HKFRS S2 - Climate-related Disclosures (Condensed)
| Section | Key Concept | Brief Description |
|---|---|---|
| Objective & Scope | Purpose & Applicability | Disclose climate-related risks/opportunities affecting entity prospects; excludes those with no expected impact. |
| Core Content Structure | Four Pillars | Governance, Strategy, Risk Management, Metrics and Targets. |
| Governance | Oversight & Management | Disclose board/management roles, responsibilities, skills, and integration with strategy and remuneration. |
| Strategy | Impact & Resilience | Describe risks/opportunities, effects on business model, financials, and climate resilience via scenario analysis. |
| Risk Management | Processes & Integration | Explain how risks/opportunities are identified, assessed, prioritized, and integrated into overall risk management. |
| Metrics & Targets | Performance & Goals | Disclose GHG emissions, transition/physical risks, opportunities, capital deployment, internal carbon prices, remuneration, and targets. |
| Effective Date & Transition | Implementation | Effective 1 Aug 2025; first-year relief from comparatives, Scope 3, and alternative GHG methods. |
Objective and Scope
Objective
HKFRS S2 requires an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. The standard requires disclosure of information about climate-related risks and opportunities that could reasonably be expected to affect the entity's cash flows, its access to finance or cost of capital over the short, medium or long term. These are collectively referred to as 'climate-related risks and opportunities that could reasonably be expected to affect the entity's prospects.'
Scope
The standard applies to:
- Climate-related risks to which the entity is exposed, including:
- Climate-related physical risks
- Climate-related transition risks
- Climate-related opportunities available to the entity
Governance Disclosures
Objective
Enable users to understand the governance processes, controls and procedures an entity uses to monitor, manage and oversee climate-related risks and opportunities.
Required Disclosures
| Aspect | Key Requirements |
|---|---|
| Governance Body Oversight (Para 6(a)) | Identify responsible body/individual; disclose how responsibilities are reflected in terms of reference, mandates, role descriptions; how skills/competencies are ensured; how and how often the body is informed; how it oversees strategy, major transactions, risk management, target setting, and remuneration. |
| Management's Role (Para 6(b)) | Disclose whether role is delegated to a specific management-level position/committee; how oversight is exercised; whether controls and procedures are used and integrated with other internal functions. |
Strategy Disclosures
Objective
Enable users to understand an entity's strategy for managing climate-related risks and opportunities.
Required Disclosures (Para 9)
The entity shall disclose information to enable users to understand:
- (a) Climate-related risks and opportunities that could reasonably be expected to affect prospects
- (b) Current and anticipated effects on business model and value chain
- (c) Effects on strategy and decision-making, including climate-related transition plan
- (d) Effects on financial position, financial performance and cash flows
- (e) Climate resilience of strategy and business model
Key Sub-sections
| Sub-section | Key Requirements |
|---|---|
| Climate-related Risks and Opportunities (Paras 10-12) | Describe risks/opportunities; explain physical vs transition; specify time horizons; use all reasonable and supportable information; refer to industry-based guidance. |
| Business Model and Value Chain (Para 13) | Describe current and anticipated effects; identify where risks/opportunities are concentrated (e.g., geographical areas, facilities, asset types). |
| Strategy and Decision-making (Para 14) | Disclose how entity has responded/plans to respond; resourcing; quantitative and qualitative progress of plans disclosed in previous periods. |
| Financial Position, Performance and Cash Flows (Paras 15-21) | Disclose current and anticipated financial effects; may use single amount or range; relief if effects not separately identifiable, measurement uncertainty too high, or entity lacks skills/resources; if relief used, explain why and provide qualitative info. |
| Climate Resilience (Paras 22-23) | Assess resilience using scenario analysis; disclose implications, uncertainties, capacity to adjust; describe inputs, assumptions, and reporting period of analysis. |
Risk Management Disclosures
Objective
Enable users to understand an entity's processes to identify, assess, prioritise and monitor climate-related risks and opportunities, including integration with overall risk management.
Required Disclosures (Para 25)
| Aspect | Key Requirements |
|---|---|
| Processes for Climate-related Risks (Para 25(a)) | Disclose inputs/parameters; whether scenario analysis is used; how nature, likelihood, and magnitude of effects are assessed; how risks are prioritised relative to other risks; how risks are monitored; whether processes have changed from previous period. |
| Processes for Climate-related Opportunities (Para 25(b)) | Disclose whether and how scenario analysis is used. |
| Integration with Overall Risk Management (Para 25(c)) | Disclose extent to which and how processes are integrated into and inform overall risk management. |
Metrics and Targets Disclosures
Objective
Enable users to understand an entity's performance in relation to climate-related risks and opportunities, including progress towards targets.
Required Disclosures (Para 28)
- Cross-industry metric categories
- Industry-based metrics
- Targets set by the entity or required by law/regulation
Cross-Industry Metric Categories (Para 29)
| Category | Key Requirements |
|---|---|
| Greenhouse Gases (Para 29(a)) | Disclose absolute gross GHG emissions (Scope 1, 2, 3) in metric tonnes CO2 equivalent; measure per GHG Protocol (2004) unless jurisdictional authority requires different method; disclose measurement approach, inputs, assumptions; for Scope 2, disclose location-based emissions and contractual instruments; for Scope 3, disclose categories included and additional info for Category 15 (financed emissions) for asset management, commercial banking, or insurance. |
| Climate-related Transition Risks (Para 29(b)) | Amount and percentage of assets or business activities vulnerable. |
| Climate-related Physical Risks (Para 29(c)) | Amount and percentage of assets or business activities vulnerable. |
| Climate-related Opportunities (Para 29(d)) | Amount and percentage of assets or business activities aligned. |
| Capital Deployment (Para 29(e)) | Amount of capital expenditure, financing or investment deployed. |
| Internal Carbon Prices (Para 29(f)) | Explanation of whether and how carbon price is applied in decision-making; price per metric tonne of GHG emissions used. |
| Remuneration (Para 29(g)) | Description of whether and how climate-related considerations are factored into executive remuneration; percentage of executive management remuneration linked to climate-related considerations. |
Industry-Based Metrics (Para 32)
Disclose metrics associated with particular business models, activities or industry characteristics; refer to Industry-based Guidance on Implementing HKFRS S2.
Climate-Related Targets (Paras 33-37)
For each target, disclose: metric used, objective (mitigation, adaptation, conformance with science-based initiatives), part of entity to which target applies, period, base period, milestones, absolute/intensity nature, how latest international agreement on climate change has informed the target. Also disclose approach to setting/reviewing targets, performance against targets, and for GHG emissions targets, whether gross or net (if net, also disclose gross target), and planned use of carbon credits.
Defined Terms (Appendix A)
Defined Terms
Key Definitions
| Term | Definition |
|---|---|
| Carbon credit | Emissions unit issued by a carbon crediting programme representing emission reduction or removal of GHGs, uniquely serialised, issued, tracked and cancelled via electronic registry. |
| Climate resilience | Capacity to adjust to climate-related changes, developments or uncertainties; includes managing risks and benefiting from opportunities; involves both strategic and operational resilience. |
| Climate-related physical risks | Risks from climate change that can be event-driven (acute) or from longer-term shifts in climatic patterns (chronic). |
| Climate-related transition risks | Risks from efforts to transition to a lower-carbon economy, including policy, legal, technological, market and reputational risks. |
| Climate-related transition plan | Aspect of overall strategy laying out targets, actions or resources for transition towards a lower-carbon economy. |
| CO2 equivalent | Universal unit of measurement indicating global warming potential of each GHG expressed in terms of one unit of carbon dioxide. |
| Financed emissions | Portion of gross GHG emissions of investee or counterparty attributed to loans and investments made by the entity. |
| Greenhouse gases | Seven gases listed in Kyoto Protocol: CO2, CH4, N2O, HFCs, NF3, PFCs, SF6. |
| Internal carbon price | Price used to assess financial implications of changes to investment, production and consumption patterns; includes shadow price and internal tax/fee. |
| Scope 1 GHG emissions | Direct emissions from sources owned or controlled by the entity. |
| Scope 2 GHG emissions | Indirect emissions from generation of purchased or acquired electricity, steam, heating or cooling. |
| Scope 3 GHG emissions | Indirect emissions (not in Scope 2) occurring in value chain, including upstream and downstream. |
| Scope 3 categories | 15 categories as described in GHG Protocol Corporate Value Chain Standard. |
Application Guidance (Appendix B)
Application Guidance
Climate Resilience and Scenario Analysis (Paras B1-B18)
Assess circumstances (exposure, skills, capabilities, resources) each time scenario analysis is carried out. Select inputs including scenarios, variables, and other information; make analytical choices (qualitative vs quantitative); use all reasonable and supportable information without undue cost or effort. Approach likely to change over time; simpler approaches (qualitative narratives) may be appropriate initially. Must update resilience assessment annually, even if full scenario analysis is done less frequently (e.g., every 3-5 years in line with strategic planning cycle).
Greenhouse Gas Measurement (Paras B19-B57)
Permitted to use information from entities in value chain with different reporting periods if most recent data is used, reporting periods are same length, and effects of significant events between dates are disclosed. Use global warming potential values based on 100-year time horizon from latest IPCC assessment. GHG Protocol required unless jurisdictional authority or exchange requires different method. Disclose measurement approach (equity share or control) and emission factors used. For Scope 2, disclose location-based emissions and contractual instruments. For Scope 3, likely includes estimation; prioritise inputs based on direct measurement data, primary data, timely data, and verified data.
Financed Emissions (Paras B58-B63)
For asset management: absolute gross financed emissions disaggregated by Scope 1, 2, 3; total AUM included; percentage of total AUM included; methodology. For commercial banking and insurance: absolute gross financed emissions by industry (GICS 6-digit) and asset class; gross exposure by industry and asset class; percentage of gross exposure included; methodology.
Cross-Industry Metric Categories (Paras B64-B65)
When preparing disclosures for paragraphs 29(b)-(g), consider: time horizons for effects, concentration in business model and value chain, effects on financial position/performance/cash flows, whether industry-based metrics could satisfy requirements, and connections with related financial statements.
Climate-Related Targets (Paras B66-B71)
Absolute target: total amount or change in total amount. Intensity target: ratio of measure to business metric. Gross targets reflect total changes planned within value chain; net targets = gross minus planned offsetting efforts. If net target disclosed, gross target must also be disclosed. Disclose planned use of carbon credits, including extent of reliance, verification schemes, type of credit, and other credibility factors.
Effective Date and Transition (Appendix C)
Effective Date and Transition
Effective Date (Para C1)
Annual reporting periods beginning on or after 1 August 2025. Earlier application permitted if HKFRS S1 is applied at the same time.
Date of Initial Application (Para C2)
Beginning of the annual reporting period in which entity first applies this Standard.
Transition Relief (Paras C3-C5)
| Relief | Description |
|---|---|
| No Comparative Information Required (Para C3) | Not required to provide disclosures for any period before date of initial application; not required to disclose comparative information in first year. |
| Measurement Method Relief (Para C4(a)) | If entity used a different GHG measurement method in the period immediately preceding initial application, permitted to continue using that method. |
| Scope 3 Relief (Para C4(b)) | Not required to disclose Scope 3 GHG emissions in first year; includes financed emissions for asset management, commercial banking or insurance. |
| Continued Use of Relief (Para C5) | Relief can continue for presenting comparative information in subsequent periods. |
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