Once climate risks are identified, IFRS S2 requires disclosure of how they actually affect operations: which parts of the business are exposed, what actions the entity is taking, and how it is allocating resources. Paragraphs 13 and 14 translate risk identification into strategic response.
Listen to this lesson (podcast-style overview)
Effects on Business Model and Value Chain (Para 13)
Paragraph 13 requires two specific disclosures:
- (a) Description of current and anticipated effects on the entity's business model and value chain. This means explaining not just that the entity faces climate risks, but where in its operations those risks manifest and how they affect the way the business creates value.
- (b) Where risks and opportunities are concentrated, specifically:
- Geographical areas (for example, operations in flood-prone regions, water-stressed locations)
- Facilities (for example, a single manufacturing site that accounts for 60% of production)
- Asset types (for example, coastal real estate, long-lived fossil fuel infrastructure)
This concentration information is particularly important to investors because it reveals whether climate risks are diffuse (many small exposures) or concentrated (a few critical vulnerabilities).
Example: A global food and beverage company discloses:
"Climate risks are concentrated in three areas of our value chain: (1) Agricultural sourcing: 40% of our raw materials are sourced from regions facing chronic water stress (Brazil, sub-Saharan Africa), with a long-term risk to supply availability and cost. (2) Manufacturing: four of our twelve production sites are located in coastal areas of South-East Asia with elevated flood risk. These sites account for 35% of global production volume. (3) Cold chain logistics: rising ambient temperatures increase refrigeration costs and failure risk across our distribution network, particularly in markets where we do not own our logistics infrastructure."
Strategy and Decision-Making (Para 14)
Paragraph 14 is the most demanding part of the strategy section. It requires disclosure of how the entity responds to climate risks and opportunities, both what has already been done and what is planned.
(a) How the Entity Has Responded
Para 14(a) requires description of current and anticipated changes across four areas:
- (i) Changes to the business model: Including changes to resource allocation, how carbon-intensive or energy-intensive or water-intensive operations are managed, and planned acquisitions or divestments driven by climate considerations
- (ii) Direct mitigation and adaptation: Changes to production processes, relocation of facilities or operations, workforce adjustments, changes to product specifications to reduce emissions or increase resilience
- (iii) Indirect mitigation and adaptation: Working with customers and suppliers to reduce emissions or build resilience across the value chain
- (iv) Climate-related transition plan: If the entity has a transition plan, it must be disclosed, including key assumptions and dependencies
- (v) How the entity plans to achieve climate-related targets: Including GHG emissions targets, with reference to the Metrics and Targets section
(b) Resourcing
Para 14(b) requires disclosure of how the entity is resourcing the activities described in 14(a). This answers the question: is the strategy funded?
Investors need to know whether climate commitments are backed by capital allocation, staffing, and operational plans, or are aspirational statements without resource backing.
(c) Progress on Prior Plans
Para 14(c) requires quantitative and qualitative information about progress on plans disclosed in prior periods. This creates accountability over time. An entity cannot announce new plans each year while quietly abandoning previous commitments.
| Para 14 Requirement | What Investors Are Assessing |
|---|---|
| 14(a)(i) Business model changes | Is the entity restructuring to reduce climate exposure? |
| 14(a)(ii) Direct mitigation | What specific operational actions are being taken? |
| 14(a)(iii) Indirect mitigation | Is the entity engaging its supply chain and customers? |
| 14(a)(iv) Transition plan | Is there a credible plan with targets and dependencies? |
| 14(b) Resourcing | Are commitments backed by capital and people? |
| 14(c) Progress | Is the entity delivering on prior commitments? |
Para 14 is like asking a company to explain its turnaround plan. Anyone can say "we face challenges." The interesting disclosure is: what specifically are you doing about it? What have you already done? Are you funding the response? And are last year's promises still on track? IFRS S2 requires this level of specificity for climate strategy, the same level of detail a board would expect in a strategic review presentation.
Illustrative CRO Disclosure: From Risk to Financial Impact
The most informative strategy disclosures present climate-related risks and opportunities with a clear narrative linking the risk description, its current and anticipated financial effects, and the entity's strategic response. The following example illustrates this structure for a physical risk and a climate-related opportunity, as applied by an electricity generation and transmission company.
Physical Risk: Weather events disrupt electricity transmission
Risk description: An increase in the frequency and severity of extreme weather events (storms, floods, heatwaves) could damage critical infrastructure, disrupting operations. High-voltage transmission corridors in three areas are particularly vulnerable: Area A (15% of the operations network) due to bushfire and flood risk; Area B (7%) due to cyclone risk causing pole collapses and conductor damage; Area C (5%) due to heatwaves causing transformer capacity and line sag issues.
Current financial effects: Recent storms and flooding in one region caused temporary shutdowns of high-voltage lines, triggering emergency repairs, power rerouting, and delays to grid upgrades. This resulted in operational costs of approximately CU15m in the reporting year. Insurance deductibles related to weather claims added a further CU3m.
Strategy: The company is (1) reinforcing transmission towers and poles to better withstand extreme weather as part of a broader network hardening programme expected to require capital investment of CU40-60m over the next five years, (2) integrating climate-related risks into the asset planning and investment frameworks with dedicated capital allocation and cross-functional teams, and (3) deploying smart grid technologies to improve system flexibility, with total estimated costs of CU20-50m and installation underway at five of nine planned sites.
Anticipated financial effects: The company estimates that in a severe weather event year, up to three sites (representing 15% of combined annual turnover) could be closed for up to 3 months due to prolonged outages and disruptions. Insurance premiums are expected to increase by approximately 12-15% from a baseline of CU3m per annum.
Opportunity: Support customer decarbonisation through renewable energy expansion
Opportunity description: Electrification across transport, industry, and buildings will significantly increase electricity demand, presenting a strategic opportunity to expand the renewable supply, supporting customer decarbonisation and driving long-term revenue growth. This opportunity is mainly concentrated in the downstream part of the value chain.
Current financial effects: In 2025, the company redirected CU12m to support the research, development, and implementation of low-carbon generation technologies and grid solutions, representing 17% of the investment budget.
Strategy: The company plans to invest CU40-60m over the next five years in new equipment and technology, enabling the future deployment of low-carbon technologies, products, and services. The company evaluated the benefits of strengthening grid resilience while also capturing long-term growth opportunities, and decided to allocate capital to both areas simultaneously.
Anticipated financial effects: With carbon prices projected to rise by 30-70% by 2030 under current policy trajectories, alongside expanding regulatory support and growing consumer demand, the company anticipates revenue growth of 5-10% per annum by 2027 from renewable energy offerings. Longer-term growth from increased electrification is expected, with potential retail market share expansion of 5%.
This structure, moving from risk description through current financial effects, then strategy, then anticipated financial effects, directly satisfies paragraphs 13 and 14 together. It also provides the financial information required by paragraphs 15 to 21, creating a connected disclosure.
Key Takeaways
- 1Para 13 requires disclosure of where climate risks are concentrated - by geography, facility, and asset type - revealing whether exposure is diffuse or critically concentrated
- 2Para 14(a) demands specifics on how the entity has responded: business model changes, direct and indirect mitigation, transition plans, and target achievement strategies
- 3Para 14(b) requires disclosure of how climate strategy is resourced - commitments without capital allocation, staffing, and operational plans are aspirational, not strategic
- 4Para 14(c) creates year-on-year accountability by requiring quantitative and qualitative progress reporting on plans disclosed in prior periods
- 5Investors assess whether climate responses are funded, specific, and tracked - not just whether they have been announced