Australia is making significant strides in adopting the IFRS S2 standards, with the Australian Accounting Standards Board (AASB) setting a prospective effective date of July 1, 2024 for large companies and July 1, 2026 for other companies. This initiative aims to align Australian climate-related financial disclosures with international standards while incorporating specific local requirements.

One major distinction is the inclusion of provisions tailored to Australian regulatory context. For instance, the Australian Sustainability Reporting Standards (ASRS 2) emphasize climate-related risks and opportunities directly linked to climate change, excluding other non-GHG emissions. Additionally, ASRS 2 mandates entities to conduct climate resilience assessments against scenarios stipulated by the Climate Change Act 2022, necessitating disclosure of inputs and assumptions used in climate scenario analyses without requiring detailed modelling.

In terms of disclosures, the ASRS 2 places a strong emphasis on Scope 3 GHG emissions, requiring entities to use data corresponding to their financial reporting periods. This includes a detailed breakdown of categories and sources of Scope 3 emissions across the value chain, enhancing the transparency and granularity of the disclosed information. Financial entities are also required to report on financed emissions, disaggregated by industry and asset class, using classifications like the Australian and New Zealand Standard Industrial Classification (ANZSIC) for counterparties.

These nuanced adjustments and additional requirements demonstrate Australia’s commitment to ensuring that climate-related financial disclosures are not only aligned with global standards but also customized to meet the specific needs and regulatory landscape of the Australian market. This approach aims to enhance the relevance, reliability, and comparability of climate-related financial information disclosed by Australian entities.

The United Kingdom (UK) is currently in the process of evaluating the adoption of the IFRS S2 standards, focusing on climate-related disclosures. As of now, the IFRS S2 standards have not yet been officially endorsed in the UK. The UK Government, through its Department for Business and Trade (DBT), is aiming to decide on whether to adopt these standards by Q1 2025. If endorsed, the standards will be published shortly afterwards and become part of the UK Sustainability Disclosure Standards (UK SDS). The exact timeline and scope of entities required to comply will be determined following further consultation and review by the advisory committees and the UK Government.

The UK SDS will align closely with the IFRS S2 standards with some specific adaptations to fit the UK’s regulatory framework. For example, the UK SDS is expected to maintain the core elements of the IFRS S2 but might introduce additional requirements or modifications, where necessary, based on the input from the UK Sustainability Disclosure Technical Advisory Committee (TAC) and the Policy and Implementation Committee (PIC). These committees, composed of various stakeholders, including government departments and regulatory bodies, will ensure that the standards are suitable for the UK context. However, the UK government “is keen to avoid modifications to the requirements contained within IFRS Sustainability Disclosure Standards, as global comparability is essential to delivering decision-useful information for users of general-purpose financial accounts.”

The EU is actively progressing toward the adoption of the IFRS S2 standards. This is part of a broader strategy to enhance transparency and consistency in sustainability reporting across all 27 member states. As of early 2024, the European Financial Reporting Advisory Group (EFRAG) has been consulting and integrating these standards into the broader European Sustainability Reporting Standards (ESRS). The process involves adapting the IFRS S2 standards to fit within the existing regulatory and reporting frameworks of the EU, ensuring compatibility with the Corporate Sustainability Reporting Directive (CSRD) and the ESRS.

The CSRD came into force on January 5, 2023 and mandates extensive sustainability disclosures for large companies which must report according to the ESRS. This alignment aims to provide a unified approach to sustainability reporting, reducing the complexity for companies operating within the EU. The EU’s adoption of IFRS S2 will closely mirror the original standards with several jurisdiction-specific adaptations to consider:

1. The EU’s version expands the scope beyond climate-related disclosures to encompass broader environmental, social, and governance (ESG) factors, as mandated by the CSRD.
2. There are additional requirements for detailed climate resilience assessments, including scenario analyses against various climate futures, which are not explicitly detailed in IFRS S2. This aligns with the EU’s commitment to the Paris Agreement goals and other climate targets.
3. The disclosures are closely tied to the EU Taxonomy Regulation, which defines environmentally sustainable activities. Companies will need to report on how their activities align with the taxonomy criteria, a layer of specificity not present in the IFRS S2.

These adaptations ensure that the EU’s sustainability reporting framework not only meets global standards but also addresses specific regional priorities and regulatory requirements. The move towards IFRS S2 interoperability has significantly enhanced the EU sustainability reporting standards, primarily through increased alignment with globally recognized frameworks and improving consistency and transparency in disclosures.