Looking at S1, the general requirements standard, and the concept of sustainability — the first thing to know is that sustainability is not defined in S1. There's a description of sustainability, and that description comes from the Integrated Reporting Framework.

In S1, it's explained that the relationship an entity has with its stakeholders, the economy, the environment, and the society in which it operates affects its resources and relationships, and affects its ability to generate cash flows over the short, medium, and long term.

Essentially, what the ISSB standards do is provide a requirement for companies to explain how their value creation process is affected by those resources and relationships, and how that affects a company's ability to sustain its value for investors over time.

S2 sets out the specific disclosure requirements for an entity that has identified a climate-related risk or opportunity as being a sustainability risk or opportunity that could reasonably be certain to affect its prospects, in accordance with S1 — and we expect that to be most entities, if not all.

Now, looking at some of the specific areas of disclosure that S2 focuses on, I'd like to highlight three key areas: transition planning, climate resilience, and scope 1, 2, and 3 greenhouse gas emissions. Looking at those in turn:

Transition planning. We ask for information to enable investors to understand the transition risks a company is exposed to. A key part of the information asked for in S2 is information about the transition plans a company has in place — it may have chosen to set them itself, or it may have been required to set them by regulators or other public authorities. Either way, information needs to be provided to investors. A key disclosure we expect would be required as part of transition planning is an entity's carbon emission targets — what its greenhouse gas emissions targets are and how it plans to achieve them.

S2 asks for information about the targets that have been set — whether those are gross greenhouse gas emission targets or net greenhouse gas emission targets. Where they are net targets, if a company is using carbon credits, S2 asks that information be provided to explain the types of carbon credits an entity has purchased or is planning to purchase, and the features of those credits.

S2 is very neutral in this regard — we don't say what's a good or a bad transition strategy, we don't say whether it's good or bad to have a gross emissions target or a net one, and we don't say whether carbon credits are good or bad. We ask for information to be provided because investors want to understand what a company's targets are, to see whether they agree with the targets a company is setting, and whether they believe those targets are credible. S2 is designed to provide that information. So that's transition planning.

Climate resilience. S2 requires that a company provide information so that an investor is able to understand how resilient a company's strategy is to different climate scenarios. S2 requires that an entity uses climate-related scenario analysis to support those disclosures. We don't ask that the actual analysis be provided as part of the disclosures, but the assessment an entity makes about its resilience as a result of different strategies is what has to be provided to investors, along with information about the approach the company took to apply the scenario analysis. The idea here is to inform investors about the different potential paths and performance of a company and its strategy under different climate scenarios, reflecting the huge uncertainty about those outcomes.

Scope 1, 2, and 3 greenhouse gas emissions. Scope 1 emissions are those a company is itself directly emitting. Scope 2 results from the energy it purchases. Scope 3 covers the emissions in its value chain. We ask for that information to be provided whenever it is material for a company, and it's very important information — scope 3 information is, of course, very topical. The board decided that this was important information to be provided when material, because it really helps investors understand a company's transition risks.

If you have a lot of greenhouse gas emissions in your supply chain — either from your source materials or from the end use of your products — that can result in the need to change the business model. It may mean a regulator says you need to adjust the way you run your business, or that your customers feel differently about buying your products. Therefore, it affects future cash flows, because it affects the way a company is able to run its business — which is why scope 3 greenhouse gas emission information is such an important part of S2.

So we ask for information about the range of scope 3 categories in accordance with the GHG Protocol, and we ask for some very particular disclosures about financed emissions. This is a very important part of S2: for those with commercial banking activities, insurance activities, or asset management activities, we ask for more disaggregated information about the greenhouse gas emissions associated with their investing and lending activities. We ask for incremental information — not just about the greenhouse gas emissions resulting from that financing or investment activity, but also the industries to which they are lending or providing funding. This is a very important area of information, including for prudential regulatory purposes, which is why it is part of the mandatory disclosure requirements in the body of S2. Again, if it's material, it has to be provided by those undertaking those activities.

One of the most important pieces of feedback we received in response to our exposure drafts was the idea that we needed to ensure our standards were capable of being applied around the world, irrespective of the circumstances of particular companies. We often refer to this as proportionality and scalability, and this has been a very particular consideration throughout our redeliberations — it's really evident in S2. There are two really important ideas we've included in S2 to assist in this regard.

The first is the notion of what is possible for a company to do without undue cost and effort, using reasonable and supportable information. This has been included in areas of S2 where there's a high degree of measurement uncertainty — for example, in the measurement of greenhouse gas emissions, but also when it comes to identifying the climate-related risks and opportunities a company is subject to. That is informed by what information is available to a company that is reasonable and supportable, and available without undue cost and effort.

Now, what's really important to know about that phrase is that we didn't make it up — it's one we've borrowed from our sister board, the IASB, and it's used in a number of their more recent standards where there is measurement uncertainty. These are established concepts that we thought would be helpful for companies familiar with the IFRS Accounting Standards to use and build on.

What it means is that a company needs to have a basis for what it's doing — it can't be a back-of-the-envelope exercise. It needs evidence and support for the information being used; it has to be reasonable and supportable, and available without undue cost and effort. Now, that doesn't mean a company doesn't have to make any effort — there are benefits in the information that need to be considered, so the effort needs to be proportionate to the benefits for users of the information. But it does mean a company doesn't have to undertake an exhaustive search. If information is already being used for reporting processes or management purposes, then it would be reasonable to consider that as a source of information.

So you do have to think about what is available, and you need to do something that is reasonable — but what is applicable does depend on the resources, capabilities, skills, and experience of the company, so judgement needs to be applied to consider what is appropriate given a company's facts and circumstances. What we've tried to emphasise throughout our standards is that what we expect in the early years of application will be different from what we expect in later years. We expect the market and entities to gain more experience and improve over time, and that concept is really built into the standards. So "reasonable and supportable without undue cost and effort" is something you will see in many places in S2.

The other important idea you'll see in S2, also designed to help with this idea of proportionality and scalability, is the notion of what might be appropriate given a company's skills, resources, and experience. This is used in two places in S2 to switch what's required from a more quantitative ask to a more qualitative requirement.

The first is in relation to providing information about the anticipated effects on the financial statements of a company's climate-related risks and opportunities. Where possible, that should be provided on a quantitative basis, but if that's not feasible given a company's skills, resources, and experience, then a qualitative disclosure is allowed under S2.

The other place where this notion of skills, experience, and resources comes into play is in scenario analysis. As I said earlier, a range of different approaches can be considered scenario analysis, and that's acknowledged in S2. But we ask that the approach a company takes — whether it's a more qualitative form of scenario analysis to support its climate resilience disclosures, or something more sophisticated and quantitative — should be commensurate with the company's circumstances. What's commensurate is based, in part, on the skills, experience, and expertise of a company, and also the extent of its climate exposure.

If you're a well-resourced company with a lot of climate risk, and you've been thinking about climate resilience for many years, we would expect more of you — a more quantitative form of scenario analysis — than we would of a smaller company that's just starting its journey on sustainability reporting and beginning to think about climate risk. That proportionality, or scalability, is built into the scenario analysis requirements included within S2.