IFRS S2, issued by the ISSB, is a thematic standard focused on climate-related disclosures. It requires companies to report physical risks, such as extreme weather, and transition risks, such as carbon taxes or market changes. S2 also mandates disclosure of Scope 1, 2, and 3 greenhouse gas emissions.
These requirements promote transparency about a company’s carbon footprint across the value chain, supporting informed investment decisions during the transition to net-zero.
A: IFRS S2 emphasizes transparency in climate-related financial risks. In manufacturing, most of a company’s carbon footprint, and its exposure to future carbon taxes or regulations, is found in its value chain (Scope 3) rather than direct operations.
Without Scope 3 disclosure, investors lack a full understanding of a firm’s transition risks. Scope 3 is therefore a key metric for assessing long-term financial resilience and the potential impact of mechanisms such as CBAM on profitability.
See also: IFRS S1