A guide to TCFD’s transition to IFRS S2

Is your organisation prepared to move from TCFD to IFRS S2? As sustainability reporting continues to evolve, organisations must prepare for potential new disclosure requirements.

IFRS S1 and S2 were introduced in mid-2023. Building upon the globally recognised Task Force on Climate-Related Financial Disclosures (TCFD) framework, these standards promote greater transparency, comparability and accountability in corporate sustainability disclosures.

What are some of the differences we can expect?

The IFRS S2 Climate-related Disclosures, developed by the International Sustainability Standards Board (ISSB), fully encompasses and builds upon the four key pillars and eleven recommended disclosures set out by TCFD. Variations between IFRS S2 and TCFD reflect expanded guidance and standardisation to improve the consistency and detail of disclosures, rather than reflecting a change in the core principles.

While IFRS S2 is aligned with TCFD’s disclosure expectations, it is significantly more granular than the FCA-mandated TCFD requirements, requiring detailed disclosures on metrics, targets, transition plan expectations and scenario analysis. For example, IFRS S2 enforces stricter metrics and requires a 1.5°C scenario and resilience analysis to assess the impact of climate-related risks and opportunities on a company’s financial position, performance and cash flows.

TCFD disclosure requirement Strategy (b) focuses on describing the impact of climate-related risks and opportunities on an organisation’s business strategy and financial planning. Under IFRS S2, new criteria have been introduced that specify when quantitative and qualitative information must be disclosed about the current and expected effects of risks and opportunities.

As a result of the expanded requirements, organisations must ensure they have the technical expertise and robust data collection processes in place to meet the expectations of IFRS S2.

 Updates to monitor concerning IFRS 1 & 2 

The International Sustainability Standards Board (ISSB) was announced at COP26 in 2021 to develop a global baseline for sustainability reporting. As part of the IFRS Foundation, its goal is to create consistent, decision-useful disclosures for investors, supporting capital market efficiency.

The UK government supports the ISSB and is currently assessing the suitability of IFRS S1 and S2 for adoption as UK Sustainability Reporting Standards (UK SRS), with a consultation currently under review. If endorsed, the Financial Conduct Authority (FCA) will be able to introduce mandatory reporting requirements using the UK SRS for in-scope organisations, although the organisational applicability is still not defined.

Organisations already aligned with TCFD and wishing to prepare for IFRS S2 should begin by reviewing their current disclosures to understand current alignment against the IFRS S2 reporting standard. Taking proactive steps ahead of the official adoption offers benefits such as strengthening operational processes and improving investor confidence through greater transparency.

McGrady Clarke’s carbon specialists are here to support you in identifying and implementing the actions needed to meet the more detailed requirements of IFRS S2, in addition to any further changing legislation regarding disclosures.

Learn more and discover how you can start preparing for IFRS S2.

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