A Comparison of IFRS S2 Climate-related Disclosures and TCFD Recommendations

Alfred Tang

Alfred Tang

Oct 25, 20234 min read

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A Comparison of IFRS S2 Climate-related Disclosures and TCFD Recommendations

Introduction:

Climate change and its impact on businesses and the global economy have become increasingly significant in recent years. In response, organizations are adopting various frameworks and standards to disclose their climate-related risks and opportunities. Two prominent frameworks in this domain are the IFRS S2 Climate-related Disclosures and the TCFD (Task Force on Climate-related Financial Disclosures) Recommendations. This article aims to compare these two frameworks and highlight their commonalities and differences.

IFRS S2 Climate-related Disclosures:

The IFRS S2 Climate-related Disclosures framework, as outlined in the "ISSB-2023-A – Issued IFRS Standards" document, emphasizes the disclosure of absolute gross greenhouse gas emissions. It requires organizations to categorize these emissions based on the Greenhouse Gas Protocol categories, which include CO2 equivalent. Additionally, the framework mandates the disclosure of industry-based metrics related to greenhouse gas emissions.

Furthermore, the IFRS S2 framework incorporates the concept of location-based Scope 2 emissions. According to paragraph B11 in IFRS S1, organizations must reassess the scope of all climate-related risks and opportunities throughout their value chain in response to significant events or changes in circumstances. This reassessment includes data on greenhouse gas emissions from the entity's activities, which should be disaggregated to cover the parent company, consolidated subsidiaries, associates, joint ventures, and unconsolidated subsidiaries.

TCFD Recommendations:

The TCFD Recommendations, on the other hand, provide a broader set of guidelines for climate-related disclosures. While the IFRS S2 framework focuses primarily on greenhouse gas emissions, the TCFD framework encompasses a wider range of climate-related risks and opportunities. It encourages organizations to disclose information related to their governance, strategy, risk management, and metrics and targets.

One of the key aspects of the TCFD framework is the integration of climate-related risks and opportunities into organizations' overall financial disclosures. It emphasizes the need for organizations to assess the financial implications of climate change and incorporate them into their decision-making processes. The TCFD recommendations also highlight the importance of scenario analysis to assess the potential impact of different climate scenarios on organizations' financial performance.

Commonalities and Connections:

Despite their differences, the IFRS S2 Climate-related Disclosures and the TCFD Recommendations share common objectives. Both frameworks aim to enhance transparency and comparability in climate-related disclosures. They recognize the importance of providing stakeholders with clear and reliable information to assess organizations' exposure to climate-related risks and opportunities.

Moreover, both frameworks acknowledge the need for organizations to assess and disclose climate-related risks and opportunities throughout their value chains. While the IFRS S2 framework specifically mentions the reassessment of risks and opportunities in response to significant events or changes, the TCFD framework encourages organizations to consider the potential financial impacts of climate change across their entire operations.

Unique Insights:

In comparing these frameworks, it is important to note that the IFRS S2 Climate-related Disclosures framework is a specific standard issued by the International Sustainability Standards Board (ISSB). On the other hand, the TCFD Recommendations are voluntary guidelines developed by the Task Force on Climate-related Financial Disclosures, a private-sector initiative. This distinction highlights the different levels of regulatory authority and enforceability between the two frameworks.

Actionable Advice:

  • 1. Embrace a holistic approach: Organizations should consider adopting both the IFRS S2 Climate-related Disclosures and the TCFD Recommendations to achieve comprehensive climate-related disclosure. By combining the specific requirements of the IFRS S2 framework with the broader guidelines of the TCFD, organizations can provide stakeholders with a more complete picture of their climate-related risks and opportunities.
  • 2. Conduct robust scenario analysis: Scenario analysis is a crucial tool for assessing the potential impact of different climate scenarios on organizations' financial performance. Organizations should invest in robust scenario analysis models that consider a range of climate-related risks and opportunities. This will enable them to make informed decisions and develop resilient strategies to navigate the challenges posed by climate change.
  • 3. Enhance stakeholder engagement: Transparency and engagement with stakeholders are key elements of both the IFRS S2 and TCFD frameworks. Organizations should actively engage with their stakeholders, including investors, customers, and communities, to understand their expectations and concerns regarding climate-related issues. By incorporating stakeholder feedback into their disclosure practices, organizations can build trust and demonstrate their commitment to addressing climate change.

Conclusion:

The comparison of the IFRS S2 Climate-related Disclosures and TCFD Recommendations highlights the importance of robust and comprehensive climate-related disclosure. While the IFRS S2 framework focuses on specific greenhouse gas emissions disclosure requirements, the TCFD framework provides broader guidelines for assessing and disclosing climate-related risks and opportunities. By adopting both frameworks and following the actionable advice provided, organizations can enhance their climate-related disclosure practices and contribute to a more sustainable and resilient future.

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