As climate change accelerates, physical climate risks, such as hurricanes, wildfires, sea level rise, and prolonged heatwaves, pose growing threats to global businesses and infrastructure. The International Sustainability Standards Board (ISSB) directly addresses these risks through its climate-related disclosure framework, particularly in IFRS S2: Climate-related Disclosures. Based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, IFRS S2 aims to provide clarity, consistency, and comparability in how companies report their exposure to and responses to physical climate risks.
At the core of IFRS S2 is the requirement for organizations to disclose both acute (event-driven) and chronic (long-term) physical risks. Acute risks include extreme weather events, such as floods, wildfires, and storms, while chronic risks involve ongoing changes, including sea level rise, desertification, and persistent temperature increases. Companies must assess how these risks impact their assets, operations, supply chains, and financial performance across the short, medium, and long term.
To ensure thorough risk analysis, ISSB requires the use of climate-related scenario analysis. This involves modeling future climate paths, such as SSPs (Shared Socioeconomic Pathways) or RCPs (Representative Concentration Pathways), to assess the resilience of businesses under varying climate conditions. These scenarios help companies understand their exposure, spot vulnerable assets, and develop adaptation plans accordingly.
The ISSB also emphasizes the integration of governance and risk management systems. Boards and executive leaders are expected to supervise the assessment and mitigation of physical climate risks. Companies must disclose how they identify, assess, and manage these risks within their enterprise risk management frameworks.
Quantification is just as important. IFRS S2 requires companies to report metrics and targets related to physical climate risk, such as the percentage of revenue or assets exposed to specific hazards, adaptation-related capital expenditures, or resilience investments.
By incorporating physical climate risk into its global sustainability standards, the ISSB is providing markets with the transparency and foresight needed to make informed decisions. Its framework not only boosts investor confidence but also encourages climate-resilient strategies in an increasingly unstable world.
Ready to get started? To learn more about how ClimaTwin can help you assess the physical and financial impacts of future weather and climate extremes on your infrastructure assets, capital programs, and investment portfolios, please visit www.climatwin.com today.
© 2025 ClimaTwin Corp. ClimaTwin® is a registered trademark of ClimaTwin Corp. The ClimaTwin logos, ClimaTwin Solutions™, Climate Risk Intelligence™, Future-proofing assets today for tomorrow’s climate extremes™, Mining the Future™, Powering the Future™, and Inhabiting the Future™ are trademarks of ClimaTwin Corp. All rights reserved.
###