Climate Risk Disclosure Guide | IFRS S2 & ASRS S2 Made Simple

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Climate risk assessment is fast becoming standard practice for responsible businesses.
With the introduction of the ISSB’s IFRS S2 - and its Australian counterpart, ASRS S2 - companies are now expected to measure and disclose how climate change could affect their strategy and performance.

This shift marks a positive step forward: bringing climate considerations into the same level of rigour and consistency as financial reporting. The goal isn’t just compliance - it’s to help leaders understand and act on the climate risks and opportunities shaping their future.

At Trace, we believe climate risk reporting shouldn’t be a 200-page document that gathers dust. It should be actionable, auditable, and decision-ready. Here’s how to make that happen.

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Why IFRS S2 Matters (and What It Means for You)

IFRS S2 (adopted locally as ASRS S2 in Australia) is part of the International Sustainability Standards Board (ISSB) framework.
It’s designed to bring consistency to climate-related financial disclosures — the same way accounting standards bring consistency to financial reporting.

Under S2, companies must disclose climate-related risks and opportunities across four key pillars:

Here are the 4 Pillars and what they mean

- Governance: How your board and management oversee climate-related risks and opportunities

- Strategy: How climate change affects your business model, strategy, and financial planning

- Risk Management: How you identify, assess, and manage climate-related risks

- Metrics & Targets: What you measure and track (emissions, targets, scenario analysis, etc.)

👉 If you’ve reported against TCFD before, you’re already halfway there. IFRS S2 builds directly on those recommendations but raises the bar for consistency, auditability, and investor relevance.

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The Goal: Decision-Useful Disclosure, Not More Paperwork

Most climate reports fail because they’re written for auditors, not operators. They describe risks without helping anyone decide what to do next.
IFRS S2 changes that. It expects companies to demonstrate how climate risk is integrated into business decisions - from capital planning to strategy.

At Trace, we translate this into a simple mantra: “Make climate risk part of business risk.” That means identifying which climate factors actually move your financial needle - and quantifying them in a way your CFO or CEO can use.

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What a Climate Risk Assessment Involves

A credible climate risk assessment generally follows five key steps:

A credible climate risk assessment generally follows six key steps:

1. Scoping: Define your boundaries — which parts of the business, what time horizons, and which hazards (floods, drought, carbon price, regulation, etc.).
   
   
2. Data Gathering: Collect key business and location data, emissions data, and relevant climate scenario information.
   
   
3. Risk Identification: Identify both physical risks (weather, water, supply chain) and transition risks (policy, market, reputation).
   
   
4. Risk Assessment: Determine which of those risks are material — meaning they could reasonably be expected to affect your business model, cash flows, or access to capital.
   
   
   
   • This is where qualitative judgment meets data.
     
     
   • IFRS S2 encourages companies to prioritise decision-useful risks, not every possible climate variable.
     
     
   • At Trace, we help teams apply a consistent, transparent framework for assessing materiality — ensuring you focus effort where it matters most.
     
     
5. Scenario Analysis: Test your business under different climate futures (for example, 1.5 °C vs 3 °C world).
   
   
6. Disclosure & Action: Summarise findings, decide which risks are material, and describe how you’ll manage them.

Sounds simple - but in practice, this process has traditionally been slow, consultant-heavy, and expensive. That’s why we’re rethinking it.

d mitigate risks related to environmental, social, and governance factors, reducing the potential for financial and operational setbacks.

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