Lower exposure or limited resources
A simpler approach, such as qualitative scenario narratives, can be reasonable and supportable.
Build capability over successive cycles (B16–B17).IFRS S2 · climate resilience, paragraph 22
IFRS S2 scenario analysis: commensurate, not optional
IFRS S2 ¶22 requires every entity to use climate-related scenario analysis to assess the resilience of its strategy and business model.
How sophisticated the analysis must be depends on two things the standard names: the entity’s exposure to climate risk, and the skills, capabilities and resources it has.
What to disclose
Two halves: the assessment, and how it was done
| Paragraph 22 | What the entity discloses |
|---|---|
| (a)(i) | The implications of the resilience assessment for strategy and business model, and how the entity would need to respond |
| (a)(ii) | The significant areas of uncertainty considered |
| (a)(iii) | Capacity to adjust or adapt: financial resources and flexibility; ability to redeploy, repurpose, upgrade or decommission assets; current and planned investment in mitigation, adaptation and opportunities |
| (b)(i) | Inputs: which scenarios and their sources; whether a diverse range was used; whether they relate to transition or physical risk; whether one is aligned with the latest international agreement on climate change; why they are relevant; time horizons; scope of operations |
| (b)(ii) | Key assumptions: climate policy in the entity’s jurisdictions; macroeconomic trends; national or regional variables such as weather, land use and infrastructure; energy use and mix; technology |
| (b)(iii) | The reporting period in which the analysis was carried out |
Scenario analysis appears once more in IFRS S2: under risk management, the entity says whether and how it uses scenario analysis to identify climate-related risks (¶25(a)(ii)).
Choosing the approach
Commensurate with exposure and resources
The entity assesses its circumstances each time it carries out the analysis: its exposure to climate-related risks and opportunities, and the internal and external skills, capabilities and resources available (B2–B3).
High exposure makes a quantitative or technically sophisticated approach more useful to investors; low exposure makes it less so (B4).
The standard expects capability to grow through repetition, and it names extractives and mineral processing as an industry where scenario analysis is established practice (B7).
An entity with high exposure but without the skills yet might start with a simpler approach and move to quantitative analysis over time (B17).
Assess the circumstances
Exposure to climate risk, and the skills, capabilities and resources available (B2).
Exposure to climate risk, and the skills, capabilities and resources available (B2).
High exposure and the resources
The entity “is required to apply a more advanced quantitative approach” (B17).
Established practice in industries such as extractives (B7).Inputs and analysis
Which scenarios, and how to combine them
IFRS S2 names no scenario set; it requires a reasonable and supportable basis for whichever is used.
Publicly available scenarios from authoritative sources — the NGFS, the IEA or the IPCC, for example — are treated as available without undue cost or effort (B11).
An entity with operations concentrated where emissions are, or are likely to be, regulated might choose a scenario consistent with an orderly transition or with jurisdictional commitments to the latest international agreement (B12).
Quantitative information will often support a more robust assessment, but qualitative narratives, alone or with data, can also be a reasonable and supportable basis (B15).
In the first reports under Australia’s IFRS S2-based standard, about a fifth of the companies its regulator reviewed used only qualitative scenarios, and most drew on public scenarios such as the NGFS, the IEA and IPCC-based pathways (ASIC REP 839).
The application guidance draws on the TCFD’s 2017 technical supplement and its 2020 guidance for non-financial companies, which remain useful as practice, not as requirements.
- 1
Select inputs
Scenarios, variables and other inputs — publicly available authoritative scenarios count as available without undue cost or effort (B11).
- 2
Justify them
A reasonable and supportable basis, relevant to the entity’s activities and locations (B12–B13).
- 3
Make analytical choices
Qualitative narratives, quantitative modelling or both, prioritising what uses all reasonable and supportable information (B14–B15).
How often
The analysis follows the plan; the assessment is annual
An entity may run its scenario analysis on its strategic planning cycle, so the ¶22(b) disclosures about how the analysis was done can stay the same from one year to the next.
The resilience assessment under ¶22(a) cannot: it is updated every reporting period to reflect what the entity now knows.
The approach need not be the same from one cycle to the next, because the entity’s exposure and capabilities change (B16).
Paragraph B18, in IFRS S2’s words
“The entity shall—at a minimum—update its climate-related scenario analysis in line with its strategic planning cycle.
However, an assessment of the entity’s resilience is required to be carried out annually.”
IFRS S2 ¶B18; the cycle may be multi-year, for example every three to five years.
In the UK
The same requirement in UK SRS S2
UK SRS S2 carries ¶22 and ¶¶B1–B18 with the same requirements, including the more advanced quantitative approach for highly exposed entities with the resources and the annual resilience assessment (UK SRS S2).
For a UK listed company it is one of the UK SRS S2 requirements on comply or explain from periods beginning on or after 1 January 2027, so a company not yet able to meet it says which limbs it has not met, why, and what it plans.
The IFRS Foundation published educational material on climate resilience and scenario analysis in March 2026, which explains but does not change the requirements (Advisory Council paper).
The TCFD’s own scenario recommendation, and how it maps to ¶22, is on the TCFD disclosures.
Frequently asked
Scenario analysis, answered
Does IFRS S2 require scenario analysis?
Yes.
Paragraph 22 requires an entity to use climate-related scenario analysis to assess its climate resilience, using an approach commensurate with its circumstances, and to disclose both the results of that assessment and how and when the analysis was carried out.
Does IFRS S2 scenario analysis have to be quantitative?
Not always.
Qualitative scenario narratives can be a reasonable and supportable basis.
But an entity with a high degree of exposure to climate-related risks and opportunities, and access to the necessary skills, capabilities or resources, is required to apply a more advanced quantitative approach (B17).
How often must IFRS S2 scenario analysis be done?
At least in line with the strategic planning cycle — for example every three to five years.
But the resilience assessment itself is updated every reporting period, so the results disclosed under ¶22(a) change annually even if the scenario analysis under ¶22(b) does not (B18).
Does IFRS S2 require a 1.5°C scenario?
Not as such.
The entity discloses whether it used, among its scenarios, one aligned with the latest international agreement on climate change (¶22(b)(i)(4)), and why its chosen scenarios are relevant.
An entity in a jurisdiction that regulates emissions might find a scenario consistent with an orderly transition appropriate (B12).
Which scenarios can be used under IFRS S2?
IFRS S2 does not prescribe any.
Publicly available scenarios from authoritative sources are considered available without undue cost or effort (B11), and the entity must have a reasonable and supportable basis for its choice and explain why the scenarios are relevant.
Is scenario analysis the same under UK SRS S2?
Yes.
UK SRS S2 carries paragraph 22 and the application guidance in B1–B18 with the same requirements, including the more advanced quantitative approach for highly exposed entities with the resources and the annual resilience assessment.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
Checked against 12 sources fromIFRS FoundationDepartment for Business and TradeFinancial Stability Board (TCFD)NGFSInternational Energy AgencyIPCC
- IFRS FoundationIFRS S2, full text (December 2025)
¶22 climate resilience; ¶25(a)(ii); Appendix B ¶¶B1–B18; footnote 2.
- IFRS FoundationAdvisory Council, April 2026 — Update on the ISSB’s activities (PDF)
New educational material on climate resilience and climate-related scenario analysis, March 2026.
- IFRS FoundationWorld Standard-setters Conference 2026 — Application of IFRS S1 and IFRS S2 (PDF)
The list of educational material, including climate resilience and scenario analysis.
- Department for Business and TradeUK SRS S2 (PDF), ¶¶22 and B1–B18
The same resilience and scenario-analysis requirements in the UK text.
- Financial Stability Board (TCFD)Guidance on Scenario Analysis for Non-Financial Companies (October 2020, PDF)
One of the TCFD documents IFRS S2 Appendix B draws on; guidance, not a requirement.
- NGFSNetwork for Greening the Financial System — climate scenarios
A publicly available set of climate scenarios from an authoritative source.
- International Energy AgencyWorld Energy Outlook
Energy-transition scenarios widely used as inputs.
- IPCCSixth Assessment Report, Working Group I
Physical climate science and the shared socioeconomic pathways.
- Financial Conduct AuthorityPS26/19 (PDF)
UK SRS S2, scenario analysis included, on comply or explain for listed companies from 2027.
- IFRS FoundationIFRS S1, full text — ¶¶B8–B10
Reasonable and supportable information without undue cost or effort.
- International Energy AgencyNet Zero Emissions by 2050 scenario
A widely used 1.5°C-aligned transition scenario.
- ASICREP 839 (21 September 2026, PDF)
In the first AASB S2 reports, about 20% used only qualitative scenarios; NGFS, IEA and IPCC-based pathways were common inputs.
Continue reading
Read next
The standard
IFRS S2
The climate standard, paragraph by paragraph.
Strategy
Anticipated financial effects
The financial-effects disclosures scenario analysis informs.
Core content
The four pillars
Where resilience sits within strategy.
The UK
UK SRS S2
The UK climate standard.
TCFD
TCFD disclosures
The TCFD’s scenario recommendation.
The hub
IFRS Sustainability Disclosure Standards
The whole ISSB family.