AASB S2 scenario analysis is the tool an entity uses to assess its climate resilience under paragraph 22. The entity discloses how it carried out the analysis, the scenarios and inputs used, and what the results mean for its strategy and business model.
Key points
- Required under paragraph 22 to assess climate resilience
- AASB S2 does not prescribe the number of scenarios or temperature outcomes
- The Corporations Act requires at least a 1.5°C scenario and a scenario well exceeding 2°C
- Disclose whether a scenario aligned with the Paris Agreement was used
- Scenario analysis statements are protected for financial years beginning 1 January 2025 to 31 December 2027
What AASB S2 itself requires
The standard does not prescribe a number of scenarios or particular temperature outcomes. It requires an approach commensurate with the entity’s circumstances, taking account of its exposure to climate-related risks and opportunities and the skills, capabilities and resources available to it (paragraphs B1 to B18). The entity must also disclose whether its scenarios include one aligned with the latest international agreement on climate change, which AASB S2 specifies as the Paris Agreement (paragraph 22(b)(i)(4)).
What must be disclosed about the analysis
Paragraph 22(b) asks for the scenarios used and their sources, whether they cover transition risks, physical risks or both, the time horizons and scope of operations covered, the key assumptions made about policy, macroeconomic trends, regional variables, energy use and technology, and the reporting period in which the analysis was carried out. Climate resilience is disclosed at every reporting date, but the analysis itself may be carried out in line with the entity’s strategic planning cycle, for example every three to five years (paragraph B18).
What the Corporations Act adds
| Scenario | Requirement |
|---|---|
| 1.5°C | An increase in global average temperature of 1.5°C above pre-industrial levels |
| Well exceeding 2°C | An increase in global average temperature well exceeding 2°C above pre-industrial levels |
These two scenarios are the minimum for entities reporting under Chapter 2M. ASIC explains the requirement at RG 280.99. An entity can use further scenarios where they help users understand its resilience.
Protection and assurance
Statements about scenario analysis are protected statements for financial years beginning between 1 January 2025 and 31 December 2027. Climate resilience disclosures fall outside the auditor’s first-year review and are reviewed from the second year.
Why it matters for asset-intensive operations
Mines, plants and power stations have lives measured in decades. A lower-temperature scenario tests exposure to carbon pricing, demand shifts and asset write-downs. A higher-temperature scenario tests exposure to heat, flood, cyclone and water stress at sites and along supply routes. AASB S2 also asks about the entity’s ability to redeploy, repurpose, upgrade or decommission existing assets. The same asset register, production plan and cost base should feed both scenarios and the financial statements, so the results connect.
References & sources
Primary regulatory documents and authoritative references underpinning this answer.