Key takeaway
Governance disclosures answer a fundamental question for investors: who is accountable for climate risk, and is that accountability meaningful? IFRS S2 requires specific information about both the board's oversight role and management's operational role.
The Objective of Governance Disclosures
Paragraph 5 of IFRS S2 states the objective clearly: governance disclosures shall enable users to understand the governance processes, controls, and procedures an entity uses to monitor, manage, and oversee climate-related risks and opportunities.
This is about accountability and oversight. It focuses not on what the entity does on climate, but on who makes decisions and how those decisions are structured.
Identifying the Governance Body
The first step is identifying the governance body or bodies responsible for oversight of climate-related risks and opportunities (paragraph 6(a)). This could be:
- The full board of directors
- A board-level committee (for example, a sustainability or audit committee)
- A specific individual (for example, a non-executive director with climate expertise)
- Multiple bodies with different responsibilities
An entity must identify which body or individual has responsibility, not just assert that "the board" oversees climate risk.
The Five Specific Disclosures for Governance Bodies
Once the responsible body is identified, paragraph 6(a) requires five specific types of information:
| # | Requirement | Example Disclosure |
|---|---|---|
| (i) | How responsibilities are reflected in terms of reference, mandates, role descriptions, or policies | "The Board Risk Committee's terms of reference were updated in 2023 to include explicit oversight of climate-related risks and opportunities, including annual review of the climate risk register." |
| (ii) | How appropriate skills and competencies are determined to be available to the governance body | "The Nominations Committee considers climate expertise in board member appointments. Two non-executive directors hold climate economics qualifications. Annual training is provided on climate scenario analysis." |
| (iii) | How and how often the body is informed about climate-related risks and opportunities | "The Chief Sustainability Officer presents quarterly to the Board on climate-related metrics. The full risk register, including climate risks, is reviewed semi-annually." |
| (iv) | How the body takes into account climate-related risks and opportunities when overseeing strategy, major transactions, and risk management | "All major capital allocation decisions above 50 million GBP are subject to a climate impact assessment reviewed by the Board. Trade-offs between decarbonisation investments and near-term returns are explicitly considered." |
| (v) | How the body oversees the setting and monitoring of climate-related targets and performance metrics, including whether those metrics are used in remuneration | "The Remuneration Committee has linked 15% of executive long-term incentive awards to achievement of the entity's 2030 emissions reduction target." |
Analogy
Think of governance disclosures like the organisational chart behind a company's climate commitments. Anyone can announce a net-zero target. IFRS S2 requires you to show the accountability structure: who made that decision, who monitors progress, how often they are informed, whether they have the expertise to judge the information, and whether their pay depends on delivering.
Illustrative Governance Structure
In practice, companies typically organise sustainability governance across three layers: board-level oversight committees, management-level executive roles, and operational support teams. The following diagram illustrates how a well-governed entity might structure these layers.
Each committee serves a distinct function. The Sustainability Committee coordinates and oversees the company's approach to sustainability, integrating it into business strategy and ensuring that adequate policies and procedures are in place. The Risk Management Committee coordinates the identification and integration of sustainability-related risks into the enterprise risk management system, defining the degree of risk the company is prepared to accept. The Audit Committee oversees the integrity and quality of sustainability reporting, including internal controls over data used in financial reporting.
At the management level, the CEO ensures sustainability-related matters are reflected in business strategy and budget. The CSO drives the implementation of the sustainability strategy. The CRO integrates identified risks into the risk management framework. The Sustainability General Manager oversees disclosures and reporting, and coordinates external assurance processes.
Support teams feed information upward through monthly reports circulated and discussed during quarterly committee meetings. These teams cover developments in SROs, progress on transition targets, and other relevant topics.
Key takeaway
Presenting a clear governance structure diagram is not explicitly required by the standard, but it has become common practice in sustainability reports. It helps users quickly understand the oversight architecture, particularly when the structure involves multiple levels and roles working together.
Why Skills and Competencies Matter
Requirement (ii) on skills and competencies is often overlooked but is analytically important for investors. Climate risk is technically complex: it requires understanding of physical science, carbon accounting, energy transition economics, and regulatory change. A board that lacks climate expertise may not be capable of meaningful oversight.
IFRS S2 does not prescribe the level of expertise required. Instead, it requires entities to explain how they determine that appropriate skills are available. This could include:
- Specialist board appointments
- External advisors to the board
- Regular training programmes
- Access to management expertise
Remuneration Linkage
Requirement (v) includes an explicit reference to remuneration. If executive pay is linked to climate-related metrics or targets, that linkage must be described here. The specific metrics and percentage weighting are disclosed in more detail in the Metrics and Targets pillar (paragraph 29(g)).
Remuneration linkage is a signal of genuine accountability: if management's pay depends on climate performance, they have strong incentives to manage it seriously.
Worked example
Example: A large energy company identifies the Board Sustainability Committee as its responsible governance body. It discloses:
- Committee terms of reference updated in 2022 to include oversight of the net-zero transition plan
- Two of three committee members hold climate-related professional qualifications; annual training provided to all members
- The Chief Sustainability Officer attends every committee meeting; full climate risk register presented quarterly
- The committee reviews all acquisitions above 100 million EUR for climate alignment; reviewed the 2023 offshore wind acquisition against the transition plan
- 20% of CEO and CFO long-term incentive is linked to the 2030 emissions target; committee reviews progress annually
This is a compliant and informative governance disclosure.
How Governance Bodies Oversee SROs in Practice
Beyond identifying the responsible body and listing its duties, the standard expects companies to show how governance bodies actually engage with sustainability-related risks and opportunities (SROs). In practice, this means disclosing how the board considers SROs across three domains:
| Domain | What the Board Does | Illustrative Disclosure |
|---|---|---|
| Strategy | Reviews and updates the business strategy annually to ensure it effectively manages SROs. Incorporates sustainability performance measures into bonus pools for the wider workforce, not just key management. | "In 2025, focus groups were held between the Board and civil society organisations following publication of the Sustainability Report to reaffirm the strategy for future reports." |
| Major transactions and trade-offs | Assesses major transactions through a due diligence process involving in-house and/or external specialists. Evaluates alignment with the Transition Plan and the impact on the company's strategy and financial position. | "Four major transactions were approved after due diligence showed they supported the Transition Plan. Two were declined after due diligence demonstrated they would have an overall negative impact on the Transition Plan." |
| Risk management | Monitors the company's risk management policies through the Risk Management Committee, ensuring support teams and business units have appropriate knowledge and resources to manage SROs. | "The Audit Committee oversees the internal audit function, evaluating the effectiveness of processes for identifying and managing SROs as part of the broader enterprise risk management framework." |
This level of specificity transforms governance disclosures from a description of structures into evidence of active oversight.
Simplified Governance for Smaller Entities
Not every company has a complex multi-committee structure. For companies with less complex governance, a simpler approach is perfectly acceptable under IFRS S2. A company might disclose a single Corporate Responsibility Committee (CRC) that meets quarterly and handles all sustainability oversight, with support from the CEO and a small management team.
Worked example
Example (simplified structure): A mid-sized manufacturer delegates oversight of sustainability-related matters to its Corporate Responsibility Committee (CRC), which meets quarterly. The CRC tracks progress on delivering the sustainability strategy, including performance targets and the management of SROs, with support from the CEO.
The Board is updated on sustainability-related matters by the CRC quarterly. Management reports significant and emerging risks to the Audit and Risk Committee (ARC), which met four times in 2025 to review sustainability-focused topics including:
- Initiating the annual sustainability assessment
- GHG emissions projections
- Integrating the finalised Transition Plan into the company's strategy
SROs are identified via a materiality assessment process led by stakeholder engagement. The CEO is responsible for embedding the company's response to those risks in the overall strategy.
This approach is less detailed than the multi-committee examples but is fully compliant. The key is that it identifies the responsible bodies, explains their mandates, and shows how information flows from management to the board.
Key Takeaways
- Identify the specific governance body responsible for climate oversight - not just 'the board' but the named committee, individual, or bodies with defined responsibilities
- Disclose how climate skills and competencies are ensured through specialist appointments, external advisors, or training programmes
- Show how and how often the governance body is informed about climate risks - quarterly CSO presentations and semi-annual risk register reviews are common practice
- Demonstrate that climate considerations are integrated into major capital allocation and transaction decisions, not treated as a standalone agenda item
- If executive remuneration is linked to climate targets, disclose the specific metrics and percentage weighting used
Knowledge Check
Test what you just learned
4 questions · check each one as you go
IFRS S2 paragraph 6(a) requires disclosure about the governance body's oversight. How many specific disclosure items does it list?
A company states 'our board oversees climate risk.' Is this a sufficient governance disclosure under IFRS S2?
Under IFRS S2, if executive pay is linked to a climate-related metric, where must this be disclosed?
Why does IFRS S2 require disclosure of how governance body skills and competencies are ensured?