IFRS S2會計準則如何應用於B33 (IF-EN) 工程和建築服務業與B35 (IF-HB) 住宅建設業？How can the IFRS S2 accounting standards be applied to B33 (IF-EN) Engineering and Construction Services and B35 (IF-HB) Homebuilders?

How can the IFRS S2 accounting standards be applied to B33 (IF-EN) Engineering and Construction Services and B35 (IF-HB) Homebuilders?

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       IFRS (standing for The International Financial Reporting Standards) S2 Climate-related Disclosures was published by The International Sustainability Standards Board (ISSB) in June 2023. It plays a key role in the new frameworks that are designed to help businesses disclose financial risks and opportunities associated with climate. With the significant concentration on sustainability and climate change, the companies in the fields like B33 (IF-EN) Engineering and Construction Services and B35 (IF-HB) Homebuilders need to understand and apply these standards to maintain their competitiveness and compliance. In the zone of this research, we focus on exploring how to apply IFRS S2 Standards to these industries, and highlight its importance, pros and cons, implication, and the resilience in the future.

       IFRS S2 emphasizes the four-pillar framework of the Task Force on Climate-related Financial Disclosures (TCFD): Governance (How climate-related risks of a company are governed), Strategy (How climate-related risks and opportunities affect the business strategy and plan), Risk Management (Identifying and managing all climate-related risks), and Metrics and Targets (Key performance indicators and objectives for managing and declaring the climate-related risks). By providing the applicable and clear guidelines to identify and disclose the climate-related risks, IFRS S2 helps to maintain that the investors can have the consistent and comparable information to measure the differences in adapting to climate change that the companies among these industries including Construction Services and Homebuilders are doing.

       To understand how IFRS S2 can apply to B33 (IF-EN) Engineering and Construction Services and B35 (IF-HB) Homebuilders, first, let’s discover their identification. B33 (IF-EN) Engineering and Construction Services includes all the companies that have scope of large-scale infrastructure and construction projects such as traffic (bridges, roads), and commercial buildings (for example: Taipei 101). This kind of company often involves significant energy consumption, GHG emissions, and materials (sand, rocks, mental, etc). Next, B35 (IF-HB) Homebuilders are the companies that build and construct houses and apartments for residents. This kind of company recently has increased the concentration on sustainability, especially in energy-efficient homes, green building materials, and climate-resilient housing. Both kinds of industries are strongly affected by climate change, regulations toward climate, and consumer preference to sustainability. The application of IFRS S2 can help them to provide transparent information about their financial climate-related risks and strategies.

       In the B33 (IF-EN) Engineering and Construction Services industry, applying IFRS S2 relates to reporting the climate-related risks and opportunities during a project’s lifecycle, from material sourcing to building operations. One of the related risks is the climate-related physical risks. Companies have to disclose how to manage the risks such as: storms, floods, extremely hot weather which can directly affect the quality of infrastructure. For example, a construction company has to report how it ensures that new bridges or tunnels are resilient to future climate impacts such as huge floods, heavy rain, or super typhoons. The other risk that can be mentioned is the transition risk, which is reporting risks from shifts to low-carbon regulations and market demands. When the government tightens the regulations of GHG emission standards in infrastructure projects, the companies must have plans to decrease their carbon in time or they will get into troubles with regulations, which can lead to punishments. However, companies also can find some opportunities for growth when the demand for green buildings or energy-efficient infrastructure, which relates to emerging green energy policies and consumer preference.

       For Homebuilders, IFRS S2 disclosures will focus more on residential sustainability. One of them is energy-efficient housing. It focuses on reporting how the homebuilders plan to meet the more and more strict regulations about energy, such as using better insulation, installing solar panels on the roof of houses, or smart energy saving systems in their house constructions. Also, it allows the builders to report and disclose the climate-related physical risks associated with their projects. Floods, storms, and extreme heat are the key indicators that directly affect housing projects, therefore, homebuilding companies have to declare transparently and completely how their products can withstand these natural disasters, and keep customers safe in the context of climate change.

       There are several pros and cons when applying IFRS S2 Standards to B33 (IF-EN) Engineering and Construction Services and B35 (IF-HB) Homebuilders. One of the advantages of IFRS S2 is that it can increase the confidence of investors in the projects. By providing clear, accurate, and consistent information about climate-related risks and strategies, companies can build a tight trust with their investors. A transparent report shows that this company is proactive in managing climate risks, making it more attractive to the stakeholders who care about ESG. Also, IFSR S2 helps these companies to in time compliance to new regulations about climate change. After the Paris agreement at COP 21 in Paris about net zero emissions by 2050, governments around the world have enacted some strict regulations and rules to cut down GHG emissions to meet the global objective by 2050. Therefore, the companies that have applied IFRS S2 can almost meet  requirements from these regulations, and reduce the risks of being punished by governments. In addition, by identifying and addressing the climate-related risks early, companies can develop more resilient and efficient business models, and increase their competitive advantages in the market. For example, a construction company can avoid building houses at a risky location (high possibility of flood or landslide) by doing the climate change analysis.

       Along with benefits, applying IFRS S2 also has several challenges. One of them is the cost of compliance, particularly for small and medium businesses. Implementing these standards requires a significant investment in a new data collecting system, conducting analysis, and internal reporting mechanism to meet the disclosing requirements. It generates a heavy pressure and burden for the small and medium companies which do not have enough financial capacity, human resources, and infrastructure to handle it. Moreover, the remarkable complexity of reporting is a significant obstacle. Climate-related disclosures require long-term scenario analysis and accurate forecasting, which can be difficult, especially for companies without prior experience in sustainability reporting. This challenge is compounded by data availability issues, as many companies, particularly in construction, may struggle to gather reliable data from their supply chains, affecting the quality and completeness of their disclosures. Additionally, there is the risk of short-term market reactions to these disclosures. If companies reveal substantial climate-related risks, it could prompt negative reactions from investors, potentially leading to a drop in stock prices. This fear may disincentivize full transparency, as companies may be reluctant to disclose all the risks they face.

       In conclusion, IFRS S2 Standard is now one of the great tools for companies in B33 (IF-EN) Engineering and Construction Services and B35 (IF-HB) Homebuilders industries to perform their proactive reactions to climate change, which can help them meet the expectation of both ESG-considering investors and governments. However, widely applying it still has some challenges, which mainly relates to the significant financial burden and lack of internal resources from small and medium companies.