New standard makes it possible to offer transparent and effective information on climate-related risks and opportunities
Clarity and coherence on this issue helps to gain investor confidence, facilitating access to capital and improving the company’s reputation.
The business world is at a crucial moment where sustainability and transparency in climate risk management are essential for the correct operation of organizations.
Read more: The future of business: How Baker Tilly guides organizations towards financial sustainability
In this sense, the IFRS S2developed by the International Financial Reporting Standard (IFRS) and introduced by the International Sustainability Standards Board (ISSB), is a new standard intended for organizations to disclose accurate and relevant information about their climate-related risks and opportunities.
Its main objective is to establish a global standard that facilitates informed decision making by investors and other interested parties.
“The standard allows establishing a structure for entities to disclose information about their physical and transitional risks, as well as their material climate-related opportunities. The purpose is that the main users of financial reports have clear information to make decisions regarding the provision of resources to the entity”; stated Alberto Porras, managing partner of the firm Baker Tilly.
Hence, the standard represents a significant step towards the consolidation of a coherent and understandable structure for the disclosure of climate risks and opportunities.
“By providing a detailed framework, it allows entities to not only meet their reporting obligations, but also develop robust strategies to address climate change,” Porras added.
Read more: Integrating sustainability into governance is vital for the future of business: Alberto Porras, Baker Tilly
Difference between IFRS S1 and IFRS S2
Although both are designed to work together, offering a comprehensive framework for sustainability disclosure, IFRS S1 establishes the general principles, definitions and concepts for sustainability disclosure covering economic aspects, while IFRS S2 focuses exclusively on climate. .
“IFRS S1 lays the foundation, providing a coherent structure for sustainability disclosure as a whole; in contrast, IFRS S2 uses this framework to specifically address climate risks and opportunities, offering a level of detail and specificity that is crucial to organizations that face these challenges,” explained the expert.
In the strategy section of IFRS S2, organizations must explain the climate resilience of their strategies and business models to climate-related events.
This includes carrying out climate scenario analysis, considering available resources such as skills and capabilities, as well as access to reasonable and sustainable information.
“Implementing IFRS S2 is not just a matter of compliance, but an opportunity for organizations to lead on sustainability. The clarity and consistency in climate information disclosure provided by this standard can help companies gain the trust of investors.” and other interested parties, facilitating easier access to capital and improving their reputation,” concluded Porras.
What is IFRS S2?
IFRS S2, an acronym for International Sustainable Financial Reporting Standards, focuses specifically on the disclosure of climate-related sustainability information. It is the second standard issued by the ISSB and represents a significant advance in the standardization of sustainability reporting at a global level.
What information must you disclose in IFRS S2?
The strategic governance, risk and opportunity management, metrics and objectives of material climate risks and opportunities must be disclosed.
The metrics that must be reported are divided into two categories:
- Generic are mandatory for all industries and include greenhouse gas (GHG) reporting according to the GHG Protocol, transitional and physical climate risks, climate opportunities, capital deployment, carbon prices and senior management remuneration policies in climate change issues
- Industrial These depend on the business model and specific industry. IFRS S2 defines them in its illustrative Industrial Guides, allowing organizations to use them as applicable to plan and define adaptation strategies.
For more information on how your organization can benefit from adopting IFRS S2, contact the sustainability experts at Baker Tilly here: https://bakertilly.cr
