How to align climate scenario analysis with Corporations Act obligations

With mandatory climate-related financial disclosure now embedded in the Corporations Act 2001, organisations face new expectations around how they assess and report climate resilience under AASB S2 Climate-related Disclosures (AASB S2). Specifically, entities must use scenario analysis that includes at least two distinct global warming pathways: 

1. A high warming scenario, where the increase in global average temperature well exceeds 2°C (indicated as being 2.5°C or higher); and 
2. A low warming scenario, where warming is limited to 1.5°C. 

These requirements are necessary to ensure consistency with the expectations set out in AASB S2. To meet these obligations, organisations must develop scenario narratives that reflect plausible climate futures and may be informed by credible external sources such as the Intergovernmental Panel on Climate Change (IPCC), Network for Greening the Financial System (NGFS), and International Energy Agency IEA. 

This article provides suggestions for appropriate public scenarios to support the development of compliant and useful scenario narratives. It also explores practical considerations, such as data availability and physical risk modelling, that influence scenario selection, particularly in the Australian context. 

Using public scenario sources effectively 

Public climate scenarios developed by international research and policy organisations offer more than just warming projections. They provide valuable insights into emissions pathways, climate impacts, and socioeconomic conditions. These scenarios can help organisations kick-start their analysis, identify blind spots, and provide a contextual anchor for scenario analysis in globally recognised frameworks. 

Organisations can use these scenarios in both qualitative and quantitative ways: 

• Qualitatively, to explore uncertainties, test strategic assumptions, and understand the broader context of climate-related risks. 
• Quantitatively, to assess trends in emissions, temperature rise, and risk exposure, especially when modelling financial or operational impacts. 

Effective use of public scenarios involves more than referencing a source. It requires understanding the underlying assumptions and applying these to the scenarios developed for your organisation, ensuring the warming levels align with regulatory thresholds (i.e. ≤1.5°C and ≥2.5°C), as required by the Corporations Act.

By applying these scenarios thoughtfully, organisations can produce climate resilience disclosures that are compliant, credible and comparable. 

Public scenarios aligned to the Corporations Act 

The table below summarises commonly used public climate scenarios and how they align with the warming thresholds required under the Corporations Act. 

Practical considerations in scenario selection 

While developing scenario narratives for AASB S2, the Corporations Act requires selecting scenarios that reflect specific warming thresholds (1.5°C and ≥2.5°C). The practicality of scenario selection often depends on data availability, modelling compatibility, and regulatory expectations. 

IPCC scenario selection 

The IPCC’s Shared Socioeconomic Pathways (SSPs) were developed for the Sixth Assessment report (AR6) published in 2023. However, data is much more readily available for the IPCC’s previous iteration of scenarios, Representative Concentration Pathways (RCPs). The table from the AR6, shown below, provides a helpful reference for aligning SSPs with warming outcomes and their corresponding RCPs: 

1. Data availability and use of SSP1-2.6

Although SSP1-1.9 is the most technically aligned with a 1.5°C warming limit, as a relatively new scenario developed by the IPCC, there is limited data available for physical risks. As a result, many organisations and government bodies use RCP 2.6 (which aligns with a 2°C limit) as a proxy for the low warming scenario.

This approach is generally considered to be appropriate due to: 

• Broader availability of physical risk datasets and modelling tools 
• Its inclusion in widely used government and scientific resources 
• The conservative nature of using a slightly higher warming level for physical risk assessment, as it may slightly overstate physical risks compared to a true 1.5°C pathway. 

2. Use of SSP5-8.5 for stress testing

SSP5-8.5 represents a very high emissions pathway and is commonly used to test how physical risks, like extreme weather or sea level rise, might affect an organisation under a worst-case climate scenario (greater than 4°C warming).

However, this scenario is increasingly considered unlikely, with assessments of current policies projecting warming levels of approximately 3°C, according to Hausfather and Peters (2020), Emissions – the ‘business as usual’ story is misleading, published in Nature. In addition, NGFS and IEA do not include scenarios that align with this level of warming. Their highest warming pathways, Current Policies and STEPS, both fall below 3°C. This means there is limited publicly available data to support transition risk analysis at SSP5-8.5 levels.

For these reasons, while SSP5-8.5 (or RCP 8.5) remains useful for stress testing extreme physical risks, it’s not recommended for assessing strategic resilience under AASB S2, which requires plausible scenarios that consider both physical and transition risks. 

Next steps 

Developing compliant and meaningful scenario narratives requires more than selecting the right data; it demands a comprehensive understanding of regulatory expectations, climate science, and business strategy. 

Our sustainability specialists work with clients to develop climate scenarios that provide practical and useful insights. Whether you’re refining your scenario analysis for AASB S2 or building your first climate resilience disclosures, we can help.