a board climate committee that meets quarterly, has climate-experienced directors, and ties executive remuneration to Scope 1 + 2 emission reduction targets is disclosing a different set of facts. Both disclosures are compliant; the difference is what investors see when they compare the two.

Pillar 2: Strategy Disclosures

The strategy pillar (paragraphs 8–22) is the longest section of IFRS S2 and the most demanding in implementation. It requires the entity to identify the climate-related risks and opportunities that could reasonably be expected to affect its business model, strategy, cash flows, access to finance, or cost of capital over the short, medium, and long term — and to disclose them with sufficient specificity that primary users can understand the financial implications.

Paragraph 10 requires disclosure of: the identified climate-related risks and opportunities; the time horizons over which each is expected to manifest; how these were identified relative to the business model and value chain; and whether each is a physical risk, a transition risk, or an opportunity. Paragraph 11 requires disclosure of the current and anticipated effects on the business model and value chain. Paragraphs 13–15 require disclosure of the effects on the entity’s financial position, performance, and cash flows for the reporting period and the anticipated effects over the short, medium, and long term. Paragraph 16 requires disclosure of how the entity is responding through changes to its business model, resources, and strategy. Paragraph 22 requires the resilience assessment — the disclosure of how resilient the entity’s strategy and business model are to climate-related changes, developments, and uncertainties, supported by scenario analysis.

The strategy pillar’s disclosures are necessarily forward-looking, and the standard explicitly permits the use of qualitative disclosure where quantification is not practicable, provided the disclosure remains specific and informative. The phrase the standard uses repeatedly is “could reasonably be expected to affect” — not certainty, not high probability, but reasonable expectation based on available evidence. This formulation expands the disclosure perimeter beyond what a strictly probability-weighted threshold would capture, while preserving the discipline of requiring evidence and reasoning.

Scenario Analysis Under IFRS S2

Scenario analysis under IFRS S2 (paragraph 22 and Appendix B’s industry guidance) is the technique by which the entity tests the resilience of its strategy and business model against a range of climate-related futures. The standard does not prescribe specific scenarios — it requires the entity to use scenarios that are appropriate to its circumstances, with the rationale for selection disclosed. In practice, the dominant scenario sets are: the IEA’s net-zero scenarios (NZE, APS, STEPS) for transition risk and policy futures; the Network for Greening the Financial System (NGFS) scenarios for financial sector applications; and the IPCC’s Shared Socioeconomic Pathways (SSP1-1.9, SSP1-2.6, SSP2-4.5, SSP5-8.5) for physical risk and warming futures. A robust scenario analysis under IFRS S2 typically includes at least one scenario consistent with limiting warming to 1.5°C and at least one higher-warming scenario, with the rationale for the specific scenarios chosen disclosed.

What scenario analysis must demonstrate is not prediction but resilience. The standard asks: in each chosen scenario, how does the strategy hold up? Where does it falter? What dependencies are exposed? The output is a disclosure narrative that lets primary users assess how the entity has thought about climate-related futures and what the strategy depends on. Quantitative scenario outputs — revenue under specific scenarios, asset impairment under specific scenarios, capital expenditure under specific scenarios — are encouraged where practicable and required where they are material to understanding the resilience assessment.

The first-year transition relief (see §25 Transition Reliefs) permits qualitative scenario analysis in the first reporting period, with the expectation that quantitative analysis will follow as data and analytical capability develop. Beyond the first year, the standard’s expectation tightens toward quantitative resilience assessment where the entity’s circumstances support it.

Pillar 3: Risk Management Disclosures

The risk management pillar (paragraphs 25–26) requires disclosure of the processes by which the entity identifies, assesses, prioritises, and monitors climate-related risks and opportunities. Paragraph 25 requires disclosure of: the processes and policies used to identify and assess climate-related risks and opportunities; the inputs used (including the data sources, the scope of operations covered, and the time horizons considered); whether and how the entity uses scenario analysis to inform identification; how it prioritises risks relative to other risks; how it monitors risks over time; and how the risk management process is integrated into the overall risk management framework.

Paragraph 26 specifies disclosure of the processes used to identify, assess, prioritise, and monitor climate-related opportunities — the same architecture applied to the upside rather than the downside of climate-related change. Opportunities under IFRS S2 are not exclusively transition opportunities (new products, new markets, energy efficiency); they include resilience opportunities (asset positioning, supply chain diversification) and resource efficiency opportunities.

The risk management pillar is the disclosure most directly testable against the entity’s actual operating practice. Assurance engagements under ISAE 3000 typically test the disclosures of pillar 3 against the entity’s risk management documentation, board papers, internal audit reports, and risk register entries. A pillar 3 disclosure that does not reconcile to the entity’s actual risk management process is a major finding.

Pillar 4: Metrics and Targets

The metrics and targets pillar (paragraphs 27–36) is where the rubber meets the road. The qualitative disclosures of pillars 1–3 set the context; the metrics and targets of pillar 4 are the numbers that make the disclosures comparable across entities. The pillar mandates two categories of metric: cross-industry metrics that apply to every reporting entity (paragraph 29), and industry-based metrics that vary by the entity’s SASB industry classification (paragraph 32 and Appendix B).

The cross-industry categories are seven (paragraph 29): absolute gross GHG emissions, GHG emissions intensity, transition risk exposure, physical risk exposure, climate-related opportunities, capital deployment, and internal carbon prices — with a separate paragraph on remuneration (paragraph 29(g)) that requires disclosure of how climate-related considerations are factored into executive remuneration.

Targets are required under paragraph 33: the entity must disclose any quantitative and qualitative climate-related targets set, including the metric used, the objective, the part of the entity to which the target applies, the time period over which it applies, the base period, milestones, performance against the target in the reporting period, and the methodology used. Targets are not required to exist — an entity that has set no targets discloses that fact. But where targets exist, the standard’s transparency requirements are extensive.

The detailed treatment of each cross-industry category, the SASB industry-based metrics, the Scope 1 / 2 / 3 emissions requirement, and the GWP basis follow in the next several sections. Pillar 4 is where IFRS S2 reaches deepest into the accounting layer underneath the disclosure layer, and where the December 2025 amendments most directly intervene.

The Scope 1, 2, and 3 Requirement

IFRS S2 paragraph 29(a) requires disclosure of absolute gross greenhouse gas emissions in metric tonnes of CO₂-equivalent (CO₂e), classified as:

• Scope 1 — direct GHG emissions from sources owned or controlled by the entity (paragraph 29(a)(i)(1)).
• Scope 2 — indirect GHG emissions from the generation of purchased energy consumed by the entity (paragraph 29(a)(i)(2)). Disclosed using the location-based method, with additional disclosure using the market-based method where applicable.
• Scope 3 — other indirect GHG emissions across the entity’s value chain (paragraph 29(a)(i)(3)). The entity must consider all fifteen categories of the GHG Protocol Corporate Value Chain Standard and disclose the categories determined to be material.

This three-scope architecture is the GHG Protocol Corporate Standard architecture, brought wholesale into IFRS S2. The measurement methodology is the GHG Protocol Corporate Standard for Scope 1 and 2, the GHG Protocol Scope 2 Guidance for Scope 2 (including the location-based / market-based dual reporting), and the GHG Protocol Corporate Value Chain (Scope 3) Standard for Scope 3.

Paragraph 29(a)(iv) requires disaggregation of GHG emissions in two ways: between the consolidated accounting group (parent and consolidated subsidiaries) and other investees (associates, joint ventures, unconsolidated subsidiaries); and disaggregation by the seven Kyoto Protocol gases (CO₂, CH₄, N₂O, HFCs, PFCs, SF₆, NF₃) where doing so would result in useful information for primary users.

The Scope 1 and Scope 2 disclosure is, by 2026, well-established corporate practice for any company that has been reporting under TCFD, CDP, or comparable voluntary frameworks. Scope 3 is the dimension where the standard is most operationally consequential, where the December 2025 amendments most directly intervene, and where the materiality assessment determines the disclosure boundary. The next section addresses Scope 3 materiality in the depth the question requires.

Scope 3 Materiality — The Decision Tree

The question every sustainability officer working on IFRS S2 implementation is actively wrestling with is which Scope 3 categories to disclose. IFRS S2 paragraph 29(a)(i)(3) requires the entity to disclose its Scope 3 GHG emissions, and the related paragraphs (B32–B57) specify that the entity must consider all fifteen categories of the GHG Protocol Corporate Value Chain Standard, disclose the categories included in the Scope 3 measurement, and ensure the measurement covers the categories that contribute to a material proportion of Scope 3 emissions for the entity. The materiality assessment is performed under the IFRS S1 single-materiality test — whether the information could reasonably influence the decisions of primary users of general purpose financial reports.

What follows is the practical decision tree. For each of the fifteen Scope 3 categories, the entity asks: is this category likely to be material to the entity’s climate-related risks and opportunities given the entity’s business model, value chain position, and industry context? The answer depends on three layers of consideration.

Layer 1: Industry-based starting point

The SASB Standards (now incorporated into the IFRS S2 industry-based metrics through Appendix B) provide industry-level guidance on which Scope 3 categories are typically material for each of the seventy-seven industries. A financial services firm’s Category 15 (Investments) is almost always material; a consumer goods company’s Category 1 (Purchased Goods and Services) is almost always material; a manufacturing firm’s Category 11 (Use of Sold Products) is often material; a retail firm’s Category 4 (Upstream Transportation) is often material. Industry-based starting points are not deterministic — the entity must validate against its own circumstances — but they are the right reference point.

Layer 2: Entity-specific value chain assessment

The entity’s specific business model and value chain position can shift which categories matter. A consumer goods company that has vertically integrated upstream agriculture has different Category 1 exposure than one that purchases finished commodities. A manufacturer of long-lived capital equipment (industrial machinery, vehicles, building systems) has very different Category 11 exposure than a manufacturer of short-lived products. A financial services firm with substantial private equity exposure has different Category 15 exposure than one focused on liquid markets.

Layer 3: The enterprise-value test

The IFRS S1 materiality test asks: could omitting, misstating, or obscuring this information reasonably be expected to influence the decisions of primary users? For each candidate category, the entity considers what investors would want to know to assess transition risk exposure, physical risk exposure, and capital allocation implications. A Scope 3 category that is large in absolute terms but stable, well-managed, and not exposed to material transition or physical risk may not be material in the enterprise-value sense. A Scope 3 category that is smaller in absolute terms but exposed to imminent regulatory cost (carbon pricing, supply chain regulation) may be material even at lower volume.

The fifteen categories mapped against the test

The table below maps each of the GHG Protocol’s fifteen Scope 3 categories against industry-typical materiality, business-model considerations, and the cross-industry rules of thumb that the ISSB’s May 2025 educational material on GHG emissions disclosure supports.

The decision tree, formalised

The December 2025 amendments and Category 15

The 11 December 2025 amendments to IFRS S2 introduce a specific relief for Category 15 (Investments) that materially changes the materiality assessment for financial services firms. Under the amended paragraph 29A, an entity may limit its measurement and disclosure of Category 15 to financed emissions — emissions attributable to loans and investments — thereby excluding facilitated emissions (from investment banking activities), insurance-associated emissions (from underwriting), and emissions attributable to derivatives. Where the relief is applied, the entity must disclose what it has treated as a derivative, describe the financial activities excluded, and (if Category 15 is included in the total Scope 3 disclosure) present both the total Category 15 emissions and the financed emissions subtotal within that total. The relief is effective for periods beginning on or after 1 January 2027, with early application permitted. See §24 The December 2025 Amendments for the full technical treatment.

Cross-Industry Metric Categories

Paragraph 29 specifies seven cross-industry metric categories that every entity must consider and disclose where material. The categories are:

Paragraph 29(g) on remuneration is the disclosure most often missed at first publication. The standard does not require an entity to link executive remuneration to climate outcomes; it requires the entity to disclose whether and how it does, and what proportion of executive remuneration is linked. An entity with no climate-linked remuneration discloses that fact; an entity with climate-linked remuneration discloses the structure, the metrics used, and the proportion. The disclosure is straightforward when remuneration is structured around clear climate KPIs; it becomes more complex when climate considerations are folded into broader ESG or sustainability metrics without specific weighting.

Industry-Based Metrics — SASB Through Appendix B

Appendix B of IFRS S2 mandates industry-based metrics drawn from the SASB Standards. The SASB Standards cover seventy-seven industries organised across eleven sectors — consumer goods, extractives and minerals processing, financials, food and beverage, health care, infrastructure, renewable resources and alternative energy, resource transformation, services, technology and communications, and transportation. For each industry, SASB specifies industry-specific climate-related metrics that the IFRS S2 reporting entity is required to consider and disclose where applicable.

The integration of SASB into IFRS S2 is one of the standard’s most distinctive features and one of its most contested. SASB was developed as an investor-focused industry-specific sustainability disclosure framework; its integration into IFRS S2 brings industry-level granularity that no other climate disclosure framework imposes. For a financial services firm, the SASB-derived metrics include exposure to specific high-emitting sectors, climate-related credit risk metrics, and underwriting standards. For an extractive firm, they include proved reserves disclosure split by hydrocarbon type, hydrocarbon mix in production, and operational emission intensity by category. For a real estate firm, they include energy consumption and intensity by property type, climate change adaptation features, and certified-building metrics.

The standard requires the entity to consider industry-based disclosure topics from SASB; it does not require the entity to apply every SASB metric mechanically. An entity assesses which SASB-derived metrics are applicable given its activities, applies the ones that are material to the IFRS S1 enterprise-value test, and discloses with the rationale for selections. The December 2025 amendments include consequential amendments to three SASB Standards (the financials sector standards covering banks, insurers, and asset managers) aligning their financed-emissions metrics with the amended IFRS S2 paragraph 29A architecture.

Australia’s AASB S2 takes a notable position on Appendix B: it modifies some industry-based metric requirements to reflect Australian context, while retaining the SASB-derived architecture. Other jurisdictions adopting IFRS S2 typically retain Appendix B unchanged. The interoperability with CSRD ESRS E1 (see §26) is one of the points where the two frameworks differ — ESRS does not mandate industry-specific metrics in the same SASB-integrated form, though it does reference SASB and the IFRS industry guidance.

The GHG Protocol Connection

IFRS S2 paragraph 29(a)(ii) requires Scope 1, 2, and 3 emissions to be measured in accordance with the GHG Protocol Corporate Standard, unless the entity is required by a jurisdictional authority or by an exchange on which it is listed to use a different method. This anchoring to the GHG Protocol is structural — IFRS S2 is the disclosure standard, the GHG Protocol is the accounting methodology, and the two are interlocked by design.

The specific GHG Protocol publications IFRS S2 references are:

• The GHG Protocol Corporate Standard (revised edition, 2004) — the foundational standard for Scope 1 and Scope 2 accounting, the consolidation approach choice, the inventory principles, and the gas coverage.
• The GHG Protocol Scope 2 Guidance (2015) — the methodology for Scope 2 emissions, including the location-based and market-based dual reporting requirement.
• The GHG Protocol Corporate Value Chain (Scope 3) Standard (2011) — the methodology for Scope 3 emissions, including the fifteen-category framework.
• The GHG Protocol Land Sector and Removals Standard (2026) — the methodology for land-sector emissions and removals, applicable to entities with material land-sector exposure or removal claims.

The December 2025 amendments updated the jurisdictional relief language. Under the amended IFRS S2, an entity required by a jurisdictional authority or exchange (in whole or in part) to use a measurement method other than the GHG Protocol Corporate Standard may apply the alternative method to the relevant part of the entity, for as long as the jurisdictional requirement applies. The amendment clarifies that the relief operates partially — an entity with operations in jurisdictions requiring alternative methods (China’s national methodology, for example) can apply the alternative method to those operations without having to apply it to operations elsewhere. Where the relief is applied, the entity discloses the method used and how it relates to the disclosure objective.

The Scope 3 jurisdictional relief is more constrained than the Scope 1/2 relief. Even where an entity uses a jurisdictional alternative for Scope 1 or 2 measurement, the entity is generally still required to apply the GHG Protocol Corporate Value Chain Standard for Scope 3 — the categories framework, the measurement hierarchy, the materiality consideration. The Scope 3 architecture is the GHG Protocol’s, and IFRS S2’s adoption of it is structural.

GWP Basis Under IFRS S2 — AR5, AR6, and the Jurisdictional Relief

Greenhouse gas emissions reporting requires conversion of the individual gases (CH₄, N₂O, HFCs, PFCs, SF₆, NF₃) into CO₂-equivalent values using global warming potential (GWP) multipliers. The GWP values themselves are not in the GHG Protocol or IFRS S2 — they are in the IPCC assessment reports, updated approximately every six to eight years as the science develops.

The original 2023 text of IFRS S2 paragraph B19 required entities to use GWP values from the latest IPCC assessment report available at the reporting date. As of May 2026, that is IPCC AR6 (Working Group I, 2021), with the GWP-100 values published in Chapter 7 (Table 7.SM.7). The ISSB’s stated reasoning was that this would ensure GHG emissions data reflects the latest scientific knowledge and would maintain comparability across reporting entities. This approach was also consistent with the GHG Protocol Corporate Standard’s recommendation to use the most recent GWP values.

The December 2025 jurisdictional relief on GWP values

The December 2025 amendments introduced a new jurisdictional relief on GWP values. Under the amended standard, where an entity (in whole or in part) is required by a jurisdictional authority or exchange to use GWP values other than those from the latest IPCC assessment, the entity is permitted to use those alternative GWP values for the relevant part of the entity, for as long as the jurisdictional requirement applies. The relief addresses a specific problem: several adopting jurisdictions specify AR5 GWP values (or other specific GWP bases) in their existing GHG reporting frameworks, and requiring entities to use AR6 GWP values for IFRS S2 disclosure while using AR5 GWP values for jurisdictional GHG reporting creates duplicative measurement burden without significant improvement in decision-usefulness.

The ISSB’s reasoning for the relief, in the Basis for Conclusions, is that GWP values are only one input to GHG emissions measurement and that the existing measurement-method jurisdictional relief already accommodates alternative methodologies. The relief does not significantly affect comparability, the ISSB concluded, because the entity discloses both the measurement method and the GWP basis used, and primary users can interpret the disclosure in context.

For the underlying values, see the IPCC AR6 GWP values reference dataset and the global warming potential glossary entry. The CO₂e glossary entry covers the conversion mechanics and the AR5-vs-AR6 numerical divergence that the jurisdictional relief addresses.

The Consolidated Accounting Group Boundary

IFRS S2’s reporting boundary is the consolidated accounting group: the parent entity and the subsidiaries consolidated under the applicable accounting standards (IFRS 10 Consolidated Financial Statements, for entities reporting under IFRS Accounting Standards). This is a single-boundary approach — the climate-related disclosures cover the same reporting entity that the financial statements cover, neither broader nor narrower.

This is a deliberate architectural choice and a point of divergence from the GHG Protocol Corporate Standard, which permits three consolidation approaches (operational control, financial control, equity share). Under IFRS S2 paragraph B17, the entity uses the consolidated accounting group as the boundary; the GHG Protocol consolidation approach choice is, in effect, pre-selected by the entity’s financial reporting consolidation choice.

The Scope 1 and Scope 2 emissions disclosed are the emissions from the consolidated accounting group’s activities — not the equity-share or operational-control alternatives. The Scope 3 emissions are the value chain emissions of the consolidated accounting group. Where the entity has significant investees that are not consolidated (associates, joint ventures, unconsolidated subsidiaries), their emissions appear in the Scope 3 disclosure (Category 15 for financial-investment relationships; potentially other categories for operational relationships), not in Scope 1 or Scope 2.

Paragraph 29(a)(iv) requires disaggregation of GHG emissions between the consolidated accounting group and other investees. This disaggregation lets primary users see the boundary explicitly and assess emissions exposure both within and beyond the consolidated boundary.

Connected Information — the Bridge to the Financial Statements

Paragraphs 21 and 22 of IFRS S1, applied to climate-related disclosures through IFRS S2, require what the standards call “connected information” — disclosures that demonstrate the relationships between sustainability-related information and information in the related general purpose financial statements. This is the requirement that distinguishes IFRS S2 most sharply from TCFD and that defines the largest gap between voluntary climate reporting practice and IFRS S2-compliant disclosure.

Connected information requires the entity to disclose how climate-related risks and opportunities relate to amounts recognised, measured, or disclosed in the financial statements. Where climate-related risks are reflected in impairment of long-lived assets, in expected credit losses on lending exposures, in fair value adjustments to financial instruments, in provisions for environmental liabilities, in changes to useful life assumptions for depreciable assets, or in any other element of the financial statements — the connection must be made explicit. The standard does not require duplicative disclosure; it requires the entity to point to where in the financial statements the climate-related effect appears, with sufficient context that a primary user can follow the connection.

The implementation gap

Connected information is the single largest implementation gap that Big Four assurance teams have flagged in the first round of IFRS S2 reporting in Australia, Hong Kong, and other early-adoption jurisdictions. The reason is structural: sustainability teams typically operate separately from finance teams; sustainability disclosures historically have not been connected to financial statement line items; the supporting analytics (which assets are vulnerable to physical risk, which lending exposures face transition risk, which provisions reflect climate-related liabilities) typically exist in different systems and were not built for cross-disclosure connection.

Building the connection requires three things: a mapping from each material climate-related risk and opportunity to the financial-statement line items it touches; a process for ensuring the climate-related disclosure aligns with the actual measurement basis used in the financial statements; and governance that prevents the climate-related disclosure from contradicting the financial-statement positions (impairment assumptions, provision recognition criteria, fair-value inputs). The work is cross-functional — sustainability, finance, internal audit, external assurance — and it has consequences for the audit committee’s oversight of both the financial statements and the sustainability statement.

Transition Plan Disclosure

IFRS S2 paragraph 14 requires disclosure of the climate-related transition plans the entity has, if any — including key assumptions used in developing the plan, dependencies on which the plan relies, and how the entity is responding to identified climate-related risks and opportunities through changes to its business model. The standard does not require an entity to have a transition plan; it requires disclosure of the plan if one exists.

The ISSB published dedicated transition plan guidance on 23 June 2025, taking over the function from the UK Transition Plan Taskforce (TPT), whose work the IFRS Foundation absorbed in 2024 as part of the broader effort to harmonise transition plan disclosure globally. The guidance elaborates on what a robust transition plan disclosure includes: the strategic ambition and objectives; the implementation actions and dependencies; the metrics and milestones; the governance and oversight; the resource allocation; and the engagement with the value chain.

The relationship between an IFRS S2 transition plan disclosure and an SBTi-validated science-based target is collaborative but distinct. SBTi validates the target ambition and methodology; IFRS S2 requires disclosure of the target, the underlying methodology, the milestones, and the progress. An entity with an SBTi-validated target discloses that fact, along with the target details. An entity without a validated target discloses what it does have — or discloses that it has not set a target, with the reasoning. The SBTi validation is not required for IFRS S2 compliance; it is one of several recognised methodologies an entity may apply and disclose under.

The relationship with CSRD ESRS E1 on transition plans is more demanding on the European side. ESRS E1-1 requires disclosure of a transition plan with greater paragraph-level granularity and with the double-materiality framing applied throughout. An entity reporting under both IFRS S2 and ESRS E1 typically prepares the transition plan disclosure to the ESRS E1 specification and uses it to satisfy the IFRS S2 requirement — with the connected information requirements of IFRS S1 and the impacts disclosure of ESRS E1 both addressed.

The dedicated SBTi Absolute Contraction Approach methodology page covers the absolute contraction targets that anchor most IFRS S2-aligned transition plan disclosures in 2026; the SBTi Corporate Net-Zero Standard reference covers the long-term net-zero architecture.

Physical and Transition Risk Taxonomy

IFRS S2 categorises climate-related risks into two classes, inherited from TCFD: physical risks and transition risks. The classification structures the strategy and risk management disclosures and the cross-industry exposure metrics.

Physical risks are risks arising from the physical effects of climate change on the entity’s operations, assets, and value chain. They subdivide into acute (event-driven: hurricanes, floods, wildfires, drought) and chronic (long-term shifts: sea-level rise, sustained temperature increase, water scarcity, ecosystem disruption). Physical risk exposure is disclosed under paragraph 29(c) as the amount and percentage of assets or business activities vulnerable to physical risk, typically with geographic and time-horizon disaggregation.

Transition risks are risks arising from the transition to a lower-carbon economy. They include policy and legal risks (carbon pricing, regulatory restrictions, litigation), technology risks (substitution of high-emission products and services), market risks (changing customer demand, raw material price volatility), and reputational risks (stakeholder perception, consumer preference). Transition risk exposure is disclosed under paragraph 29(b) as the amount and percentage of assets or business activities vulnerable to transition risk, with the underlying transition pathway assumptions disclosed in the strategy and scenario analysis sections.

The standard does not prescribe a single taxonomy for either category — entities use the taxonomy that fits their circumstances, with the rationale disclosed. In practice, the TCFD’s original risk taxonomy remains the dominant reference, augmented by industry-specific taxonomies where applicable. The integration with the entity’s enterprise risk management framework is important: a physical-risk classification that the climate disclosure team uses but the ERM function does not is a structural inconsistency that assurance providers flag.

Internal Carbon Price Disclosure

Paragraph 29(f) requires disclosure of whether and how the entity applies an internal carbon price, including the carbon price applied and how it is integrated into decision-making (capital allocation, investment screening, transfer pricing, performance management). An entity that does not apply an internal carbon price discloses that fact.

The internal carbon price is one of the cross-industry metrics that voluntary reporters have historically been slowest to adopt. CDP data through 2024 indicated that approximately a third of large reporters disclosed an internal carbon price; the remainder did not have one or did not disclose. IFRS S2 makes the disclosure mandatory, which surfaces the question for the audit committee: should the company have an internal carbon price, and if it has one, is the value strategically meaningful?

The standard does not prescribe a methodology for setting an internal carbon price. In practice, the dominant approaches are: shadow pricing (a hypothetical price used in investment analysis), implicit pricing (the price embedded in capital deployment decisions), and explicit pricing (a charge applied to internal operations to fund decarbonisation activity). The standard requires disclosure of which approach is used, how the price is applied, and the rationale for the price level. A nominal carbon price set so low that it does not actually affect decisions is, in disclosure terms, indistinguishable from having no carbon price — though the disclosure remains compliant.

The December 2025 Amendments — What Changed

On 11 December 2025, the ISSB issued Amendments to Greenhouse Gas Emissions Disclosures (Amendments to IFRS S2), the first substantive amendment to IFRS S2 since the standard’s June 2023 publication. The amendments respond to implementation challenges identified through the ISSB’s Transition Implementation Group, the first round of mandatory reporting in Australia and Hong Kong, and the broader stakeholder consultation process the ISSB ran during 2025. They are effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted.

Four targeted amendments comprise the package, each addressing a specific application challenge that surfaced as companies began applying the standard.

Amendment 1: Scope 3 Category 15 limited to financed emissions

The amended paragraph 29A permits an entity to limit its measurement and disclosure of Scope 3 Category 15 emissions to financed emissions, defined as emissions attributed to loans and investments made by the entity to investees or counterparties. The phrase “loans and investments” includes loans, project finance, bonds, equity investments, and undrawn loan commitments. For asset management entities, financed emissions also include emissions attributable to assets under management.

Where the entity applies the limitation, the entity may exclude from Category 15: emissions attributable to derivatives, facilitated emissions (from investment banking activities such as capital markets underwriting and advisory), and insurance-associated emissions (from underwriting activities). The amendment responds to a structural problem in the original standard: the boundary of Category 15 was ambiguous, the data and methodologies for facilitated and insurance-associated emissions were under-developed, and requiring full Category 15 disclosure across all financial activities would have imposed measurement burden without commensurate decision-usefulness for primary users.

Where the entity applies the limitation, paragraph 29B requires the entity to disclose: a description of the financial activities excluded, including those related to derivatives; and an explanation of what instruments the entity has treated as derivatives. If the entity has included Category 15 in its total Scope 3 emissions disclosure, paragraph 29C requires disclosure of both the total Category 15 emissions and a subtotal of financed emissions included within the Category 15 total.

Amendment 2: Jurisdictional relief on measurement methods extended partially

The existing IFRS S2 jurisdictional relief permitted an entity required to use a measurement method other than the GHG Protocol Corporate Standard to apply the alternative method. The amendment clarifies that where the requirement applies to only part of the entity (a subsidiary operating in a specific jurisdiction with its own methodology requirement), the alternative method can be applied to that part of the entity only, for as long as the requirement applies. The amendment removes ambiguity around partial-entity application and supports operational coherence for multinational reporters.

Amendment 3: Jurisdictional relief on GWP values

The amendment introduces a new jurisdictional relief on GWP values. An entity (in whole or in part) required by a jurisdictional authority or exchange to use GWP values other than the latest IPCC assessment may use the alternative GWP values for the relevant part of the entity, for as long as the requirement applies. This is the relief that addresses the AR5-vs-AR6 misalignment between IFRS S2 (which originally required AR6) and several adopting jurisdictions’ GHG reporting frameworks (which specify AR5 or other bases).

Amendment 4: Industry classification flexibility for financed emissions

The original standard required entities with commercial banking or insurance activities to use the Global Industry Classification Standard (GICS) when disaggregating financed emissions by industry. The amendment removes the GICS-specific requirement and permits the entity to select an industry classification system that enables users to understand the entity’s exposure to climate-related transition risks. Where the alternative is used, the entity discloses which classification system was used and how the selection enables useful classification by industry.

Transition mechanics

Entities applying the amendments adjust comparative information for the preceding period to reflect the amendment-aligned measurement, unless impracticable to do so. Where the entity has changed its GHG measurement method as a result of applying the relief, comparative information is adjusted as if the changed method had been applied in the preceding period. Where the entity disclosed Scope 3 emissions in the preceding period that included Category 15, the entity adjusts comparative information to present both total Category 15 emissions and the financed emissions subtotal.

Alongside the IFRS S2 amendments, the ISSB issued consequential amendments to three SASB Standards covering the financials sector (commercial banks, investment banking and brokerage, insurance) to align their financed-emissions metrics with the amended IFRS S2 paragraph 29A architecture. Australia’s AASB published matching amendments to AASB S2 on 15 December 2025 (AASB S2025-1), with the same 1 January 2027 effective date.

Transition Reliefs — Appendix E

The original 2023 text of IFRS S2 (Appendix E) provides four transition reliefs available in the first annual reporting period in which the entity applies IFRS S2. These reliefs recognise that first-year application is demanding, that data systems and processes need development, and that imposing the full standard in year one would either delay adoption or compromise quality.

Relief 1: Climate-only relief (paragraph E4)

In the first annual reporting period, the entity is permitted to report only on climate-related risks and opportunities under IFRS S2, without applying IFRS S1’s general sustainability disclosure requirements to non-climate topics. The relief eliminates the requirement to perform a full sustainability-topic materiality assessment in year one, allowing the entity to focus on climate-related disclosure and to address broader sustainability-related risks and opportunities in subsequent years.

Relief 2: Scope 3 deferral (paragraph E5)

In the first annual reporting period, the entity is permitted to exclude Scope 3 GHG emissions from its disclosure. Scope 1 and Scope 2 emissions must still be disclosed. The relief recognises that Scope 3 measurement requires upstream and downstream data collection infrastructure that is often the most under-developed component of a new reporter’s emissions inventory. From the second reporting period onward, full Scope 3 disclosure is expected.

Relief 3: GHG Protocol-only requirement (paragraph E6)

In the first annual reporting period, the entity is permitted to continue using its existing measurement method (the methodology used in the annual reporting period immediately preceding the date of initial application) for GHG emissions. This relief covers entities that have been reporting under a non-GHG-Protocol methodology and need a transition period to migrate to GHG Protocol alignment.

Relief 4: Qualitative scenario analysis (paragraph E7)

In the first annual reporting period, the entity is permitted to apply qualitative scenario analysis rather than quantitative analysis for the strategy resilience assessment. This recognises that quantitative scenario analysis requires modelling infrastructure that develops over time; qualitative analysis demonstrates the conceptual rigour while quantitative refinement follows.

Jurisdictional variations

Adopting jurisdictions have implemented additional transition reliefs. Australia, for example, provides a three-year transitional limited immunity period (running from 1 January 2025) during which actions related to Scope 3, scenario analysis, and transition plan disclosures are limited to regulator-only actions — protecting first-period reporters from private litigation while assurance and methodology mature. Qatar’s adoption extends similar transitional reliefs including Scope 3 emission disclosure for a transitional period.

The cumulative effect of the IFRS S2 Appendix E reliefs and jurisdictional variants is a structured ramp-up: year one establishes the four-pillar architecture and Scope 1 / 2 emissions; year two adds full Scope 3 and quantitative scenario analysis; years three and beyond extend to comprehensive sustainability disclosure under IFRS S1’s broader scope.

IFRS S2 vs CSRD ESRS E1 — The Interoperability Table

The relationship between IFRS S2 and the European Sustainability Reporting Standards’ E1 (Climate change) is the single most operationally consequential interoperability relationship in global sustainability disclosure. The IFRS Foundation and EFRAG jointly published the ESRS–ISSB Standards Interoperability Guidance on 2 May 2024, the result of two years of coordinated standard-setting work explicitly aimed at minimising duplicative reporting burden for entities subject to both frameworks. The guidance is not a statement of equivalence; it is a detailed paragraph-level mapping of where the two standards align and where they differ.

The high-order alignment is substantial. The four-pillar architecture is shared. The Scope 1, 2, and 3 disclosure requirements are aligned. The scenario analysis requirements are aligned. The transition plan disclosure architecture is aligned. The cross-industry metrics largely overlap. An entity that builds its disclosure infrastructure around IFRS S2 has, by construction, generated most of the data that ESRS E1 requires; an entity that builds around ESRS E1 has, by construction, generated most of the data that IFRS S2 requires.

The points of structural difference are well-documented:

The dual-reporter playbook in practice: build the disclosure architecture to ESRS E1 specification (which is the more demanding of the two on most paragraphs), and use the same underlying data and disclosures to satisfy IFRS S2. The reverse is harder — an IFRS S2 disclosure is typically incomplete under ESRS E1 due to the double-materiality scope, the dedicated E1-7 removals disclosure, and the transition plan paragraph-level granularity. For the full ESRS E1 mapping, see the CSRD / ESRS E1 reference page.

IFRS S2 vs TCFD

The relationship between IFRS S2 and the TCFD recommendations is succession. The TCFD was formally disbanded in July 2023, with monitoring responsibility transferred to the IFRS Foundation. The four-pillar architecture survives unchanged. What changed in the transition from TCFD to IFRS S2 is the binding nature of the disclosures, the granularity of the requirements, the integration of industry-based metrics, and the institutional governance.

An entity that has been reporting against TCFD recommendations migrates to IFRS S2 by tightening the granularity of every disclosure to paragraph-level specification, adding the industry-based metrics from Appendix B for its SASB industry classification, quantifying anticipated financial effects where they were previously qualitative, formalising Scope 3 categorical coverage, and constructing the connected information disclosures that link climate-related risks to the financial statements. Companies that have applied TCFD seriously typically estimate the migration as 12–24 months of incremental effort, depending on their starting maturity. Companies that have applied TCFD nominally face a larger migration. See the TCFD Recommendations reference page for the underlying framework that IFRS S2 succeeds.

IFRS S2 vs the SEC Climate Rule

The U.S. Securities and Exchange Commission’s climate-related disclosure rule, finalised on 6 March 2024, was the most-debated climate disclosure regulation in U.S. capital markets history. The rule was met with immediate litigation, was stayed by the SEC in February 2025 pending the outcome of that litigation, and on 27 March 2025 the SEC under new leadership voted to end its defense of the rule in court. The Eighth Circuit on 12 September 2025 placed the litigation in abeyance pending the SEC’s reconsideration or renewed defense. As of May 2026, the rule technically remains on the books but is not in effect and is not being defended by the agency that issued it. The practical implication is that U.S. federal climate disclosure mandate is not currently operative.

What the SEC withdrawal means for IFRS S2 is significant. With no operative federal U.S. climate disclosure rule, U.S. public companies face a patchwork of state-level mandates (California SB-253 and SB-261 being the most consequential), international jurisdictional adoption of IFRS S2, and CSRD applicability for companies with EU operations meeting the CSRD thresholds. California’s Air Resources Board on 18 November 2025 formally noted that companies may use IFRS S2 as a framework for SB-261 climate-related financial risk reporting, recognising IFRS S2 as an acceptable basis for satisfying the state requirement. SB-253 requires Scope 1 and 2 emissions reporting from 26 August 2026 and Scope 3 from 2027; SB-261 was put on hold via a court injunction pending litigation.

For U.S. public companies, the practical implication is that the climate disclosure baseline they build is increasingly IFRS S2 by default — because it satisfies California, satisfies CSRD-applicability requirements, satisfies the various international jurisdictional mandates, and provides the data layer that voluntary frameworks (CDP, SBTi, credit rating agency climate analytics) increasingly assume. The original 2024 SEC rule, had it gone into effect, would have specified its own materiality test, its own Scope 3 framing (originally required, then made more conditional in the final rule), and its own disclosure architecture. With the rule effectively withdrawn, the IFRS S2 architecture is the de facto baseline that U.S. multinationals are building around.

Jurisdictional Adoption Tracker

The IFRS Foundation publishes jurisdictional profiles documenting the adoption status of each jurisdiction that has progressed past the consultation stage. By May 2026, the picture below represents the operative state. Jurisdictional positions change as regulatory consultations close and as adoption decisions are finalised; primary sources at the IFRS Foundation jurisdictional profiles page and at each jurisdiction’s regulator should be consulted for any time-sensitive application.

Asia Pacific

Europe

Americas

Middle East & Africa

Assurance Requirements

IFRS S2 itself does not specify an assurance level — that is a matter for each adopting jurisdiction. The standard requires the disclosures to be auditable in principle (paragraph-level granularity, defined methodology, defined boundary), but the trajectory from limited assurance to reasonable assurance is set by jurisdictional regulation.

The applicable assurance standards are:

• ISAE 3000 (Revised) — the general assurance standard for engagements other than audits of financial statements. The default standard for sustainability statement assurance, applied to the qualitative pillars (Governance, Strategy, Risk Management) and to the integrative connected-information disclosures.
• ISAE 3410 — the GHG-specific assurance standard. Applied to the quantitative emissions disclosures — Scope 1, 2, 3 measurement, GWP application, materiality assessment, methodology compliance.
• National equivalents — jurisdictions have developed national assurance standards parallel to ISAE 3000 / 3410 where applicable. Australia’s ASSA 5010 (Australian Standard on Sustainability Assurance) is one example.

The assurance trajectory in early-adoption jurisdictions follows a pattern:

The practical implication: the four-pillar disclosures, the Scope 1 / 2 emissions, and the governance and risk-management processes are the early targets for limited assurance. Scope 3, scenario analysis, transition plan disclosures, and the connected information disclosures typically benefit from extended transition periods before they become subject to assurance — reflecting the fact that the underlying data, methodology, and analytical infrastructure are still maturing.

Worked Example — Mid-Cap Manufacturer

A worked example illustrating the Metrics & Targets disclosure (paragraph 29) for a hypothetical mid-cap industrial manufacturer reporting under IFRS S2 for the year ended 31 December 2025. Numbers are illustrative and hardcoded — they show the disclosure architecture, not real values for any specific entity.

Entity profile

“AcmeMfg PLC” — industrial-machinery manufacturer, listed on a major exchange, consolidated revenue US$2.4bn, ~4,500 employees, operations in twelve countries with primary manufacturing in three sites. Reporting under IFRS S2 (early adopter), with the original 2023 text (December 2025 amendments not yet applied). SASB industry classification: Industrial Machinery & Goods.

Cross-industry metrics (paragraph 29)

Scope 3 materiality assessment

Of the fifteen GHG Protocol categories, AcmeMfg disclosed five as material based on the decision tree above:

• Category 1 (Purchased Goods and Services): 180 ktCO₂e. Steel, aluminium, electrical components, semiconductors. Material on absolute volume and carbon-pricing exposure (CBAM applicability).
• Category 2 (Capital Goods): 35 ktCO₂e. Material on capital investment volume.
• Category 4 (Upstream Transportation): 28 ktCO₂e. Global supply chain logistics. Material on logistics intensity.
• Category 11 (Use of Sold Products): 420 ktCO₂e. The largest single category by far. Energy consumption of industrial machinery over operational lifetime. Material on absolute volume and customer transition pressure.
• Category 12 (End-of-Life): 17 ktCO₂e. Disposal pathway for retired industrial equipment. Material on customer disclosure pressure.

Categories 3 and 5–10 considered and disclosed as immaterial (combined estimated <5% of Scope 3 total). Categories 13–15 not applicable (no downstream leased assets, no franchise model, no investment portfolio).

Targets (paragraph 33)

• Near-term target: 42% absolute reduction in Scope 1 + 2 emissions by FY 2030 from FY 2020 baseline. SBTi-validated, science-based target. Progress in FY 2025: 18% reduction achieved.
• Long-term target: Net-zero across Scope 1, 2, and material Scope 3 categories by 2045. SBTi-aligned, Long-Term Science-Based Targets framework. Status: validated; transition plan under regular review.

Decision Tree — Which Climate Disclosure Framework Applies to My Company?

For sustainability officers and group financial controllers facing the question “which climate disclosure framework do I need to apply, and in what year?”, the decision tree below maps the practical answer for the dominant configurations as of May 2026.

Where IFRS S2 Fits in the Disclosure Stack

IFRS S2 sits at Layer 6 of the GreenCalculus disclosure stack — the regulatory and disclosure compliance layer that consumes the accounting and methodology layers underneath. The full stack architecture, with IFRS S2’s position highlighted:

The stack reads top-down for disclosure dependencies and bottom-up for measurement dependencies. To make an IFRS S2 disclosure (Layer 6) about Scope 1 emissions, the entity needs the GHG Protocol Corporate Standard methodology (Layer 2), DEFRA or IEA emission factors (Layer 3), and IPCC AR6 GWP values (Layer 1). To make an IFRS S2 disclosure about transition plans, the entity needs the SBTi target-setting framework (Layer 5), the SBTi FLAG sector guidance where applicable (Layer 4), and the underlying accounting methodology. Each layer feeds the next; pulling IFRS S2 out of the stack means pulling out the entire dependency chain.

Common Misinterpretations

Six high-frequency misreadings of IFRS S2. Each appears in early-period disclosures, in implementation consultancy decks, and in audit committee discussions; each is the kind of error that surfaces in assurance findings.

Common Reporting Errors

Eight technical errors that surface in first-period IFRS S2 reporting and in early-stage assurance findings:

1. Inadequate Scope 3 materiality rationale. The entity discloses some Scope 3 categories but does not explain which categories were considered, which were determined immaterial, and the rationale. Paragraph 29(a)(i)(3) and Appendix B (B32–B57) require the consideration and the rationale to be visible.
2. Missing connected information. The climate disclosures do not reference the financial statements at any point. The connected-information requirement of IFRS S1 paragraphs 21–22 is the single most-flagged early-period gap.
3. Scenario analysis without disclosed rationale. The entity discloses scenario analysis results without disclosing which scenarios were chosen and why. Paragraph 22(c) requires the scenarios and the rationale to be transparent.
4. Industry-based metrics omitted or selectively applied. Appendix B industry metrics are not addressed at all, or the entity discloses some metrics without explaining which industry classification was applied and which metrics from that classification were considered.
5. Mixing AR5 and AR6 GWP values without disclosure. The entity uses different GWP bases across different disclosure elements without making the basis explicit. The standard requires the GWP basis to be disclosed for each material disclosure.
6. Remuneration disclosure missing. Paragraph 29(g) requires disclosure of how climate-related considerations are factored into executive remuneration. An entity with no climate-linked remuneration must disclose that fact; many first-period disclosures omit the remuneration paragraph entirely.
7. Transition plan claimed but not disclosed. The entity claims to have a transition plan but does not provide the disclosure paragraph 14 requires (key assumptions, dependencies, response actions). Either the plan exists and must be disclosed, or it does not exist and that fact must be disclosed.
8. Early application of the December 2025 amendments without comparative restatement. An entity early-adopting the amendments must adjust comparative information for the preceding period to reflect the amendment-aligned measurement, unless impracticable. Failure to restate (or to disclose the impracticability rationale) is non-compliant.

Implementation Workflow

For an entity implementing IFRS S2 for the first time, the practical workflow runs as follows.

1. Determine applicability. Confirm whether IFRS S2 (or a jurisdictional equivalent: AASB S2, UK SRS, CSDS 2, CBPS 02, etc.) applies and on what effective date. For multinationals, identify every jurisdictional regime in scope.
2. Apply the IFRS S1 + S2 boundary. The reporting boundary is the consolidated accounting group. Confirm consolidation alignment with the financial statements.
3. Conduct the materiality assessment. Apply the IFRS S1 single-materiality test to identify the climate-related risks and opportunities that could reasonably affect prospects.
4. Map the four-pillar disclosures. For each pillar (Governance, Strategy, Risk Management, Metrics & Targets), identify the paragraph-level requirements and the entity’s current disclosure position.
5. Scope the Scope 3 categories. Apply the decision tree (§14) to all fifteen categories. Document the rationale for inclusion and exclusion of each.
6. Apply the GHG Protocol methodology. Confirm Scope 1 / 2 / 3 measurement aligns with the GHG Protocol Corporate Standard, Scope 2 Guidance (dual reporting), and Scope 3 Standard. Apply the IPCC latest-assessment GWP basis (or the December 2025 jurisdictional relief if applicable).
7. Apply the industry-based metrics. Identify the SASB industry classification and consider the Appendix B metrics for that industry. Disclose the material industry-based metrics with rationale for inclusion / exclusion.
8. Construct the scenario analysis. Select scenarios appropriate to circumstances; apply qualitative analysis in year one if the Appendix E relief is taken; transition to quantitative in subsequent years.
9. Build the connected information disclosures. Map each material climate-related risk and opportunity to the financial statement line items it touches. Reconcile climate-related assumptions with financial-statement measurement bases.
10. Disclose the transition plan. If the entity has a plan, disclose key assumptions, dependencies, and response actions per paragraph 14 and the June 2025 ISSB transition plan guidance.
11. Set the assurance engagement. Engage independent third-party assurance under ISAE 3000 / ISAE 3410 (or national equivalent). Scope assurance to match the jurisdictional ramp-up trajectory.
12. Disclose under the relevant frameworks. IFRS S2 disclosure for primary applicability; ESRS E1 for EU exposure; jurisdictional adaptations as required. The same underlying data architecture supports all.
13. Document the disclosure rationale. Materiality determinations, scenario selection, methodology choices, scope exclusions, transition relief applications — all documented for the assurance engagement and the audit committee record.

Future Evolution

Four trajectories will shape IFRS S2 over the next several years.

The December 2025 amendments take effect. The amendments are effective for periods beginning on or after 1 January 2027. The first reporting cycles applying the amendments will run from FY 2027 forward, with comparative restatement for FY 2026. Early-adopting entities will provide the first real-world implementation experience for the amendment package; later adopters will benefit from the implementation learning.

The ISSB nature-related standard family. In December 2025 the ISSB announced its decision to begin work on biodiversity, ecosystems, and ecosystem services (BEES) standards, drawing on the TNFD framework. The new standard family will sit alongside IFRS S2 in the same way that IFRS S2 sits alongside IFRS S1 — nature-specific content within the broader sustainability disclosure architecture. Expect the first BEES standard within two to three years on the ISSB’s typical development cycle.

Jurisdictional adoption completing. By 2028 the bulk of the major capital-market jurisdictions are expected to have completed adoption or finalised parallel frameworks: UK SRS adoption, Canada CSDS mandatory implementation, broader ASEAN adoption, Japan SSBJ mandatory transition, India BRSR convergence. The thirty-six jurisdictions identified by the IFRS Foundation’s tracking work in 2025 will resolve into a clearer global map by 2028–2030.

Assurance ramp-up. The assurance trajectory from limited to reasonable assurance is the next major lever on IFRS S2 disclosure quality. Australia’s reasonable-assurance target for 1 July 2030, the EU’s CSRD ramp-up over the late 2020s, and similar trajectories in other early-adopting jurisdictions mean that the methodology, documentation, and controls supporting IFRS S2 disclosures will face progressively higher rigour. Entities building infrastructure in 2026 should design for the reasonable-assurance state, not the limited-assurance state.

Frequently Asked Questions

Sources and References

Every claim and methodological statement on this page reconciles to the primary sources below. Where the ISSB or IFRS Foundation has published a definitive document on a topic, the primary source is cited directly; secondary commentary is used only for interpretation.

Primary IFRS Foundation documents

• International Sustainability Standards Board (ISSB), IFRS S2 Climate-related Disclosures, 26 June 2023.
• ISSB, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, 26 June 2023.
• ISSB, Amendments to Greenhouse Gas Emissions Disclosures (Amendments to IFRS S2), 11 December 2025. Effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. Operative text incorporating these amendments as of May 2026 for early adopters.
• ISSB, Consequential Amendments to Align with Amendments to Greenhouse Gas Emissions Disclosures (Amendments to the SASB Standards), 11 December 2025.
• ISSB, Greenhouse Gas Emissions Disclosure requirements applying IFRS S2 Climate-related Disclosures (educational material), May 2025.
• ISSB, Guidance on Disclosure of Transition Plans, 23 June 2025.
• IFRS Foundation, Jurisdictional Profiles — ISSB Standards, published June 2025 onwards.

Interoperability and adjacent frameworks

• IFRS Foundation and EFRAG, ESRS–ISSB Standards Interoperability Guidance, 2 May 2024.
• European Sustainability Reporting Standards, ESRS E1 (Climate change), EFRAG, 2023 (EU Delegated Act).
• Task Force on Climate-related Financial Disclosures, Final Report — Recommendations, June 2017. (Voluntary predecessor framework, disbanded July 2023.)
• Science Based Targets initiative, Corporate Net-Zero Standard, current version.
• SASB Standards (now part of IFRS Foundation), industry-specific sustainability disclosure standards, applied through IFRS S2 Appendix B.
• PCAF, The Global GHG Accounting and Reporting Standard for the Financial Industry (financed-emissions methodology, referenced under amended IFRS S2 Category 15).

Foundational accounting and methodology references

• WRI & WBCSD, The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition, 2004).
• WRI & WBCSD, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, 2011.
• WRI & WBCSD, GHG Protocol Scope 2 Guidance, January 2015.
• WRI & WBCSD, GHG Protocol Land Sector and Removals Standard, First Edition, 2026.
• IPCC, Sixth Assessment Report (AR6), Working Group I, 2021. Table 7.SM.7 GWP-100 values.

Assurance standards

• International Auditing and Assurance Standards Board (IAASB), ISAE 3000 (Revised), assurance engagements other than audits or reviews of historical financial information.
• IAASB, ISAE 3410, assurance engagements on greenhouse gas statements.
• Auditing and Assurance Standards Board (Australia), ASSA 5010, Australian Standard on Sustainability Assurance.

Jurisdictional adoption sources

• Australian Accounting Standards Board, AASB S2 Climate-related Disclosures (October 2024), as amended by AASB S2025-1 (December 2025).
• Hong Kong Stock Exchange (HKEX), listing rules incorporating ISSB-aligned climate disclosures, effective 1 August 2025.
• Comissão de Valores Mobiliários (CVM, Brazil), Resolutions for CBPS 01 / CBPS 02 mandatory ISSB-aligned reporting from 1 January 2026.
• Qatar Financial Centre Regulatory Authority (QFCRA) ISSB Standards rules (June 2025); Qatar Central Bank Sustainability Reporting Framework (December 2025).
• UK Government, Department for Business and Trade, UK Sustainability Reporting Standards (UK SRS) exposure drafts, consultation closed 17 September 2025.
• Canadian Sustainability Standards Board (CSSB), CSDS 1 and CSDS 2, voluntary adoption.
• U.S. Securities and Exchange Commission, Statement on Ending Defense of Climate Disclosure Rules, 27 March 2025. California Air Resources Board recognition of IFRS S2 as acceptable framework for SB-261, 18 November 2025.
• S&P Global Sustainable1, quarterly Where does the world stand on ISSB adoption? tracking reports.
• Canada Climate Law Initiative, IFRS S2 Adoption by Jurisdiction tracking work.

Related GreenCalculus reference pages

• GHG Protocol Corporate Standard
• GHG Protocol Scope 2 Guidance
• GHG Protocol Scope 3 Standard
• GHG Protocol Land Sector and Removals Standard
• TCFD Recommendations — the voluntary predecessor framework
• CSRD / ESRS E1 — the EU parallel and interoperability partner
• SBTi Corporate Net-Zero Standard
• IPCC AR6
• ISO 14064-1
• RE100 Technical Criteria
• UK DEFRA Emission Factors
• Scope 1 emissions
• Scope 2 emissions
• Scope 3 emissions
• Scope 2 location-based
• Scope 2 market-based
• Global Warming Potential
• CO₂e (carbon dioxide equivalent)
• Electricity emission factor
• Scope 2 location-based vs market-based
• IPCC AR6 GWP values
• IEA grid emission factors 2026
• SBTi Absolute Contraction Approach
• Scope 2 electricity methodology
• Scope 2 market-based methodology
• Scope 1 Combustion Calculator
• Scope 2 Electricity Calculator
• SBTi Near-Term Target Calculator
• SBTi Readiness Checklist

What changed in this revision

Updated 11 May 2026. Initial publication. Reflects the operative state of IFRS S2 as of May 2026, incorporating: the original June 2023 ISSB-issued standard text; the 11 December 2025 Amendments to Greenhouse Gas Emissions Disclosures (effective 1 January 2027 with early application permitted) covering the Scope 3 Category 15 financed-emissions limitation, partial-entity jurisdictional measurement-method relief, GWP value jurisdictional relief, and industry-classification flexibility; the 23 June 2025 ISSB transition plan guidance; the May 2025 ISSB educational material on GHG emissions disclosure; the 2 May 2024 EFRAG–ISSB Standards Interoperability Guidance; the IFRS Foundation jurisdictional profiles published from June 2025; the AASB S2 (Australia) standard and AASB S2025-1 December 2025 amendments; the SEC withdrawal from defense of the U.S. Climate Disclosure Rule (March 2025) and Eighth Circuit abeyance (September 2025); California CARB recognition of IFRS S2 as acceptable for SB-261 (November 2025); and the full jurisdictional adoption tracker covering twenty-one jurisdictions on a voluntary or mandatory basis as of January 2026.