What changes in Year 2 of climate reporting?

The first year of mandatory climate reporting was largely about answering one question:

"Can we do this?"

For many organisations, the answer was yes, but not without significant effort.

Year 2 introduces a different set of questions.

What would we do differently this year? Where were the gaps? Which disclosures created the greatest challenges? What information do stakeholders want to better understand? And how can reporting become more useful, rather than simply more compliant?

The organisations we are working with are treating Year 2 as an opportunity to refine and strengthen their approach, rather than as a repeat of Year 1.

Year 2 is less about implementation and more about improvement.

Year 2 should not feel like starting again

One of the biggest misconceptions about second-year climate reporting is that organisations need to repeat the work undertaken in Year 1.

In reality, most of the foundations should already be in place. Governance structures have been established, reporting processes developed, climate-related risks and opportunities identified, and initial disclosures prepared. The focus in Year 2 shifts from building capabilities to strengthening them. This introduces some different questions to those asked in Year 1.

That does not mean the work becomes easier. Rather, the questions become different.

Instead of asking whether processes exist, organisations are assessing whether those processes are producing useful outcomes. Where were the data gaps? Which disclosures required the greatest degree of judgement? Which assumptions proved difficult to support? What information would be more valuable to investors, Boards or management teams?

The most mature organisations are using these questions to refine and strengthen their reporting rather than treating each reporting cycle as a standalone exercise.

Forward-looking disclosures are likely to receive more attention

The real test of climate reporting is rarely a review of historical data; instead, it looks at what organisations believe could happen next.

Many organisations found governance and risk management disclosures relatively straightforward to prepare in Year 1 because they were based on existing structures and processes. Strategy-related disclosures, anticipated financial impacts and other forward-looking information often proved more challenging because they relied on assumptions, estimates and judgement.

The quality of these disclosures often depends less on process and more on the assumptions and judgement underpinning them. How assumptions have been developed, whether climate-related risks and opportunities have been appropriately assessed, and how conclusions are supported by available evidence are becoming increasingly important.

Year 2 provides an opportunity to revisit these disclosures with the benefit of experience and a clearer understanding of what information users find most valuable.

Quantification becomes harder to avoid

Stakeholders are now interested in understanding the potential financial implications of climate-related risks and opportunities.

This does not mean every climate-related risk or opportunity should be quantified. However, organisations should expect greater scrutiny of how identified risks and opportunities could influence future performance, financial position or cash flows.

The second reporting cycle creates space to assess earlier assumptions, improve underlying data and develop a more robust understanding of climate-related financial effects.

Year 2 is where Scope 3 gets interesting

Scope 3 emissions were one of the steepest learning curves of the first reporting cycle.

Organisations were often required to navigate unfamiliar data sources, engage with suppliers for the first time, and make significant use of estimates and proxies to understand emissions across their value chain.

By Year 2, the conversation starts to change.

The focus shifts from producing an initial estimate to improving the completeness, consistency, and confidence in the reported data. This may involve revisiting methodologies, strengthening engagement with suppliers, improving data collection processes, or reassessing areas where significant estimates were used in the first reporting cycle.

In many cases, the Scope 3 process shines a light on supplier dependencies, emissions hotspots, procurement risks and potential decarbonisation opportunities that were not previously visible. What began as a reporting requirement can quickly become a source of business insight. Some organisations are identifying supplier concentration risks, opportunities to engage key suppliers on emissions reduction, and areas where procurement strategies may need to evolve.

This is where some of the real value emerges. As organisations become more familiar with their value chain emissions profile, Scope 3 information can help inform target setting, transition planning, supplier engagement and broader risk management decisions.

Few organisations will eliminate every estimate or uncertainty in Year 2, nor should that be the objective. The more meaningful measure of progress is whether the organisation has improved the quality of its information and strengthened its understanding of value chain impacts.

Climate reporting becomes a continuous improvement exercise

Perhaps the most important shift between Year 1 and Year 2 is mindset.

By the second year of reporting, organisations have a clearer understanding of where challenges lie and where effort should be focused.

Climate-related risks and opportunities continue to evolve, new information becomes available, and organisational priorities shift. As a result, climate reporting requires ongoing refinement rather than a static, set-and-forget approach.

This does not mean organisations should be rewriting their approach each year. Rather, Year 2 provides an opportunity to build on the foundations already established, strengthen areas that proved challenging and improve the quality of information available to decision-makers.

Over time, the organisations that derive the greatest value from climate reporting are likely to be those that view it as more than a compliance obligation. When reporting processes become embedded within governance, risk management and strategic planning, climate-related disclosures can provide insights that support better business decisions and organisational resilience.

Ultimately, the goal of Year 2 should not be to produce a more thorough report than Year 1. It should be to produce a better one.

How BDO can help

BDO's sustainability and corporate reporting specialists can help organisations evaluate lessons from their first reporting cycle and identify practical ways to improve data quality, strengthen disclosures and build reporting maturity in Year 2.