IFRS S2 Climate Disclosures Kenyan Firms Must Make From 2027

COP31 opened in Antalya, Türkiye, on 9 November, and for the next two weeks governments will argue about climate finance and emissions targets. For many Kenyan companies, the climate commitment that will cost them the most work is closer to home. From the 2027 financial year, public interest entities in Kenya must report under IFRS S2, the international standard for climate-related disclosure. It asks a company to explain, in its annual reporting, how climate change could affect its business and what it is doing about it, with numbers an auditor can check.

The sustainability conversations we have had with Kenyan finance and risk teams since 2019 tend to begin with the report and end with the data. Teams can describe their climate risks in a paragraph, but few can say what their fuel use was last quarter, by site, with a receipt behind each figure. IFRS S2 is mostly a test of the second skill.

This article covers what the standard requires, who must report and when, where Kenyan companies are least ready, and what to do before the first reporting year begins.

What IFRS S2 Requires

IFRS S2 Climate-related Disclosures is a reporting standard issued by the International Sustainability Standards Board (ISSB), the body that sits alongside the board that writes IFRS accounting standards. It requires a company to disclose the climate-related risks and opportunities that could reasonably be expected to affect its prospects, meaning its cash flows, its access to finance or its cost of capital, over the short, medium or long term.

The standard sorts climate-related risks into two kinds:

• Physical risks come from the climate itself: floods, droughts, heat and changing rainfall that damage assets, interrupt supply or cut demand.
• Transition risks come from the shift to a lower-carbon economy: new regulation, carbon pricing, changing technology and customers who buy differently.

IFRS S2 sits beside IFRS S1, the general standard for sustainability disclosure. S1 sets the rules every sustainability disclosure follows; S2 sets the specific requirements for climate. A company applying S2 applies S1 too.

IFRS S2 groups its requirements into four areas. Each answers a question an investor or lender would ask.

1. Governance

Who in the company oversees climate-related risks and opportunities, and how. The disclosure covers the board or committee responsible, how its mandate is written, how often it is briefed, whether it has the skills to oversee the work, and whether any executive pay is linked to climate targets.

2. Strategy

The company identifies the climate-related risks and opportunities that could affect its prospects, explains where they sit in its business model and value chain, and sets out its response, including any transition plan. It then discloses the effect on its financial position, performance and cash flows, both now and as it expects them to change. Finally, it reports on climate resilience, which is where scenario analysis comes in.

3. Risk management

How the company identifies, assesses, prioritizes and monitors climate-related risks, and whether those processes are part of its overall risk management. A climate risk register kept by the sustainability team, separate from the enterprise risk register the board reviews, is the arrangement this section is designed to expose.

4. Metrics and targets

The numbers. IFRS S2 sets seven cross-industry metric categories that every company considers: greenhouse gas emissions; assets and business activities exposed to transition risks; those exposed to physical risks; those aligned with climate-related opportunities; capital spent on climate risks and opportunities; any internal carbon price; and the share of executive pay linked to climate. Industry-based metrics come on top, drawn from guidance built on the SASB Standards, so a bank, a cement maker and a tea exporter report different measures. Every target the company has set must be disclosed with its metric, base year, period and progress.

Who Must Report in Kenya and When

The Institute of Certified Public Accountants of Kenya (ICPAK) adopted the IFRS sustainability standards and published a phased national roadmap. Each date is the start of the first accounting period the rule covers:

• 1 January 2027: public interest entities. ICPAK's 2026 advisory lists companies listed on the Nairobi Securities Exchange, commercial banks, insurers, retirement benefit schemes, fund managers and collective investment schemes, deposit-taking SACCOs, and large state corporations that report under IFRS.
• 1 January 2028: large private companies. A company counts as large if it exceeds two of three thresholds: KSh 100 million in annual turnover, KSh 250 million in total assets or 250 employees.
• 1 January 2029: smaller private companies.
• 1 July 2028: government organizations that report under IPSAS, through the public-sector climate standard.

For a public interest entity with a calendar year, the first IFRS S2 report covers January to December 2027 and is published in 2028. The data behind it is collected from 1 January 2027. The advisory also requires each public interest entity to submit a readiness assessment to ICPAK before it publishes its first report.

The first year comes with reliefs. The ISSB's transition rules, which ICPAK's roadmap restates, let a company report on climate alone in its first year, leave out Scope 3 emissions from its value chain, skip comparative figures for the prior year and publish its sustainability disclosures up to nine months after the year end. None of them moves the start date.

Climate Scenario Analysis for Kenyan Companies

IFRS S2 requires a company to use climate-related scenario analysis to assess the resilience of its strategy and business model. A scenario is a plausible description of how the future might unfold, such as a world where carbon is priced heavily and quickly, or one where emissions stay high and physical damage grows. The analysis asks how the business would fare in each.

The standard does not demand a climate model. It asks for an approach "commensurate with the entity's circumstances", using information available at the reporting date without undue cost or effort. A large bank with a loan book exposed to agriculture is expected to do more than a mid-sized manufacturer, and a first attempt can be qualitative.

For most Kenyan companies, the honest starting point is physical risk, because the evidence is recent. Between 1 March and 16 May 2024, heavy rains and floods killed 291 people and displaced 278,380, according to the UN humanitarian office's update, which also counted more than a thousand small businesses affected. A company with warehouses in Nairobi's flood plains, a supply chain running through Tana River or smallholder suppliers in drought-prone counties already has the first lines of its scenario analysis. What it usually lacks is the step that turns those events into money: how many days of lost sales, how much higher an insurance premium, how much a loan's collateral is worth after the next flood.

Transition risk looks different for Kenyan companies than for the European firms most guidance is written for. The exposure is less often a carbon tax at home and more often a buyer abroad: an export customer asking for the emissions of each shipment, or a lender pricing a loan against a climate score.

Scope 1, 2 and 3 Emissions Under IFRS S2

IFRS S2 requires a company to disclose its absolute gross greenhouse gas emissions for the year, in tonnes of carbon dioxide equivalent, in three scopes:

• Scope 1 covers emissions from sources the company owns or controls: its generators, boilers, vehicles and processes.
• Scope 2 covers emissions from the electricity, steam or heat it buys. IFRS S2 asks for the location-based figure, which uses the average emissions of the grid the company draws from.
• Scope 3 covers everything else in the value chain, from purchased goods and business travel to the use of the products sold. For banks, insurers and asset managers it includes financed emissions: the emissions of the businesses they lend to and invest in.

Measurement follows the Greenhouse Gas Protocol's corporate standard unless a jurisdiction requires another method. ICPAK's advisory points Kenyan companies to the IPCC, IEA and UK government emission factor databases where local factors are missing.

Here Kenya has an unusual advantage. Renewable sources generated 81% of the country's grid electricity in the year to June 2026, according to the Energy and Petroleum Regulatory Authority, with geothermal alone supplying 41%. A Kenyan office or factory running on the grid will report a small Scope 2 figure, which shifts attention to the diesel generator in Scope 1 and the supply chain in Scope 3.

The ISSB amended the emissions requirements in December 2025, and the changes apply from 1 January 2027, the same date Kenya's first reporting year begins. The amendments let financial institutions limit the investment category of Scope 3 to the emissions of their loans and investments, leaving out derivatives, and allow a measurement method that a local regulator or stock exchange requires. Kenyan banks, which have worked under the Central Bank of Kenya's climate risk guidance since 2021, should read them before setting up their financed emissions calculation.

Where Kenyan Companies Are Least Ready

ICPAK's 2026 readiness report scored 385 public interest entities against a checklist of 49 IFRS S1 and S2 disclosure items, each on a scale of 0 to 4. The climate-specific items sit at the bottom. Climate scenario analysis averaged 1.17, the details of greenhouse gas targets 1.18 and industry-based metrics 1.15. Internal carbon pricing was the weakest item of all, at 0.83.

ICPAK's own reading is that "quantification, rather than intent, is the binding constraint". Companies have started naming who oversees climate risk, but they have not yet built the emissions inventories, target tracking and financial estimates the standard depends on. A board can approve a climate governance structure in one meeting. An emissions inventory that survives an auditor takes a full year of clean data.

How to Prepare for Your First IFRS S2 Report

For a public interest entity with a calendar year, the reporting period starts on 1 January 2027. These five steps are the ones that cannot wait until the year is under way.

1. Name the owners

Decide which board committee oversees climate, write it into its terms of reference and schedule its briefings for 2027. Then name one executive accountable for the report and one data owner for each emissions source. The governance disclosure will describe whatever is in place during the year, so it has to be in place in January.

2. Build the emissions inventory

List every source of Scope 1 and 2 emissions: generators, boilers, vehicles, refrigerants, purchased electricity. For each, decide where the activity data will come from, such as fuel invoices, fleet cards or utility bills, and how it will be checked. Start Scope 3 now as well, even though the first year is relieved: it will be required in the second year, and its data comes from suppliers who need time.

3. Decide what is material

Identify the climate-related risks and opportunities that could reasonably affect your cash flows, financing or cost of capital, and check the industry-based metrics for your sector. A tea exporter's list will differ from a bank's. This is also the list your scenario analysis will test.

4. Run a first scenario analysis

Take two or three scenarios, at least one with severe physical damage and one with fast transition, and ask what each would do to your largest sites, suppliers and customers. A qualitative first round is acceptable under the standard. A financial estimate for the two or three largest risks is what makes it useful.

5. Bring in the assurer early

ICPAK's advisory phases assurance in for public interest entities: limited assurance from 2028, reasonable assurance excluding Scope 3 from 2029 and full reasonable assurance from 2030. Agree with your assurance provider now how each figure will be evidenced, so the controls are designed in rather than reconstructed.

Three Common IFRS S2 Mistakes

Treating it as a reporting project

When the work sits with whoever writes the annual report, it produces well-written paragraphs and thin numbers. The disclosures describe how the business runs, so the data has to come from operations, procurement and finance. The cure is to staff it as a finance and operations project with a reporting deadline.

Waiting for the first-year reliefs to run out

The Scope 3 relief lasts one year. Comparative figures are needed from the second report, and assurance arrives in 2028. A company that does nothing on Scope 3 in 2027 starts its second year with no supplier data and an assurer waiting. Use the relief year as a rehearsal, not a holiday.

Copying another company's risk list

Generic climate risks, such as "extreme weather may disrupt operations", say nothing an investor can use. The standard asks where each risk sits in your business model and value chain and what it could cost. Name the site, the supplier, the product line and the period.

Frequently Asked Questions

Conclusion

IFRS S2 asks a simple question: what could climate change cost this business, and is anyone managing it? The answer goes into the annual report, and an auditor will soon check it.

Take your largest site. If the 2024 floods came back next April, could your finance team say within a week what the closure cost, in shillings, and where that figure would appear in your 2027 report?

If that answer would take longer than a week, our Strategic Planning program can help your board and executive team set up the oversight, ownership and data work before the first reporting year begins. Request a proposal and we will start from the climate risks you already know about.