Climate-related targets are the forward-looking commitments that give IFRS S2 metrics meaning. IFRS S2 does not require entities to set targets, but if they have any, the disclosure requirements are detailed and specific. This lesson covers what must be disclosed for every target, with particular focus on GHG targets and the role of carbon credits.
IFRS S2 Does Not Require Targets
Like transition plans, IFRS S2 does not mandate that entities set climate-related targets. An entity that has set no targets discloses that fact, which is itself informative. An entity that has set targets must disclose them fully.
This means the target disclosures apply only when the entity has:
- GHG emissions targets (reduction, net-zero, carbon neutrality)
- Non-GHG climate targets (renewable energy percentage, physical risk adaptation milestones)
- Conformance targets (alignment with science-based initiatives, industry coalitions)
Para 33: Eight Required Target Disclosures
For each climate-related target, paragraph 33 requires disclosure of eight elements:
| # | Element | Example |
|---|---|---|
| (a) | Metric used to set the target | Absolute Scope 1+2 GHG emissions (tCO2e) |
| (b) | Objective | Mitigation: reducing operational emissions to limit global warming contribution |
| (c) | Part of entity to which target applies | All global operations; excludes joint ventures |
| (d) | Period over which target applies | 2020 to 2030 |
| (e) | Base period | 2020 baseline: 1,250,000 tCO2e |
| (f) | Milestones and interim targets | 30% reduction by 2025; 50% by 2028; 70% by 2030 |
| (g) | Whether absolute or intensity | Absolute, not normalised by revenue or output |
| (h) | How the latest international agreement on climate change has informed the target | "Our target is consistent with the 1.5 degrees C trajectory required by the Paris Agreement, validated by SBTi." |
Para 34: Target-Setting and Review Processes
Beyond the target itself, paragraph 34 requires disclosure of the process behind it:
- (a) Third-party validation: Has the target been validated by an independent third party (for example, the Science Based Targets initiative, SBTi)? IFRS S2 does not require third-party validation, but if the entity claims its target is science-based, it should disclose whether this has been independently verified.
- (b) Review process: How does the entity periodically review whether targets remain appropriate? (Market conditions, regulatory changes, and technology developments may require target adjustment.)
- (c) Metrics used to monitor progress: What KPIs are tracked monthly, quarterly, or annually against the target?
- (d) Revisions: If a target has been revised, what was changed and why?
Para 35: Performance Against Targets
Year-on-year progress disclosure creates genuine accountability. Paragraph 35 requires:
- Current performance against each target
- Analysis of trends: is the entity on track, ahead, or behind?
- Explanation of changes relative to prior periods
This is the metric equivalent of the progress reporting required in the strategy section (Para 14(c)).
Para 36: Additional Disclosures for GHG Emissions Targets
For each GHG emissions target specifically, five additional disclosures are required:
- (a) Which greenhouse gases are covered: All seven, or a subset?
- (b) Which scopes are covered: Scope 1 only? Scope 1+2? Scope 1+2+3?
- (c) Gross or net: A critical distinction. If the target is net (meaning it accounts for carbon removal or credits), the entity must also disclose the associated gross target. A net-zero commitment cannot obscure the underlying emissions trajectory.
- (d) Sectoral decarbonisation: Whether the target uses a sector-specific decarbonisation pathway (for example, the Science Based Targets initiative's sectoral approach for cement or steel)
- (e) Planned use of carbon credits: If carbon credits will be used to achieve a net target:
- (i) The extent to which the net target relies on credits
- (ii) Which third-party scheme(s) will verify the credits
- (iii) Type of credit: nature-based (for example, forest conservation) vs technological (for example, direct air capture); reduction vs removal
- (iv) Credibility and integrity factors, including permanence assumptions
Carbon Credits: Application Guidance B70 to B71
The carbon credit disclosures in Para 36(e) are particularly demanding because the carbon credit market has significant quality variation. Investors need to know:
- Are the credits from a high-integrity scheme (Gold Standard, Verra VCS, ACR)?
- Are they nature-based (forests, wetlands, typically lower permanence) or technological (direct air capture, higher permanence but more expensive)?
- Do they represent emission reductions (stopping emissions from occurring) or removals (extracting CO2 already in the atmosphere)?
- What assumptions are made about permanence (for example, does the reforestation project assume the forest will exist for 100 years)?
B70 requires the disclosure to clearly demonstrate the extent of the entity's reliance on credits. Investors need to distinguish between a genuine operational decarbonisation strategy and a strategy that leans heavily on offset purchases.
Example GHG Target Disclosure:
"We have set a science-based target (validated by SBTi under the Corporate Net-Zero Standard) to reduce absolute Scope 1, 2, and 3 GHG emissions by 50% by 2030 and 90% by 2050, both vs our 2019 baseline of 4.2 million tCO2e.
This is an absolute target (not intensity-based). Our 2030 target has interim milestones of 25% by 2025 and 40% by 2028. The remaining 10% (approximately 420,000 tCO2e by 2050) will be addressed through high-quality permanent carbon dioxide removal credits from direct air capture, representing less than 10% of our cumulative emissions reduction pathway.
Progress 2024: Scope 1+2 reduced 18% vs 2019 baseline (on track for 25% by 2025). Scope 3 baseline established for the first time this year at 3.1 million tCO2e."
Key Takeaways
- 1Eight elements are required for every climate target: metric, objective, scope of entity covered, period, base year, milestones, absolute vs intensity, and Paris Agreement alignment
- 2GHG targets require five additional disclosures: gases covered, scopes covered, gross vs net basis, sectoral decarbonisation pathway use, and planned carbon credit reliance
- 3Net GHG targets must always be accompanied by gross targets to prevent offset-heavy strategies from obscuring actual emission trajectories
- 4Carbon credit disclosures must cover the verification scheme, credit type (nature-based vs technological, reduction vs removal), and permanence assumptions
- 5Annual progress reporting (Para 35) against each target creates year-over-year accountability that investors can track and compare across entities