Every major climate disclosure framework now addresses scenario analysis, though not all require it. IFRS S2, CSRD, CDP, TCFD, AASB S2, and banking regulators all expect companies to assess how different warming pathways could affect their operations and financial position.
Climate scenario analysis is a method companies use to assess how different climate pathways could affect their operations, strategy, and financial position. IFRS S2 and CDP now ask for this analysis as part of climate reporting, and CSRD requires companies to disclose whether and how they use it. But the specific scenarios required, the time horizons expected, and the level of quantitative rigor vary significantly from one framework to the next.
Companies reporting under multiple frameworks face a practical challenge: which scenarios satisfy which requirements? Can a single analysis serve both IFRS S2 and CDP? Does ESRS E1 need something different from AASB S2? This guide maps the scenario analysis requirements across eight frameworks, compares which SSP scenarios and NGFS pathways satisfy each, and provides practical guidance for selecting the right approach.
What Is Climate Scenario Analysis for Disclosure?
Climate scenario analysis, in the context of disclosure, is a forward-looking exercise that tests how a company’s strategy, assets, and financial position hold up under different climate futures. It explores plausible outcomes to identify vulnerabilities and build resilience, without predicting which outcome will occur.
Three related but distinct concepts often get conflated:
- Scenario analysis explores multiple plausible futures (e.g., a 2C world vs. a 4C world) and their implications for the business.
- Stress testing pushes specific variables to extreme values to assess whether institutions can absorb shocks, commonly used by banks and insurers under the seven NGFS climate scenarios for stress testing.
- Sensitivity analysis isolates a single variable (e.g., carbon price) and tests a range of values, holding everything else constant.
Regulators require scenario analysis because backward-looking risk metrics do not capture climate change. Historical data understates flood risk in a warming world. Past wildfire seasons do not predict future fire weather. Scenario analysis forces organizations to confront how physical and transition risks evolve across time horizons that matter for capital allocation and strategic planning.
For a broader look at types of climate scenario analysis, including top-down versus bottom-up approaches and how physical risk differs from transition risk analysis, see our conceptual guide.
What Each Disclosure Framework Requires for Scenario Analysis
Eight frameworks currently require or recommend climate scenario analysis. Their requirements overlap in places and differ in detail. The table below maps the key differences at the paragraph level.
| Framework | Status | Scenario Requirement | Paris-Aligned Scenario? | Time Horizons | Key Reference |
|---|---|---|---|---|---|
| IFRS S2 | Mandatory | Disclose whether a diverse range was used and whether it covers physical and transition risks | Yes (Para 22(b)(i)(4)) | Entity-defined S/M/L | Para 22, B1-B18 |
| ESRS E1 | Disclosure mandatory; scenario analysis itself not mandated | 2023 text: identification must consider a high-emission scenario (physical) and a 1.5°C scenario (transition), and explain how scenario analysis was used. Revised ESRS (FY2027): if scenario analysis is used, disclose whether each was applied | 2023 text: required in transition-risk identification. Revised: disclose whether used | Short/Medium/Long, fixed by ESRS 1 (up to 5y / beyond 5y) | 2023: ESRS E1 paras 20-21 + AR 11 (IRO-1). Revised (2026/1563, FY2027): E1-2 paras 16-17, E1-3 para 19 |
| AASB S2 | Mandatory (Corporations Act) | At least two: one limited to 1.5°C and one well exceeding 2°C | Yes (1.5°C scenario required by law) | Short/Medium/Long | Para 22 + B1-B18; Corporations Act s296D(2B); ASIC RG 280.99 |
| UK SRS S2 | Comply or explain (from 2027) | Identical to IFRS S2 | Same as IFRS S2 | Entity-defined S/M/L | Para 22 |
| CDP | Scored (5.1.1) | IPCC SSP scenarios accepted | Not required for physical risk | S/M/L (scored criteria) | question 5.1 |
| TCFD | Recommended (TCFD disbanded Oct 2023) | “2C or lower” scenario | Yes | 3-5y / 5-20y / 20+ years | Strategy (c) |
| NGFS | Banking supervisory tool | 7 predefined scenarios across 3 domains | N/A (own framework) | Out to 2100 | Phase V Guide |
| Basel / ECB | Supervisory stress testing | “Severe but plausible” scenarios | Bank-defined | Varies (1-30 years) | Principle 12, 18 |
Three frameworks deserve closer attention because they apply to the largest number of companies:
IFRS S2 (Paragraph 22) requires entities to use climate scenario analysis to assess resilience, using an approach “commensurate with the entity’s circumstances.” The standard asks companies to disclose whether they used a diverse range of scenarios, whether those scenarios cover physical and transition risks, and whether one was aligned with the latest international agreement on climate change. Appendix B (paragraphs B1-B18) provides proportionality guidance: a company with high climate exposure and the skills and resources to do so must use a more advanced quantitative approach (paragraph B17), while others can start with simpler approaches and build rigor over time.
The IFRS Foundation’s March 2026 factsheet on climate resilience and scenario analysis elaborates this proportionality framework with two axes (exposure to climate-related risks, and the skills, capabilities, and resources available) and is informed by an earlier ISSB staff paper (January 2023) that preceded the standard’s finalization. Read the full IFRS S2 climate disclosure requirements.
The IFRS Foundation factsheet clarifies a common practitioner misconception: “A company assesses its climate resilience annually, however it is not required to update its scenario analysis on an annual basis. It, at a minimum, updates its scenario analysis in line with its strategic planning cycle and reassesses its circumstances each time.”
ESRS E1 takes a different posture. Under the 2023 text, which applies for financial year 2026, the risk-identification process must consider at least a high-emissions climate scenario for physical risk. ESRS E1 paragraph 20(b), which sets the climate-specific content of the ESRS 2 IRO-1 disclosure, requires companies to describe how they identify climate-related hazards “considering at least high emission climate scenarios”. Paragraph 21 requires them to explain how climate-related scenario analysis informed that identification. For transition risk, the same process must consider at least one 1.5C-aligned scenario (paragraph 20(c)). ESRS stops short of mandating scenario analysis itself. The joint interoperability guidance from the IFRS Foundation and EFRAG puts it plainly: ESRS “does not mandate the use of scenario analysis but requires disclosing how” it was used.
The revised ESRS (Delegated Regulation (EU) 2026/1563) applies from financial year 2027, and companies may choose it for 2026. It moves this content into E1-2 and makes it conditional. If scenario analysis is used, companies disclose whether at least one high-emission scenario was applied for physical risk and whether at least one 1.5C scenario was applied for transition risk (paragraph 17(a)). E1-3 then asks how those results inform the company’s resilience (paragraph 19). See our detailed breakdown of ESRS E1 disclosure requirements.
CDP scores scenario analysis under question 5.1 of its climate questionnaire. CDP accepts IPCC SSP scenarios and does not mandate a Paris-aligned pathway for physical risk assessment. Scoring criteria reward companies that demonstrate multiple scenarios, clear time horizons, and tangible business impact analysis. The CDP Technical Note on Scenario Analysis (Version 6.0, May 2025) provides detailed guidance on what strong responses look like. Our guide to the CDP scoring methodology shows how those responses convert into a letter grade.
Note: The TCFD disbanded in October 2023, and the IFRS Foundation took over monitoring of company climate disclosures from 2024. IFRS S2 Paragraph 22 carries its scenario analysis recommendation forward. Legacy TCFD framework references in other standards point to the same underlying requirements.
Which Scenarios Satisfy Which Framework?
Selecting scenarios that satisfy multiple frameworks simultaneously reduces duplication. The table below maps how SSP scenarios and the seven NGFS climate scenarios (Phase V) align with each framework’s requirements. For the complete breakdown of each NGFS scenario, see our NGFS Scenarios Explained guide.
| Framework | SSP1-2.6 (1.8C) | SSP2-4.5 (2.7C) | SSP5-8.5 (4.4C) | NGFS Scenarios |
|---|---|---|---|---|
| IFRS S2 | Paris-aligned ✓ | Moderate pathway | High physical risk | Accepted |
| ESRS E1 | Not 1.5°C-aligned (≈1.8°C) | Moderate pathway | High-emissions ✓ | Accepted |
| AASB S2 | Not a 1.5°C scenario; meets neither legal leg | Long-term 2.7°C, mid-century 2.0°C; weak fit for the higher leg | Serves the well-exceeding-2°C leg ✓ | Net Zero 2050 can serve the 1.5°C leg ✓ |
| UK SRS S2 | Paris-aligned ✓ | Moderate pathway | High physical risk | Accepted |
| CDP | Accepted ✓ | Accepted ✓ | Accepted ✓ | Accepted |
| TCFD | 2C or lower ✓ | Above 2C | Well above 2C | Accepted |
| NGFS | ≈ Net Zero 2050 | ≈ NDCs (2.6C) | > Current Policies | Native ✓ |
| Basel / ECB | Low stress | Moderate stress | Severe stress ✓ | Native ✓ |
Practical takeaway: A combination of SSP2-4.5 (moderate warming) and SSP5-8.5 (high emissions) satisfies the physical risk requirements of most frameworks. AASB S2 reporters also need a scenario that limits warming to 1.5°C. SSP2-4.5 represents a “middle of the road” pathway at roughly 2.7C by 2100. SSP5-8.5 is a common way to meet the high-emissions expectation in ESRS. The 2023 text’s application guidance names IPCC SSP5-8.5, regional projections based on it, and NGFS high-physical-risk scenarios (“Hot house world”, “Too little, too late”) as example bases for the high-emissions scenarios that must inform hazard identification (ESRS E1, AR 11(d)). From financial year 2027 the revised ESRS names no scenario and asks whether a high-emission scenario was used (E1-2 paragraph 17(a)(i)). Basel and ECB supervisors expect severe but plausible scenarios for stress testing.
The notable gap is Paris-aligned coverage. IFRS S2 Paragraph 22(b)(i)(4) specifically asks whether a Paris-aligned scenario was used. SSP1-2.6 (1.8C) fills this role. However, for physical risk analysis, the divergence between SSP1-2.6 and SSP2-4.5 is small through 2050, meaning the gap is most material for transition risk analysis. For a deeper comparison of RCP and SSP pathways, see our RCP scenarios guide.
Time Horizons and Return Periods by Framework
Beyond scenario selection, frameworks differ in the time horizons they expect. Most use a short/medium/long-term structure, but define these ranges differently.
| Framework | Required Horizons | Typical Interpretation | Notes |
|---|---|---|---|
| IFRS S2 | Short / Medium / Long (entity-defined) | 0-5y / 5-15y / 15-30y+ | Must align with strategic planning cycles |
| ESRS E1 | Short / Medium / Long (defined by the standard) | Short = reporting period; medium = up to 5y; long = more than 5y (ESRS 1 para 77; para 79 revised) | The only corporate framework that fixes the definitions; deviation allowed where the fixed horizons give non-relevant information, and disclosed (2023 text: with reasons) |
| AASB S2 | Short / Medium / Long | Entity-defined | Same as IFRS S2 base |
| UK SRS S2 | Short / Medium / Long (entity-defined) | Same as IFRS S2 | Identical requirement |
| CDP | Short / Medium / Long (scored) | 0-5y / 5-15y / 15y+ | Scored on completeness of coverage |
| TCFD / EBRD | 3-5y / 5-20y / 20y+ | Explicit numeric ranges | Most prescriptive of all frameworks |
| NGFS | Out to 2100 | Full century | Exceeds most corporate planning horizons |
| Basel / ECB | 1-30 years (varies) | Bank-defined | ECB 2022 stress test used 30-year horizon |
For physical risk, projections at 2030, 2040, and 2050 cover the short, medium, and long-term horizons that most frameworks expect. NGFS is the exception, requiring projections to 2100, which exceeds most available climate data products. Flood depth projections extending to 2080 provide partial coverage for longer-horizon requirements.
Some frameworks also reference return periods for probabilistic analysis. The EBRD’s 2018 supplementary guidance to the TCFD suggests disclosing value-at-risk from probabilistic estimates of extreme weather events, for example 1:100 or 1:200. Basel supervisors expect “severe but plausible” scenarios, which typically translate to 1-in-100 or 1-in-500 year events. Return period data at RP10, RP50, RP100, and RP500 satisfies these requirements for flood risk. For methodology details, see the climate risk methodology documentation.
How to Conduct Climate Scenario Analysis for Disclosure
Running climate scenario analysis that satisfies disclosure requirements involves five steps. The goal is a process you can repeat each reporting cycle. IFRS S2 Appendix B18 explicitly states that scenario analysis quality should improve iteratively over successive reporting periods.
Step 1: Identify applicable frameworks. Determine which regulations apply to your entity. A UK-listed company with EU operations may face IFRS S2 (via UK SRS S2), CSRD (via ESRS E1), and CDP simultaneously. Map the overlapping requirements using the tables above to identify the most demanding requirements, then build your analysis to satisfy those.
Step 2: Select scenarios. Use the scenario alignment matrix to choose pathways that satisfy multiple frameworks. For most companies, SSP2-4.5 and SSP5-8.5 cover the moderate and high-emissions pathways that IFRS S2, ESRS E1 and CDP users expect. Add SSP1-2.6 or an NGFS Net Zero 2050 scenario if you need Paris-aligned coverage for transition risk disclosure. For ESRS, use a 1.5°C pathway such as NGFS Net Zero 2050, because SSP1-2.6 (about 1.8°C) does not meet the ESRS 1.5°C test. Australian reporters under AASB S2 must run at least two scenarios: one that limits warming to 1.5°C, such as NGFS Net Zero 2050, and one that well exceeds 2°C, such as SSP5-8.5. SSP1-2.6 reaches about 1.8°C by 2081-2100, so it does not meet the 1.5°C requirement.
Step 3: Define scope and time horizons. Identify which locations, business units, and asset classes to include. IFRS S2 Paragraph 22(b)(i)(7) requires disclosure of “the scope of operations used in the analysis.” Start with the most material locations and expand coverage over subsequent reporting cycles.
Step 4: Assess physical and transition risk exposure. Physical risk assessment requires location-specific climate hazard data under the selected scenarios. For the physical risk data layer, platforms like Continuuiti assess 12 climate hazards under SSP1-2.6, SSP2-4.5 and SSP5-8.5 across four time horizons, providing the structured, location-specific hazard data that feeds into IFRS S2 Paragraph 22 resilience assessments, ESRS E1 physical-risk screening (ESRS E1 paragraph 20(b); E1-2 in the revised ESRS), and CDP question 3.1.1 hazard disclosures. Transition risk assessment requires separate analysis of policy, technology, market, and legal exposure.
Step 5: Document and disclose. Each framework prescribes what to include in the disclosure. IFRS S2 Para 22(b) asks for seven inputs (which scenarios and their sources, whether a diverse range was used, whether they relate to physical or transition risks, whether one was Paris-aligned, why they are relevant, time horizons, scope of operations), the key assumptions (policy, macroeconomic, regional, energy, technology), and the reporting period in which the analysis was carried out.
Applying Scenario Analysis to Disclosure
Three practical examples illustrate how climate scenario analysis translates into disclosure outputs:
Real estate portfolio under IFRS S2. A property company with 200 commercial buildings runs flood depth analysis under SSP5-8.5 at 2030 and 2050. The output: 34 properties (17%) face flood depth exceeding 0.5 meters at the 1-in-100 year return period by 2050. Estimated monetary damage across those 34 properties totals $47 million. These figures feed directly into Paragraph 29(c): “the amount and percentage of assets or business activities vulnerable to climate-related physical risks.” The scenario analysis narrative under Para 22 describes how the company used SSP2-4.5 and SSP5-8.5, defined short-term as 0-5 years and long-term as 2050, and assessed flood, heat stress, and water stress across all properties.
Manufacturer reporting under CSRD. A European manufacturer with 12 production sites runs a double materiality assessment. For financial materiality (outside-in), the company screens all sites against a high-emissions scenario per ESRS E1’s identification requirements (IRO-1 paragraph 20(b)), identifying three facilities in southern Europe exposed to chronic heat stress and water scarcity. For impact materiality (inside-out), the company assesses its own environmental footprint at each site. The resilience disclosure (ESRS E1 paragraph 19 in the 2023 text, E1-3 in the revised ESRS) explains how planned capital expenditure to retrofit cooling systems at the three exposed facilities supports resilience.
Bank stress test under NGFS. A mid-size commercial bank runs an NGFS “Current Policies” scenario (approximating 3C+ warming) against its commercial real estate loan portfolio. The analysis calculates potential loss-given-default increases for properties in flood-prone zones under the scenario, supporting Basel Pillar 3 physical risk disclosure and ECB supervisory expectations. The bank uses RP100 and RP500 flood depth data to calibrate its severe stress assumptions.
Frequently Asked Questions
What is climate scenario analysis?
Climate scenario analysis is a forward-looking method that assesses how different climate pathways, such as moderate warming (SSP2-4.5, approximately 2.7C by 2100) or high emissions (SSP5-8.5, approximately 4.4C by 2100), could affect an organization’s strategy, operations, and financial position. Disclosure frameworks like IFRS S2 and CDP now ask companies to conduct this analysis and report the findings, and CSRD requires companies to disclose whether and how they use it.
Does IFRS S2 require scenario analysis?
Yes. IFRS S2 Paragraph 22 requires entities to use climate-related scenario analysis to assess their climate resilience. Companies disclose whether they used a diverse range of scenarios, whether those scenarios cover physical and transition risks, and whether a Paris-aligned scenario was included. Appendix B (paragraphs B1-B18) provides proportionality guidance, allowing companies to scale the sophistication of their analysis to their circumstances.
What scenarios should I use for TCFD reporting?
The TCFD recommended a 2°C or lower scenario in addition to two or three other scenarios relevant to the organization. The TCFD disbanded in October 2023. IFRS S2 Paragraph 22 asks companies to disclose whether they used a Paris-aligned scenario, and SSP1-2.6 or NGFS Net Zero 2050 can serve that role. For physical risk, SSP2-4.5 (moderate) and SSP5-8.5 (high emissions) provide meaningful range.
What is the difference between scenario analysis and stress testing?
Scenario analysis explores multiple plausible climate futures and their broad implications for business strategy. Stress testing pushes specific risk variables to extreme values to assess whether institutions can absorb the resulting shocks. Banks and insurers typically use NGFS scenarios for climate stress testing, while corporates use scenario analysis for IFRS S2, CSRD, or CDP disclosure.
How many scenarios do I need for climate disclosure?
Most frameworks expect at least two scenarios representing different warming outcomes. IFRS S2 asks companies to disclose whether they used a diverse range of scenarios. Under the 2023 text, ESRS E1 requires considering at least one high-emissions scenario for physical risk and one 1.5C scenario for transition risk in risk identification, without mandating full scenario analysis. From financial year 2027, the revised ESRS asks companies that use scenario analysis whether they used such scenarios. CDP scores more favorably when companies analyze multiple scenarios. In practice, two to three scenarios satisfy the majority of framework requirements.
Do I need a Paris-aligned scenario for IFRS S2?
IFRS S2 Paragraph 22(b)(i)(4) asks entities to disclose “whether the entity used, among its scenarios, a climate-related scenario aligned with the latest international agreement on climate change.” The requirement is to disclose whether such a scenario was used. However, companies with significant climate exposure are expected to explain why they did or did not include a Paris-aligned scenario. For physical risk, the difference between SSP1-2.6 and SSP2-4.5 is small through 2050, so the gap matters more for transition risk analysis.
Climate scenario analysis has moved from a voluntary best practice into the disclosure rules of most major jurisdictions. The frameworks converge on similar principles: use multiple scenarios, cover physical and transition risks, and project across meaningful time horizons. Where they differ is in specifics, such as whether a Paris-aligned scenario is required or which emissions pathway counts as “high.” Companies that build their analysis around a core set of scenarios (SSP2-4.5, SSP5-8.5, and a Paris-aligned or 1.5°C pathway where a framework calls for one) and document their choices clearly can satisfy IFRS S2, ESRS E1, CDP, and most other frameworks with a single, well-structured process.
