5 IFRS S2 Disclosure Tips for the 2026 Reporting Cycle

If you are preparing an IFRS S2 climate-related disclosure for filing in the next twelve months, you are reading the same standard the early adopter cohort read for their 2024-25 filings. The text has not changed. The mandates that bound those filings bind yours too.

What has changed is the context around five specific positions the early cohort left ambiguously occupied. The IFRS Foundation issued a factsheet in March 2026 that makes the scenario-analysis architecture in IFRS S2 visually explicit, with a 2D matrix that codifies a hard quantitative trigger which was already operative in the application guidance. Audit teams have now processed a year of filings and are articulating Year-2 challenge positions. Four advisory-firm cohort reviews of the early disclosures have been published, naming the gaps the first round left visible.

This piece names the five disclosure positions where the room has tightened. Each one is a position the early cohort occupied in a way that no longer holds up. Each one has the relevant paragraphs of IFRS S2 cited and translated, with a link out to the deeper companion piece for readers who want to walk the standard text.

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Tip 1: Qualitative-only is no longer a defensible read of Para 22 or Para 29(c)

Para 22 is the scenario analysis disclosure paragraph in IFRS S2. It requires the entity to use climate-related scenario analysis to assess the resilience of its strategy and business model, and to disclose how the analysis was carried out and what the analysis concluded. Para 29(c) is the cross-industry metric paragraph that asks for the amount and percentage of assets vulnerable to climate-related physical risks. Together they cover the strategy and metrics sides of physical-risk disclosure under the standard.

Across the early adopter cohort, both paragraphs were widely treated as paragraphs that admitted a qualitative answer. Year-2 preparers should not assume the same room exists. The architecture supporting a hard quantitative read of both paragraphs was always in the standard. Four anchors hold it up.

First, the application-guidance paragraph in Appendix B to the standard that converts the scenario-analysis requirement into a hard quantitative trigger (B17) reads:

“An entity with a high degree of exposure to climate-related risks and opportunities, and with access to the necessary skills, capabilities or resources, is required to apply a more advanced quantitative approach to climate-related scenario analysis.”
(IFRS S2, paragraph B17)

In plain terms: if you have meaningful exposure to climate risk AND you have the resources to run quantitative analysis, the standard requires you to run quantitative analysis. The trigger has two legs (exposure plus access to resources). The language is “required”, not “may consider”.

Second, the ISSB closed the resources-as-substitute loophole in its Basis for Conclusions to the standard, which is the published commentary explaining how the ISSB resolved each major drafting question. The key sentence sits at paragraph BC65:

“The ISSB emphasised that if an entity’s climate-related risk exposure warrants a more sophisticated approach to scenario analysis, the entity cannot use a lack of skills or capabilities to justify using a less sophisticated approach if it has the resources available to obtain or develop those skills or capabilities.”
(IFRS S2 Basis for Conclusions, paragraph BC65)

In plain terms: if you have the budget to acquire or hire the relevant skills, “we don’t have the in-house capability” is not a defense. The Basis for Conclusions does not bind in the way the standard does, but it documents what the ISSB intended and is cited routinely in audit challenge.

Third, the metric paragraph itself reads:

“climate-related physical risks—the amount and percentage of assets or business activities vulnerable to climate-related physical risks.”
(IFRS S2, paragraph 29(c))

In plain terms: the words “amount and percentage” are the operative words. A disclosure that says “we are exposed to physical risks across our portfolio” without a number and a percentage is not satisfying the paragraph.

Fourth, the most-replicated misreading in the early cohort was to anchor a qualitative scenario narrative on Para 30 (the “reasonable and supportable” carve-out paragraph):

“In preparing disclosures to meet the requirements in paragraph 29(b)–(d), an entity shall use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort.”
(IFRS S2, paragraph 30)

In plain terms: Para 30 softens the construction of three of the metric paragraphs (29(b) transition risk, 29(c) physical risk, 29(d) opportunities). Its scope is explicit and limited. It does not extend to Para 22. It does not extend to 29(e), 29(f) or 29(g). Anchoring a qualitative Para 22 disclosure on Para 30 reads a paragraph against a scope it was never granted.

The IFRS Foundation factsheet of March 2026 visualised the B17 trigger as a 2D matrix. Exposure to climate risk sits on one axis. Skills and resources available sits on the other. The diagonal arrow on the matrix points from the bottom-left (low exposure plus low capability, simpler qualitative approach permitted) to the top-right (high exposure plus high capability, more advanced quantitative approach required). The matrix codifies the rule that was already in B17. It does not extend the rule. It makes the rule navigable.

For preparers who landed on a qualitative-only answer in Year-1 reporting and are considering whether to repeat it: B17 is the trigger; BC65 forecloses the capability defence; Para 29(c)’s words are quantitative on their face; Para 30 does not give you cover for the scenario-analysis side.

For the deeper walk on Para 22’s two-question architecture, see the companion piece on scenario analysis as two questions, not one. For the four-question structure inside Para 29(c), see the companion on the four questions hidden inside Paragraph 29(c).

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Tip 2: Disclose the interpretation of your scenario analysis, not the scenario tables

Para 22 is large. When fully unpacked it contains 18 disclosure sub-elements split across two halves. Para 22(b), the methodology disclosure half, has 13 sub-elements covering the inputs you used, the assumptions you made, and the reporting period during which you ran the analysis. Para 22(a), the resilience-assessment disclosure half, has five sub-elements covering what you concluded from the analysis. The two halves are not equally weighted by the standard, and the cohort reviews show the imbalance landing as a consistent gap.

The sentence that settles which half is which sits in the Basis for Conclusions:

“In making this distinction, the ISSB emphasised that an entity is not required to disclose the results of its scenario analysis, but is instead required to disclose its interpretation of those results.”
(IFRS S2 Basis for Conclusions, paragraph BC59)

In plain terms: scenario tables are not the disclosure. The disclosure is what management concluded from the scenario tables. A report that tabulates three NGFS scenario temperature paths and stops there, without telling the reader what those paths mean for the entity’s strategy and business model, is not meeting Para 22(a). (NGFS, the Network for Greening the Financial System, is the central-bank-led group whose Phase IV climate scenarios are one of the most widely-cited scenario families in IFRS S2 disclosures.)

This is the position the early adopter cohort most consistently under-occupied. Across the six deeply-read first-year filers underlying the companion piece on what the early cohort skipped, and across the four advisory-firm cohort reviews of the first year, the Para 22(b) methodology disclosures were better covered than the Para 22(a) resilience-assessment outputs. Most early reporters disclosed what scenarios they ran. Fewer disclosed what they concluded from running them.

The application guidance reinforces this with an asymmetric update rule. The March 2026 factsheet puts it cleanly:

“A company assesses its climate resilience annually, however it is not required to update its scenario analysis on an annual basis. It—at a minimum—updates its scenario analysis in line with its strategic planning cycle and reassesses its circumstances each time.”
(IFRS Foundation, climate scenario analysis factsheet, March 2026)

In plain terms: you must refresh the management conclusion every year. You do not need to rerun the scenarios every year. If your scenario analysis runs on a three-year strategic planning cycle, your methodology disclosure (Para 22(b)) can stay broadly stable across the three years. Your resilience-assessment disclosure (Para 22(a)) cannot. Many early adopter reports running scenario analysis on a multi-year cycle did not tell the reader what the cycle period was, which leaves the reader unable to tell whether the disclosure is fresh.

For preparers in the second cycle, the disclosure that lands defensibly carries the methodology in full under Para 22(b), the management conclusion afresh under Para 22(a), and explicit disclosure of the scenario-update cadence so the reader understands which half is being refreshed and which is not.

For the deeper walk on what each Para 22 sub-element actually requires, including the seven input sub-elements and five assumption sub-elements, see the companion piece on scenario analysis as two questions, not one.

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Tip 3: Para 29(c) is built on B64-B65, not the body paragraph alone

The body paragraph of Para 29(c) gives a single sentence: the amount and percentage of assets vulnerable to climate-related physical risks. The methodology rules that govern how that single-sentence requirement is constructed live in Appendix B to the standard. The opening note to Appendix B is clear about its weight:

“This appendix is an integral part of IFRS S2 and has the same authority as the other parts of the Standard.”
(IFRS S2, Appendix B, opening note)

In plain terms: Appendix B is operative, not commentary. The “consider” verbs in its paragraphs are procedural mandates, not soft suggestions.

The routing paragraph in the body of the standard that takes you to Appendix B for Para 29 metric construction (Para 31) reads:

“In preparing disclosures to meet the requirements in paragraph 29(b)–(g), an entity shall refer to paragraphs B64–B65.”
(IFRS S2, paragraph 31)

In plain terms: you cannot satisfy Para 29(c) just by reading Para 29(c). The standard explicitly routes you to B64-B65 in Appendix B.

B64 is procedural; it tells you to disclose information for the cross-industry metric categories other than greenhouse gas emissions. B65 is the core methodology paragraph. It lists five “consider” tests that the Para 29(b)-(g) disclosures must satisfy. Each test points back to a different paragraph elsewhere in the standard, with the cumulative effect of binding the metric to the rest of the disclosure rather than letting it stand alone:

• B65(a): the time horizons used in your Para 29(c) disclosure must match the time horizons you defined under Para 10, the climate-related-risks-and-opportunities identification paragraph at the front of the standard.
• B65(b): the geographic and asset-type breakdown of your Para 29(c) disclosure must match the concentration framing you used under Para 13, the business model and value chain paragraph. If Para 13 names coastal regions or data centres as a concentration, Para 29(c) must resolve to that geography or asset type.
• B65(c): the financial effects you attribute to physical-risk exposure must reconcile to the financial-position, financial-performance, and cash-flows disclosures under Para 16.
• B65(d): if your industry has industry-based metrics under Para 32 and the Industry-Based Guidance, you must consider them. (More on this in Tip 4.)
• B65(e): the carrying amount of any asset used in the disclosure must reconcile to the balance sheet via paragraph 21(b)(ii) of IFRS S1, the parent standard that sits above IFRS S2 and contains the general disclosure principles.

“Carrying amount” in this context means the value at which an asset sits on the balance sheet after depreciation and impairment. The B65(e) reconciliation test is the rule that connects the climate disclosure to the audited financial statements directly. It is the test most likely to attract an assurance modification under a limited-assurance opinion. Limited assurance is the lighter audit standard that applies to most first-year IFRS S2 reporting.

The early adopter pattern across the cohort is that reports cite Para 22 and Para 29 explicitly but rarely cite B64-B65. The advisory-firm cohort reviews observe the metric-quality variance without anchoring it on the B-series application guidance the standard actually provides. A Para 29(c) disclosure that does not reconcile to Para 10 horizons, does not segment against Para 13 concentration vectors, does not align with Para 16 financial-effect quantification, and does not link to balance-sheet carrying amounts is non-compliant under B65, even when the body paragraph itself is satisfied by the presence of a number and a percentage.

For the full sub-clause-by-sub-clause walk through B64-B65, see the companion piece on the application guidance that makes Para 29(c) defensible.

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Tip 4: For eight industries, the standard hands you the metric

The cross-industry metric in Para 29(c) is universal. Every IFRS S2 reporter has to construct it. For eight specific industries, the standard also routes you to a sector-specific physical-risk metric through a different paragraph in the body and a different document attached to the standard.

The body-paragraph mandate is in Para 32:

“An entity shall disclose industry-based metrics that are associated with one or more particular business models, activities or other common features that characterise participation in an industry. In determining the industry-based metrics that the entity discloses, the entity shall refer to and consider the applicability of the industry-based metrics associated with disclosure topics described in the Industry-based Guidance on Implementing IFRS S2.”
(IFRS S2, paragraph 32)

In plain terms: this is a “shall disclose” mandate, not a discretion. The Industry-Based Guidance (commonly shortened to IBG) is the per-industry methodology document the IFRS Foundation publishes alongside the standard. Each industry’s volume contains “disclosure topics” coded with letters and numbers. Topic codes ending in “450a” are the climate-related physical-risk topics.

Eight industries carry IBG 450a topic codes. They split into two tiers by what the topic requires.

Tier 1: five industries with a prescribed quantitative metric.

• Real Estate (IF-RE 450a): floor area of properties in 100-year flood zones, by property sector.
• Mortgage Finance (FN-MF 450a): number and dollar value of mortgage loans in 100-year flood zones.
• Water Utilities (IF-WU 450a): wastewater treatment capacity (cubic metres per day) in 100-year flood zones.
• Hotels & Lodging (SV-HL 450a): number of lodging facilities in 100-year flood zones.
• Insurance (FN-IN 450a): Probable Maximum Loss (PML), meaning the dollar-value loss an insurer would expect to absorb under defined hazard scenarios, for weather-related natural catastrophes, at three exceedance probabilities (events with a 2%, 1%, and 0.4% annual chance of being exceeded in any given year).

Tier 2: three industries with a discussion-only requirement.

• Health Care Delivery (HC-DY 450a): a description of policies and practices addressing extreme weather, disease-prevalence shifts, and emergency preparedness.
• Managed Care (HC-MC 450a): a discussion of how shifts in the geographic incidence and prevalence of climate-affected illnesses are incorporated into risk models.
• Forestry Management (RR-FM 450a): a description of strategy to manage climate-related risks to forest management and timber production.

Four of the five Tier 1 metrics (Real Estate, Mortgage Finance, Water Utilities, and Hotels & Lodging) converge on the same threshold definition: the 100-year flood zone, meaning areas with a 1% annual chance of flooding in any given year. The verbatim threshold definition is identical across the four sub-volumes. For these four industries, “vulnerable to physical risk” under Para 29(c) has a defensible textbook answer in the IBG: assets located in 100-year flood zones.

Insurance is the outlier in Tier 1. It uses the Probable Maximum Loss methodology with three exceedance scenarios (1-in-50, 1-in-100, 1-in-250). The 1-in-100 bucket aligns conceptually with the 100-year flood-zone convention the other four sectors use, but the metric measured is dollar loss rather than asset count or area, so the underlying construction is different.

For in-scope preparers, defensible disclosure carries two complementary metrics. The IBG 450a sector-specific numerator (floor area, loan count, treatment capacity, facility count, or PML) and the Para 29(c) percentage-of-carrying-amount denominator. Both are required by the standard. Both should be constructed on the same scenario, horizon, and threshold pick.

For the full eight-industry walk and the IBG 450a plus Para 29(c) two-metric pattern, see the companion piece on eight industries with prescribed physical-risk metrics. For Australian-jurisdiction readers, the Australian Accounting Standards Board’s adoption of IFRS S2 (AASB S2) has deferred the Industry-Based Guidance to 2030, so this tip applies to AASB S2 reporters from that date; see AASB S2 vs IFRS S2 on physical risk for the carve-out detail.

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Tip 5: The early cohort skipped specific things, and the patterns are documented

The case for Year-2 tightening is not built on conjecture about what auditors might challenge. It is built on what the first year of filings actually disclosed, what those filings omitted, and what four advisory-firm cohort reviews have now documented.

The four reviews in scope are KPMG’s FAST 30 first impressions of the AASB S2 cohort, Deloitte’s Early Insights into Wave 1 of Australian climate reporting, PwC’s AASB S2 First Impressions, and SLR Consulting’s review of the New Zealand mandatory climate-related disclosure regime (which uses standards issued by the New Zealand External Reporting Board, abbreviated XRB, that are aligned closely with IFRS S2). Aggregate observations across the four reviews, plus deeper reads of six named first-year filers across Australia, New Zealand, Hong Kong, India, the United States, and South Africa, surface four consistent patterns.

Pattern 1: connectivity skipping. First-year reports disclose governance, strategy, risk management, and metrics as four separate sections without showing how the four connect. The B65(e) rule that imports balance-sheet reconciliation into the climate disclosure is the test the limited-assurance providers can scope most directly, because it connects the climate disclosure to the audited financial statements. Where assurance providers have scoped a Para 29(c)-adjacent figure into modification in the first cycle, the cause has more often been a failure of the connectivity test than a failure of methodology under the other B65 sub-clauses.

Pattern 2: same-family scenario clustering. The “diverse range of climate-related scenarios” sub-element under Para 22(b)(i) requires more than two or three scenarios drawn from the same scenario family. The Basis for Conclusions paragraph BC66 defines “diverse range” with a two-criterion test: the number of scenarios used, and whether the scenarios cover different outcomes or pathways. The cohort pattern is to use, for example, two NGFS Phase IV scenarios (Net Zero 2050 and Current Policies), which is a small number of scenarios from one family rather than a diverse range across orderly, disorderly, and hot-house pathways.

Pattern 3: Para 30 mis-anchoring. First-year reports frequently invoke Para 30’s “reasonable and supportable” carve-out as the proportionality basis for qualitative scenario disclosure under Para 22. Para 30’s scope, as Tip 1 covered, is limited to Paras 29(b), 29(c), and 29(d). It does not extend to Para 22. Para 22 has its own proportionality language in Appendix B paragraphs B11 through B17, which does not work the same way and does not let the entity opt out of quantitative scenario analysis when the B17 trigger conditions are met.

Pattern 4: update-cadence silence. First-year reports running scenario analysis on a multi-year strategic planning cycle rarely tell the reader what the cycle period is. The asymmetric annual-update rule under which the resilience assessment refreshes annually and the scenario methodology refreshes on cycle is well-established in the standard (Appendix B paragraph B18, supported by Basis for Conclusions paragraph BC68) and reinforced in the March 2026 factsheet (covered in Tip 2 above). But cohort disclosure of the cycle period is sparse.

The Year-2 cohort is being evaluated against the patterns the first cohort left visible. Draft against the four documented patterns above, not against last year’s filings.

For the deeper walk on the cohort-skip evidence base, see the companion piece on what first-wave IFRS S2 reporters skipped.

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A closing note on the three limits

Behind the five tips above sits an asset-level physical-risk data layer that supports defensible quantitative Para 29(c) disclosure. The current state of that data layer across the industry has three specific limits a Year-2 preparer should name rather than work around.

First, global digital elevation datasets are dominated by radar-based products (SRTM, the Shuttle Radar Topography Mission, is the most common), which register the top of buildings as ground level. In dense urban coastal areas, that introduces a flood-depth error of several metres at the asset. Bare-earth alternatives such as FABDEM (Forest and Buildings removed Copernicus DEM) close the gap for built-up land. A disclosure that names the elevation source is defensible. One that treats SRTM-derived flood depths as ground truth in urban geographies is not.

Second, climate projections at asset level tend to use a single global climate model rather than a multi-model ensemble, for computational reasons. Single-model projection ranges are narrower than ensemble ranges. A disclosure built on a single model should name the model and either justify the choice or flag the residual uncertainty.

Third, dollar-damage curves that translate hazard intensity into expected loss are mature for flood (the HAZUS damage library maintained by the U.S. Federal Emergency Management Agency, and the depth-damage functions published by the European Commission’s Joint Research Centre) but partial for wind, wildfire, drought, and heat-stress. A disclosure that covers only the hazards with mature damage curves should name the out-of-scope hazards rather than aggregate to a single all-hazard figure.

The data layer has scope limits. The architecture does not bless qualitative fallback. Naming the gap is more defensible than papering over it.

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Sources

• IFRS S2 Climate-related Disclosures, paragraphs 10, 13, 16, 22, 29(c), 30, 31, 32, and Appendix B paragraphs B11-B17, B18, B64-B65. Cross-reference to IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, paragraph 21(b)(ii).
• IFRS S2 Appendix B opening note on the authority of the appendix.
• IFRS S2 Basis for Conclusions, paragraphs BC59, BC65, BC66, BC68 (climate resilience cluster).
• IFRS Foundation, Factsheet Series: Climate resilience and climate-related scenario analysis requirements in IFRS S2, March 2026.
• Companion piece on the four questions hidden inside Paragraph 29(c): /blog/ifrs-s2-paragraph-29c-physical-risk/.
• Companion piece on scenario analysis as two questions, not one: /blog/ifrs-s2-paragraph-22-scenario-analysis/.
• Companion piece on the application guidance that makes Para 29(c) defensible (B64-B65): /blog/physical-climate-risk-disclosure-methodology/.
• Companion piece on eight industries with prescribed physical-risk metrics: /blog/ifrs-s2-eight-industries-physical-risk-metrics/.
• Companion piece on what first-wave IFRS S2 reporters skipped: /blog/ifrs-s2-first-wave-disclosures-skipped/.
• For Australian-jurisdiction readers, the AASB adoption of IFRS S2 modifications: /blog/aasb-s2-vs-ifrs-s2-physical-risk/.
• Advisory-firm cohort reviews cited: KPMG FAST 30 first impressions of AASB S2; Deloitte Early Insights into Wave 1 of Australian climate reporting; PwC AASB S2 First Impressions; SLR Consulting review of New Zealand mandatory climate-related disclosure under XRB.

Frequently asked questions

Is qualitative-only scenario analysis still defensible under IFRS S2 in 2026?

No. Paragraph B17 of IFRS S2 requires an entity with high exposure to climate-related risks AND access to skills, capabilities or resources to apply a more advanced quantitative approach to climate-related scenario analysis. The Basis for Conclusions paragraph BC65 closes the resources-as-substitute defence: lack of in-house capability is not a defence if the entity has the budget to obtain or develop the relevant skills. Paragraph 30, the “reasonable and supportable information” carve-out, applies to paragraphs 29(b) through 29(d) metrics only. It does not extend to paragraph 22.

What does IFRS S2 actually require entities to disclose about their scenario analysis?

The disclosure is the management interpretation of the scenario analysis, not the scenario tables themselves. Basis for Conclusions paragraph BC59 settles this: an entity is not required to disclose the results of its scenario analysis, but is instead required to disclose its interpretation of those results. The IFRS Foundation March 2026 factsheet adds an asymmetric update rule: the climate-resilience assessment refreshes annually, but the underlying scenario analysis only needs to refresh on the strategic planning cycle. Most Year-1 reports disclosed the scenarios; fewer disclosed what they concluded from them.

Which IFRS S2 paragraphs apply when constructing the paragraph 29(c) physical-risk metric?

Paragraph 29(c) on its own gives a single sentence requirement: the amount and percentage of assets vulnerable to physical risks. Paragraph 31 routes preparers to paragraphs B64-B65 in Appendix B for methodology construction. B65 lists five consider sub-clauses that connect the metric to paragraph 10 time horizons, paragraph 13 concentration framing, paragraph 16 financial effects, paragraph 32 industry-based metrics, and IFRS S1 paragraph 21(b)(ii) balance-sheet carrying amount. Appendix B is an integral part of IFRS S2 and has the same authority as the other parts of the Standard.

Which industries have prescribed physical-risk metrics under the IFRS S2 Industry-Based Guidance?

Eight industries carry Industry-Based Guidance 450a topic codes. Five have a prescribed quantitative metric: Real Estate (floor area in 100-year flood zones), Mortgage Finance (loan value in 100-year flood zones), Water Utilities (wastewater capacity in 100-year flood zones), Hotels and Lodging (number of facilities in 100-year flood zones), and Insurance (Probable Maximum Loss for weather catastrophes at three exceedance probabilities). Three have a discussion-only requirement: Health Care Delivery, Managed Care, and Forestry Management. AASB S2 has deferred industry-based metrics to 2030 for Australian reporters.

What did the first-wave IFRS S2 reporting cohort consistently leave out?

Four documented patterns across the KPMG FAST 30, Deloitte Wave 1, PwC, and SLR Consulting cohort reviews. First, connectivity skipping: governance, strategy, risk management, and metrics disclosed as four separate sections without showing how they connect. Second, same-family scenario clustering: two or three scenarios from one family instead of the diverse range paragraph 22(b)(i) requires across orderly, disorderly, and hot-house pathways. Third, paragraph 30 mis-anchoring: invoking the reasonable-and-supportable carve-out for scenario analysis when it only extends to paragraphs 29(b) through 29(d). Fourth, update-cadence silence: running scenario analysis on a multi-year cycle without telling the reader the cycle period.