What do insurers need to know about IFRS S1 and IFRS S2?

IFRS S1 General Requirements for Disclosures of Sustainability-related Financial Information requires the disclosure of sustainability information in a narrative form, describing an entity’s governance, systems, process, strategic approach, management, metrics and targets in relation to its sustainability-related risks and opportunities. 

In identifying risks and opportunities IFRS S1 sets out a framework for all industries aligned with SASB industry guidance. The table below provides a summary of risks and opportunities set out for the insurance industry:

IFRS S2 Climate-related Disclosures requires the disclosure of information about climate-related risks (physical and transition risks) and opportunities that may be useful to primary users of general-purpose financial reports in making decisions. IFRS S2 is an industry-based standard and contains specific disclosure requirements for insurance companies.

The standard builds on the requirements of the TCFD framework and follows the same four pillars: Governance, Strategy, Risk management and Metrics and Targets. Detailed disclosure is required for scope 1,2 and 3 greenhouse gas emissions (GHG emissions), albeit there are additional areas where requirements are more prescriptive than the TCFD framework. This includes a requirement to disclose the amounts or percentages of assets or business activities that are exposed to climate risks (both physical and transitional) as well as opportunities.

IFRS S2 distinguishes two types of physical risks:

1. Acute physical risk resulting from climate change that can be event-driven;

2. Chronic physical risk resulting from longer-term shifts in climatic patterns.

An example of acute physical risks for insurers is a catastrophe loss adverse impact as a result of extreme weather conditions.

An example of chronic physical risks for insurers includes changes in insurance coverage: potential inability to provide certain types of insurance or the need in the new types of insurance products due to changes in climatic patterns.

IFRS S2 itself doesn’t contain prescriptive metrics to be disclosed on physical risk. However, a non-mandatory guidance ‘IFRS S2 - Industry-based Guidance on implementing Climate-related Disclosures, Volume 17 – Insurance’, has provided examples of Metrics and Targets for insurers. The examples include:

• Probable Maximum Loss (PML) of insured products from weather-related natural catastrophes.
• Total amount of monetary losses attributable to insurance payouts from:
  • modelled natural catastrophes.
  • non-modelled natural catastrophes, by type of event and geographic segment (net and gross of reinsurance).

IFRS S2 defines transition risks as those that arise from efforts to transition to a lower-carbon economy. Insurers’ overall strategy for such transition incorporates actions reducing greenhouse gas emissions, including:

• Financed emissions associated with insurers’ investments portfolio.
• Insurance emissions associatedwith insurers’ underwriting portfolio.

Financed emissions: quantitative information about greenhouse gas emissions associated with insurers’ investment portfolios. In May 2025 the ISSB published an Exposure Draft proposing targeted amendments to IFRS S2 that aim to ease application of requirements related to the disclosure of greenhouse gas emissions.

Insurance associated emissions are not included in scope of IFRS S2 due to the lack of methodology on their calculation.

In summary: The targeted amendments aim at supporting entities applying IFRS S2 by reducing the complexity, risk of potential duplication of reporting and related costs of applying specific requirements in IFRS S2, and the reliefs would be optional. 

Key proposals:

• Use of jurisdictional reliefs: 
• The proposal clarifies that a firm can measure its GHG emissions using a method other than the GHG Protocol, where a different method is required by a jurisdictional authority or an exchange on which the firm is listed.
• The jurisdictional relief also permits the use of Global Warming Potential (GWP) values that are not from the latest Intergovernmental Panel on Climate Change (IPCC) assessment. 
• Use of Global Industry Classification Standard (GICS) codes: the exposure draft introduces flexibility in the use of GICS codes for disaggregating financed emissions by industry, specifically for those firms whose operations qualify as commercial banking and insurance.

Next steps: The ISSB aims to redeliberate and finalise the amendments later in 2025, after consultation. The deadline for the consultation is June 27 2025.

Many UK insurers already prepare TCFD compliant disclosures and climate-related disclosures as required by the Companies Act. Given that IFRS S1 and IFRS S2 incorporate TCFD recommendations it is possible to leverage a lot of information from these disclosures. The challenge will be for smaller IFRS entities that will need to invest potentially more time in addressing the requirements , for example to collect the quality sustainability data as well as environmental data.

Yes, IFRS S1 an IFRS S2 are agnostic accounting standards, and any company can apply them. The UKEB process of adoption is in progress and the UK effective date of the standards is yet unknown.