Choosing a framework for reporting climate risks – NZ CS, IFRS S2 or TCFD?

With an absence of globally accepted sustainability reporting standards until now, many entities have prepared disclosures regarding climate risk using the Task Force on Climate-related Financial Disclosures (TCFD).

Given the release of New Zealand’s Aotearoa New Zealand Climate Standards (NZ CS) and the International Sustainability Reporting Standards IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures on 26 June 2023 – what now? Should entities discard previous work and focus only on NZ CS or IFRS S1 and IFRS S2 in future?


As mentioned in our accompanying article NZ CS is mandatory for all scoped in entities in New Zealand for annual periods beginning 1 January 2023. If an entity falls within the scoping requirements of the New Zealand Climate-Related Disclosures (CRD) regime it must report under NZ CS.

Although NZ CS 1 Climate-related Disclosures is based on the TCFD recommendations (as is IFRS S2 - see discussion below), its requirements are not identical. Scoped in entities that have been reporting under TCFD recommendations previously will need to migrate to providing the disclosures required by the NZ CS. As there are differences, it is imperative that these scoped in entities gain a thorough understanding of the NZ CS requirements as soon as possible.

The NZ CS requirements are also different to the requirements of IFRS S2 so care will need to be taken when referring to international guidance on this topic.

We understand that the New Zealand External Reporting Board (XRB) plan on releasing a comparison of the requirements of NZ CS 1 vs IFRS 2 later on this year, so watch this space.

For other New Zealand entities that do not fall within  the New Zealand Climate-Related Disclosures (CRD) regime, you may still have climate related disclosure requirements imposed by other jurisdictions (as detailed in our accompanying article) that require compliance with IFRS S2. For a comparison between the requirements of IFRS S2 and the TCFD recommendations, please see below.

Comparison between the requirements of IFRS S2 and the TCFD recommendations

The International Sustainability Standards Board (ISSB) recently published a comparison between the requirements of IFRS S2 and the TCFD recommendations. Both IFRS S2 and TCFD are structured around the same following four core elements, i.e. Governance, Strategy, Risk management, Metrics and targets, but are laid out differently:

  • TCFD - For each of the four core elements, there are two or three recommended disclosures, supported by guidance for all sectors, and supplemental guidance for certain sectors
  • IFRS S2 - Contains a list of detailed disclosures and illustrative guidance.

So, the two are similar but different.

TCFD is a good steppingstone to IFRS S2

Although the terminology may differ, the good news is that IFRS S2 and TCFD are generally consistent. Therefore, using the TCFD recommendations is a good steppingstone to applying IFRS S2.

So, entities, already applying TCFD, need not feel that any prior climate reporting has been a waste of time and effort.

The bad news, however, is that IFRS S2 contains additional disclosures not contained in TCFD. Some of these include (as referenced in red bold font in the comparison document):

Core element Additional IFRS S2 disclosures
Strategy Entities must refer to and consider industry-based topics in the industry-based guidance when identifying climate-related risks and opportunities.

Entities must disclose quantitative and qualitative information about the current and anticipated effects of climate-related risks and opportunities on the entity’s financial position, financial performance and cash flows (quantitative information is not mandatory for TCFD).

However, entities may omit quantitative information if either:

  • They cannot separately identify the effects of the risk or opportunity
  • The level of management uncertainty involved in estimating the effects is too high, so quantitative information would not be useful.
Risk management In addition to disclosing information about climate-related risks, entities must also disclose information about climate-related opportunities.

Metrics and targets

 Entities must disclose industry-based metrics relevant to their business model and activities.
Entities must disclose more information regarding Scope 1, 2 and 3 emissions, including financed emissions.
Entities must disclose how the latest international agreements on climate change have informed their chosen targets, and whether the target has been validated by a third party.
Entities must disclose additional information about the planned use of carbon credits to achieve their net GHG emissions target.


Entities applying TCFD recommendations must include these additional disclosures when IFRS S2 becomes mandatory in a relevant jurisdiction.

For more on the above, please contact your local BDO representative.

This article has been based on an article that originally appeared at BDO Australia, read the original article here.