On May 30, 2025, the IFRS Foundation released Q&A guidance to clarify greenhouse gas (GHG) emissions reporting under IFRS S2 Climate-related Disclosures, effective for 2025 reporting. Mandating absolute gross Scope 1, 2, and material Scope 3 emissions, IFRS S2 prioritizes the GHG Protocol but overrides it where conflicts arise. Companies must disclose methodologies, organizational boundaries, emissions targets (if set), and carbon credit use, ensuring transparency for investors assessing transition risks. With 50 countries adopting IFRS S2, covering 75% of global GDP, the guidance enhances comparability but challenges firms with complex value chains. As the EU nears its 55% emissions cut, can IFRS S2 drive robust disclosures, or will data and compliance hurdles limit impact?

Key IFRS S2 Requirements

IFRS S2, adopted by the ISSB in 2023, aims to provide decision-useful climate data. The Q&A clarifies:

• Scope 1, 2, 3 Emissions: Absolute gross emissions are mandatory, excluding offsets. Scope 3 requires assessing all 15 GHG Protocol categories (e.g., purchased goods, business travel), reporting only material ones, which 80% of firms find relevant, per CDP.

• GHG Protocol: Used unless jurisdictional rules conflict (e.g., EU ETS for Scope 1). IFRS S2 prevails, requiring primary data (e.g., direct meter readings) over secondary (e.g., industry averages), with 60% of firms using secondary data in 2024, per PwC.

• Methodology Transparency: Firms must disclose equity share or control approach, organizational boundaries (covering 90% of emissions), and disaggregate data for consolidated vs. non-consolidated entities.

• Emissions Targets: If set, disclose gross and net targets, covered gases (e.g., CO2, CH4), and carbon credit details (scheme, type, permanence), with 40% of firms using credits in 2024, per SBTi.

• Financed Emissions: Financial institutions report Category 15 emissions, choosing methodologies (e.g., PCAF, 70% adoption) but explaining assumptions, covering $10 trillion in assets in 2024.

Comparative Reporting: No restatement for M&A changes, but explain impacts if material (e.g., 10% emissions shift from acquisitions).

“The guidance ensures investor-relevant data,” said ISSB’s Sue Lloyd.

Read more: EU’s 3-Year CO2 Compliance Window Eases Carmaker Transition

Strategic Context

IFRS S2 aligns with global sustainability efforts:

• Watershed’s CEDA: Free emissions data aids Scope 3 reporting, used by 5,000 firms.

• EU’s 54% Cut: CSRD’s 50,000 firms overlap with IFRS S2, boosting compliance.

• Microsoft’s Green Cement: Low-carbon materials reduce Scope 3 construction emissions.

Challenges and Risks

• Scope 3 Data: 70% of firms lack supplier data, costing $50,000-$200,000 to collect, per EY. Only 30% report all material categories, per CDP.

• Compliance Costs: SMEs face $100,000-$500,000 in reporting expenses, with 50% unprepared for 2025.

• Verification: 20% of 2024 disclosures had errors.

• Policy Risks: Trump’s 2025 deregulation (e.g., $1.5B Army Corps cuts) may weaken U.S. adoption, impacting 20% of IFRS S2 filers.

Explore OneStop ESG Marketplace: GHG Accounting

What’s Next?

Over 10,000 firms, managing $50 trillion in assets, will report under IFRS S2 in 2025, per ISSB. A 2026 ISSB review may integrate TNFD’s nature disclosures, covering 30% of biodiversity risks. Training programs, backed by $100M from IFC, aim to support 5,000 SMEs by 2027. Global sustainability reporting markets could hit $5B by 2030, per BloombergNEF.

“Transparency drives action,” said Lloyd.

With Scope 3 mandatory, IFRS S2 sets a high bar. Will firms meet investor demands, or struggle with data gaps?

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