The TCFD Framework incorporated into IFRS S1 and S2 Standards

AUTHOR – Palita Timm

ISSB Takeover of the TCFD

In July 2023, shortly after the new IFRS S1 and S2 standards were issued, the International Financial Reporting Standards (IFRS) Foundation announced that they would be taking over responsibility for monitoring the disclosures of organisations’ TCFD (Taskforce on Climate-related Disclosures) from 2024.

For the Financial Stability Board (FSB), the creators of the TCFD, this was a logical next step in the move towards the international standardisation of sustainability and climate reporting.

So, what does this mean for companies who were previously reporting to the TCFD or companies who will be reporting to the TCFD or IFRS S1 and S2 going forward? IFRS S1 and S2 have integrated the TCFD framework into their requirements. IFRS S1 focuses on the reporting of sustainability-related financial disclosures, whereas IFRS S2 applies to any climate-related risks that an entity could be exposed to, including climate-related transitions risks, physical risks, as well as climate-related opportunities available to the entity.

As IFRS S2’s focus is on climate-related disclosure, its requirements have completely integrated the four key pillars and eleven recommendations from the original TCFD framework, which also focused on climate-related reporting. That said, there are additional requirements within IFRS S2 which extend beyond the TCFD framework’s original recommendations. These extra requirements include the disclosure of industry-based metrics, providing information about the reporting company’s planned use of carbon credits to achieve their net emissions targets as well as the disclosure of any additional information about their financed emissions. These additional rules make IFRS S2’s requirements more comprehensive than the original TCFD requirements.

Despite the FSB handing over the monitoring of TCFD reporting to the IFRS Foundation, the framework remains available as a resource for reporting organisations. This aims to facilitate the eventual transition into using the IFRS Standards. Organisations in certain jurisdictions who are currently required to report to the TCFD, such as large* businesses within the UK, will still be required to do so. Organisations reporting to IFRS S1 and S2 will still meet TCFD recommendations as they are fully integrated into the standard.

The goal of incorporating the TCFD standards into the IFRS Standards is to simplify reporting and create a global baseline for sustainability and climate-related disclosure. If you are a company reporting for the first time, reporting to the IFRS Foundation’s IFRS S1 and S2 Standards will allow you to simultaneously comply with the TCFD Framework. This removes the complexities of having to report to multiple frameworks and will prepare you for the potential eventuality that the IFRS S1 and S2 Standards become mandatory in your organisation’s jurisdiction if it hasn’t already been incorporated.

Reading Time: 3 Minutes

Date Published: January 31, 2024

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TLDR:

In this blog post we break down the way that the IFRS Foundation has incorporated the TCFD framework into their IFRS S1 and S2 Standards and what that means for your organisation.

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