Climate disclosure regulations continue to expand globally, including in Australia, Hong Kong, the European Union, Mexico, and California. Many jurisdictions have adopted the International Sustainability Standards Board (ISSB) frameworks, IFRS S1 and S2, creating a more consistent approach to sustainability reporting. This shift also makes disclosures more useful and comparable for investors, regulators, and other stakeholders.
Why Adopt Climate-Related Risk Disclosures?
Climate-related risk disclosures have evolved from a compliance exercise into a business imperative. Investors, lenders, customers, and other stakeholders increasingly expect organizations to understand and communicate how climate-related risks and opportunities may affect financial performance. For many companies, the value of disclosure extends beyond reporting requirements and provides tangible business benefits, including:
- Access to Capital: Investors and lenders increasingly prioritize organizations that provide transparent, decision-useful climate information, particularly when data is supported by third-party assurance. Depending on industry and geographic exposure, climate-related risks can significantly influence perceptions of long-term financial performance and resilience.
- Operational Resilience: Assessing climate-related risks can help organizations identify vulnerabilities across facilities, operations, and supply chains before they result in costly disruptions.
- Customer Requirements: Many large organizations, particularly in sectors such as Food & Beverage, Agriculture, and Technology, now request climate and sustainability-related data from suppliers. Platforms such as EcoVadis and CDP are commonly used to evaluate supplier performance and inform purchasing decisions.
- Stakeholder Trust: Consistent, standardized reporting helps address concerns about greenwashing and builds credibility with investors, customers, employees, and other stakeholders.
- Data-Driven Decision Making: The rigor required for climate-related reporting often uncovers opportunities to improve data quality, measurement processes, and performance tracking. As stakeholder expectations evolve, organizations are increasingly asked to demonstrate year-over-year progress toward sustainability objectives.
What Frameworks Are Used for Disclosures?
The primary frameworks adopted by regulators as well as preparers of corporate disclosures are those developed by the Taskforce on Climate-related Financial Disclosures (TCFD) and IFRS S2. While TCFD is referenced explicitly, for example, in California’s Climate Bill SB 261, the TCFD was absorbed by the ISSB in 2023 and fully integrated into IFRS S2.
The EU has its own sustainability reporting standards in the form of the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG). However, as part of the Omnibus push for simplification, the ESRS has also prioritized heightened interoperability with IFRS S2.
Understanding TCFD: The Core Elements
The four pillars of TCFD disclosure have now been widely adopted under other internationally recognized sustainability frameworks. This approach provides an avenue for organizations to better understand their exposure to risk, as well as opportunities for value creation.
Below are the basic requirements for disclosure under each of TCFD’s four pillars, in addition to some guiding questions to help organizations begin mapping their climate-related risks and opportunities:
1. Governance
Companies must disclose the governance processes, controls, and procedures used to monitor and manage climate-related risks and opportunities.
- What is the organizational structure for identifying, assessing, and managing climate-related financial risks?
- Who on the Board or in leadership roles is responsible for overseeing management of climate-related risks, and how is that oversight exercised?
2. Strategy
This pillar requires disclosing the effects of climate-related risks and opportunities on an entity’s strategy and financial planning over the short, medium, and long term. In order to trace the effects, organizations should identify how extreme weather events, long-term climate changes, and policy and market conditions impact their business model and operations.
- What are the material physical and transition risks for the industry?
- How has the resilience of business strategy under various climate scenarios been assessed?
- What are the impacts of climate-related risks and opportunities on revenues, expenditures, assets, and liabilities?
3. Risk Management
Businesses must detail the processes used to identify, assess, prioritize, and monitor climate-related risks.
- How is climate risk integrated into the broader corporate risk management profile?
- Where in your value chain (upstream and downstream business relationships) is your organization exposed to climate risk? For example, reliance on non-renewable resources or facilities vulnerable to extreme weather events.
4. Metrics and Targets
This involves disclosing the metrics used to measure performance, including Scope 1, 2, and 3 greenhouse gas emissions (GHG), as well as the progress towards any stated climate goals.
- Does your organization have a plan to reduce emissions or adapt to climate change impacts?
- Has your organization set science-based emissions reduction targets?
- What are other material metrics to track based on the company’s activities? For example, what are existing energy or waste management practices?
Beyond TCFD: What’s New in IFRS S2?
Since IFRS S2 fully integrates TCFD’s four-pillar structure, companies already familiar with TCFD will find the ISSB framework more intuitive, despite its more granular requirements which are listed below:
- Industry-Based Metrics: Referencing the SASB standards to provide data informed by sector-specific guidance.
- Climate Resilience: Providing information on the capacity to adjust and adapt strategy and business model over time, in addition to details on how climate-related scenario analyses were carried out.
- Carbon Credits: Explicit disclosure on the planned use of carbon credits to meet net-zero targets.
- Financed Emissions: Specific requirements for the financial sector to report the climate impact of their investment portfolios.
How Organizations Use Climate Risk Assessment Results
While disclosures often begin as a response to external expectations, the assessment process itself can generate valuable insights for business planning and risk management. Leading organizations use the results of climate-related risk assessments to strengthen governance, inform strategic priorities, and integrate sustainability considerations into core business processes. Below are some best practices and examples that map back to TCFD’s four disclosure pillars:
Governance: Establish formal governance structures, defined oversight responsibilities, and regular meeting cadences to evaluate climate-related risks and opportunities. Effective governance helps organizations prioritize initiatives, allocate resources, and maintain accountability for sustainability objectives.
Strategy: Use assessment findings to inform long-term business strategy, identify areas of opportunity, and establish measurable sustainability goals. Organizations can align financial resources and operational plans with strategic priorities to support progress toward those goals.
Risk Management: Integrate climate-related risks and opportunities into enterprise risk management processes. This approach helps organizations understand connections between market trends, stakeholder expectations, physical risks, and evolving regulatory requirements.
Metrics & Targets: Develop the processes, systems, and organizational responsibilities needed to collect, manage, and report climate-related data effectively. Key focus areas often include:
- GHG Accounting: Strengthen greenhouse gas inventories, with particular attention to Scope 3 emissions, to meet investor, customer, and reporting requirements.
- Climate Transition Action Plans (CTAPs): Develop actionable roadmaps for reducing emissions across operations and the value chain, supporting both organizational goals and stakeholder expectations.
A Future-Proof Approach
Climate reporting expectations are continuing to grow around the world, with countries increasingly adopting similar reporting approaches. IFRS S2 is becoming a widely recognized framework that helps organizations provide clear, consistent climate-related information to stakeholders.
By taking steps to align with these emerging standards today, businesses can be better prepared for future requirements while strengthening long-term planning and resilience.
Ensure Your Business is Ready for Climate-related Disclosures
At Sensiba, we specialize in helping companies navigate the evolving regulatory landscape for sustainability disclosures. Whether you are just beginning to assess your climate-related financial risks and opportunities or are ready to transition to the IFRS S2 standards for disclosure and compliance, our team provides the clarity and expertise you need to lead with transparency.
