Climate-related risks and opportunities
Climate-related risks and opportunities are potential negative or positive effects of climate change, the transition to a lower-carbon economy, and related responses on an entity's prospects. In IFRS S2, they include physical and transition risks and climate-related opportunities that could affect cash flows, financing, or capital costs.
In simple terms
Physical risks can arise from acute events, such as floods, or longer-term shifts, such as rising temperatures and sea levels. Transition risks can arise from policy, legal, technological, market, or reputational change. Opportunities may include resource efficiency, new products, resilient operations, or access to emerging markets. IFRS S2 asks an entity to disclose material information about how these matters affect governance, strategy, risk management, metrics, and targets. The analysis is entity-specific and considers relevant time horizons and value-chain exposures.
Why it matters
Investors need to understand whether climate conditions and transition choices could change an entity's business model, strategy, performance, or financing. A structured assessment can expose dependencies and options that ordinary financial planning misses. Impact materiality addresses a separate but complementary question about significant effects on people and the environment. The climate assessment should connect identified matters to decisions, assumptions, scenarios, metrics, and financial effects rather than produce a generic list of topics.
Example
A food manufacturer identifies drought exposure at key suppliers as a physical risk, possible carbon-pricing costs as a transition risk, and lower-energy processing as an opportunity. It assesses relevant time horizons, explains strategic responses, and links each material matter to governance, risk processes, metrics, targets, and expected financial effects.
How it differs
IFRS S2
Climate-related risks and opportunities are the matters being assessed; IFRS S2 is a disclosure standard that sets requirements for material information about those matters.
References
Current status
- As of
- Issuer
- International Sustainability Standards Board
- Instrument or version
- IFRS S2 Climate-related Disclosures
- Status
- IFRS S2 is an issued IFRS Sustainability Disclosure Standard. Reporting obligations depend on adoption or other applicable requirements in each jurisdiction.
Applicability: This entry uses IFRS S2's investor-focused disclosure context. Preparers should consult the current standard, applicable amendments and reliefs, and the adoption rules governing their reporting entity and period.