Climate risk disclosure

Climate risk disclosure is the process by which companies publicly report the risks and opportunities that climate change poses to their operations, value chain and long-term business model. It turns climate into a financial and strategic issue that investors, lenders, regulators and other stakeholders can assess.

Disclosures typically distinguish between several categories of risk:

• Physical risks: direct impacts of climate change, whether acute (floods, droughts, wildfires, storms) or chronic (rising sea levels, higher average temperatures, shifting rainfall).
• Transition risks: risks and opportunities arising from the shift to a low-carbon economy, including new climate policy and carbon pricing, technological change, evolving market and consumer preferences, and reputational effects.
• Liability risks: potential legal and financial exposure linked to a company's contribution to climate change or its failure to adapt.

The frameworks behind climate disclosure

The reference architecture for climate disclosure changed significantly in recent years. The Task Force on Climate-related Financial Disclosures (TCFD) defined the now-standard four-pillar structure (governance, strategy, risk management, and metrics and targets), but the Task Force was disbanded in October 2023 once its work was complete. Monitoring of corporate climate disclosure passed to the IFRS Foundation, and the TCFD recommendations have been fully incorporated into the standards of the International Sustainability Standards Board (ISSB).

The main references companies use today are:

• IFRS S2 Climate-related Disclosures, the ISSB standard that absorbs and builds on the TCFD recommendations, applied alongside the general standard IFRS S1.
• In the European Union, the Corporate Sustainability Reporting Directive (CSRD) and its climate standard ESRS E1, within the broader European Sustainability Reporting Standards (ESRS).
• The Global Reporting Initiative (GRI) for impact-oriented reporting, and the SASB standards, now maintained by the ISSB, for industry-specific financial materiality.

Climate risk disclosure is closely tied to climate risk assessment and, in the EU, to the double materiality logic of the CSRD.

Why climate risk disclosure matters

Robust disclosure benefits both companies and the wider market:

• Better decision-making: assessing climate risks and opportunities informs investment, mitigation and adaptation choices.
• Access to capital: investors increasingly screen for climate exposure, so transparent reporting can improve access to finance and lower the cost of capital.
• Stronger reputation: credible disclosure signals a genuine commitment to sustainability and builds trust.
• Regulatory readiness: as mandatory climate reporting spreads, companies with mature practices are better placed to comply.

The link with the carbon footprint

Measuring the carbon footprint is the quantitative foundation of climate disclosure. A reliable greenhouse gas inventory across Scope 1, Scope 2 and Scope 3 emissions lets a company identify its main emission sources, set credible reduction targets, gauge its exposure to transition risks such as carbon pricing, and communicate progress to stakeholders.

At Manglai we help companies measure their carbon footprint and prepare the climate data needed for IFRS S2 and CSRD reporting. Discover how Manglai can help you.