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." |
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.
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.
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.
Key Takeaways
- 1Identify the specific governance body responsible for climate oversight - not just 'the board' but the named committee, individual, or bodies with defined responsibilities
- 2Disclose how climate skills and competencies are ensured through specialist appointments, external advisors, or training programmes
- 3Show how and how often the governance body is informed about climate risks - quarterly CSO presentations and semi-annual risk register reviews are common practice
- 4Demonstrate that climate considerations are integrated into major capital allocation and transaction decisions, not treated as a standalone agenda item
- 5If executive remuneration is linked to climate targets, disclose the specific metrics and percentage weighting used