The ISSB’s IFRS S2 Climate-related Disclosures standard has fundamentally changed what regulators and investors expect from organisations when it comes to climate risk. For internal auditors, IFRS S2 represents both a new audit frontier and an urgent capability imperative. Understanding how to audit climate risk — from physical hazard assessment through to Scope 1, 2, and 3 greenhouse gas (GHG) emissions verification — is no longer optional for audit functions serving organisations with meaningful climate exposure.

In the Caribbean, that means virtually every organisation of scale. A region defined by coastal assets, tourism-dependent revenues, agriculture, and deep integration with global supply chains faces climate physical and transition risks that are both immediate and material. IFRS S2 mandates that these risks be assessed, disclosed, and — increasingly — independently assured.

 

IFRS S2 at a Glance IFRS S2 requires organisations to disclose climate-related risks and opportunities across four pillars: Governance (board climate oversight), Strategy (climate impacts on business model and financial planning), Risk Management (climate risk identification and treatment processes), and Metrics and Targets (GHG emissions, climate targets, and progress). The standard incorporates the TCFD framework and is effective for annual periods beginning on or after 1 January 2024.

Pillar 1: Auditing Climate Governance

The first audit question under IFRS S2 is whether the board has adequate oversight of climate-related risks and opportunities. This is not a box-ticking exercise. The auditor must evaluate whether climate governance is substantive, informed, and consequential.

• Inspect board and committee minutes for evidence of substantive climate risk discussion — not merely acknowledgement of ESG as a broad theme.
• Assess whether board members have received climate literacy training or have access to external expertise. IFRS S2 requires disclosure of whether management’s climate competencies are assessed.
• Evaluate whether climate risk appears in the enterprise risk register with appropriate ownership and treatment plans.
• Confirm that management reporting to the board on climate risk is timely, quantified where possible, and action-oriented.

 

Pillar 2: Auditing Climate Strategy and Scenario Analysis

IFRS S2 requires organisations to assess how climate-related risks and opportunities affect their business model, strategy, and financial planning across short, medium, and long time horizons. Critically, it requires the use of climate scenario analysis — including scenarios consistent with limiting global warming to 1.5°C above pre-industrial levels.

 

Scenario Analysis Audit Procedures

1. Obtain the organisation’s climate scenario analysis documentation. Confirm scenarios are sourced from credible, published bodies (IEA, IPCC, NGFS).
2. Assess whether both physical risks (acute events such as hurricanes; chronic changes such as sea level rise) and transition risks (regulatory, market, technology, reputational) have been evaluated.
3. Evaluate the time horizons applied. Are they appropriate to the organisation’s business model and asset life? Caribbean organisations should specifically assess hurricane intensification and rainfall pattern risks over 10-30 year horizons.
4. Confirm that scenario analysis outputs have been connected to financial planning — capital expenditure, insurance strategy, asset valuation assumptions.
5. Assess whether the scenario analysis has been reviewed by the board or relevant committee and whether its findings have been reflected in the sustainability disclosure.

 

Caribbean Physical Risk Focus Caribbean organisations must pay particular attention to: (1) Sea level rise and coastal asset exposure — material for hotels, ports, and coastal infrastructure; (2) Hurricane intensification — Category 4-5 storms are projected to increase in frequency; (3) Drought and water stress — material for agriculture, manufacturing, and hospitality sectors; (4) Coral reef degradation — material for tourism-dependent economies. IFRS S2 scenario analysis should explicitly address these regional physical risk vectors.

Pillar 3: Auditing GHG Emissions (Scope 1, 2 & 3)

GHG emissions verification is the most technically intensive component of climate audit. IFRS S2 requires organisations to disclose their Scope 1, Scope 2, and (where material) Scope 3 emissions in accordance with the GHG Protocol Corporate Standard. The auditor must evaluate both the completeness and accuracy of reported figures.

 

Scope	Definition	Audit Procedures
Scope 1	Direct emissions from owned/controlled sources (fuel combustion, fleet, process emissions)	Obtain fuel purchase records and fleet logs. Apply current IPCC emission factors. Recalculate reported figures independently. Verify completeness of emission sources.
Scope 2	Indirect emissions from purchased electricity, heat, steam	Obtain utility invoices for full reporting period. Confirm emission factor used (market-based vs location-based). Verify against utility invoices. Assess renewable energy certificate (REC) treatment.
Scope 3	All other indirect emissions in the value chain	Confirm which of the 15 GHG Protocol Scope 3 categories are included. Assess materiality basis for exclusions. Evaluate estimation methodology for included categories. Verify supplier data quality where used.

Common Scope Emissions Audit Findings

• Emission factors not updated to current IPCC AR6 values, resulting in systematic understatement.
• Scope 2 figures using location-based factors without disclosure that market-based factors are not reported, as required by the GHG Protocol.
• Scope 3 Category 1 (purchased goods and services) excluded without documented materiality rationale.
• Business travel emissions (Scope 3 Category 6) excluded despite significant international travel volumes.
• Inconsistent reporting boundaries year-on-year without disclosure or restatement of prior year comparatives.

 

Pillar 4: Auditing Climate Metrics and Targets

IFRS S2 requires organisations to disclose climate-related targets, progress against those targets, and the key performance indicators used to manage climate risk. The auditor evaluates whether targets are credible, measurable, and honestly reported.

• Are targets absolute (tonne reductions) or intensity-based (emissions per unit of output)? Both are permissible, but intensity-based targets can mask absolute emission increases. Assess whether the type of target is appropriate and clearly disclosed.
• Is there a documented baseline year and baseline emissions figure? Confirm the baseline is consistent with the current reported figure for that year.
• Are interim milestones disclosed? IFRS S2 requires disclosure of milestones used to achieve long-term targets.
• Has progress against targets been independently verified? If so, obtain the verification statement and assess its scope and assurance level.

 

Audit Alert: Net Zero Claim Scrutiny Organisations claiming ‘net zero’ or ‘carbon neutral’ status face heightened audit and regulatory scrutiny globally. Auditors should evaluate: whether carbon offsets used are credible and certified (Gold Standard, Verra VCS); whether the organisation distinguishes between gross emissions reductions and offset-achieved net zero; and whether the net zero claim is accompanied by a credible Science Based Target (SBT). Unsubstantiated net zero claims represent significant greenwashing risk.

Dawgen Global is a multidisciplinary professional services firm serving the Caribbean region. DESGAF™ is Dawgen Global’s proprietary ESG assurance methodology anchored in IFRS S1/S2, GRI Standards, ISO 31000, ISO 14001, and ISO 45001.

 

Partner with Dawgen Global for ESG Assurance Dawgen Global’s DESGAF™ specialists provide comprehensive ESG internal audit support — from governance reviews and controls testing to data verification and disclosure assurance across the Caribbean. Request a Proposal Today Email: [email protected]  |  Tel: +1 (876) 929-3670  |  +1 (876) 665-5926  |  US: 1-855-354-2447 www.dawgen.global  —  Big Firm Capabilities. Caribbean Understanding.

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