IFRS S2 climate related risks

Question 1

IFRS S2

Answer 1

applies to the disclosure of climate related risks and opportunities

Question 2

objective of IFRS S2

Answer 2

IFRS S2 Climate-related Disclosures’ objective is to require an entity to disclose information about its climate-related risks and opportunities that are useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.

Question 3

scope of IFRS S2

Answer 3

IFRS S2 applies to:
* climate-related risks to which the entity is exposed, which are:
(i) climate-related physical risks
(ii) climate-related transition risks
* climate-related opportunities available to the entity.

Question 4

climate related risks

Answer 4

the potential negative effects of climate change
on an entity.

Question 5

physical climate related risks

Answer 5

tangible negative effects of climate change. Two types exists:
(i) Acute risks (event driven) – caused by ‘one-off’ specific events such as floods, wildfires, tsunami.
(ii) Chronic risks (longer term) – driven by permanent changes due to climate change such as rising sea levels, drought, poor
harvest/growing conditions.

Question 6

Transition climate-related risks

Answer 6

risks that arise from efforts to
transition to a lower-carbon economy. Transition risks include policy, legal, technological, market and reputational risks.

Question 7

Climate-related opportunities

Answer 7

the potential positive effects arising from climate change for an entity.

Question 8

Advantages of applying IFRS S1 and S2

Answer 8

• Improves comparability of disclosures regarding sustainability between
  different entities.
• Provides a uniform language and terminologies when disclosing sustainability related matters.
• Greater transparency regarding sustainability issues can lead to greater access to capital and investment.
• IFRS Sustainability Standards incorporate the guidance utilised by other commonly adopted voluntary disclosure frameworks like the GRI and the SASB’s Standards leading to easier transition for entities already adopting voluntary disclosure.
• Improved stakeholder information and relationship development e.g. customers will want to know the ethical, social and governance policies of their suppliers and applying IFRS S1 and S2, will facilitate ease of data gathering.

Question 9

Disadvantages of applying IFRS S1 and S2

Answer 9

• Costs of adopting the standards – recruitment costs, data collection, production of reports, assurance engagements.
• No statutory assurance/audit of the disclosures is required, meaning there is scope for omission, manipulation or bias within the disclosures.