Physical risks from climate change | IFRS S2

Climate-related risks include both:

• Physical risks
• Transition risks

Climate-related physical risks are defined by IFRS S2 as being: "Risks resulting from climate change that can be event-driven (acute physical risk) or from longer-term shifts in climatic patterns (chronic physical risk).

• Acute physical risks arise from weather-related events such as storms, floods, drought or heatwaves, which are increasing in severity and frequency.
• Chronic physical risks arise from longer-term shifts in climatic patterns including changes in precipitation and temperature which could lead to sea level rise, reduced water availability, biodiversity loss and changes in soil productivity.

These risks could carry financial implications for an entity, such as costs resulting from direct damage to assets or indirect effects of supply-chain disruption. The entity's financial performance could also be affected by changes in water availability, sourcing and quality; and extreme temperature changes affecting the entity's premises, operations, supply chains, transportation needs and employee health and safety."

IFRS S2 standard and other reference documents

Click here.