SSP1-1.9 vs SSP1-2.6: Rigid interpretation of the AASB S2 requirements is wasting time, resources and damaging confidence

Would you rather produce compliant or decision-useful climate disclosures? That shouldn’t be a question you need to ask, but for many, this is a genuine decision under ASRS.

Over the past 18 months, we’ve supported more than 30 Group 1 companies on their ASRS disclosures. Despite the many implementation challenges, one consistently stands out: climate scenario analysis. Not just because it’s inherently complex, but because it is often forcing organisations into a false trade-off between compliance and decision-useful insights.

To recap: the standards require companies to assess both a high-warming and a low-warming pathway. While organisations can develop their own scenarios, most have sensibly adopted the IPCC's Shared Socioeconomic Pathways (SSPs), which provide a widely accepted basis for climate risk assessment.

The legislation does not prescribe a specific SSP for either scenario, and this is where a contentious issue has emerged: whether the low-warming scenario must be SSP1-1.9 (the lowest warming scenario) or whether SSP1-2.6 (a less extreme, but more realistic transition) is sufficient. Some auditors have indicated they will only accept SSP1-1.9 as valid. This is a waste of time and effort that undermines the very purpose of scenario analysis itself.

The intention is to test resilience across a range of plausible futures, not to force organisations into modelling a specific pathway. SSP1-2.6 remains a credible low-warming scenario and, arguably, a more plausible basis for strategic planning. Treating SSP1-1.9 as the only acceptable option reflects a compliance mindset rather than the intent of the reporting framework.

What the standard says

The reporting requirements do not prescribe a specific low-warming scenario. While AASB S2 is silent on the issue, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 provides useful clarification [1]:

…. a low global warming scenario. This is defined as an increase in the global average temperature limited to the increase mentioned in subparagraph 3(a)(ii) of the Climate Change Act.

This refers to this statement in the Climate Change Act:

… pursuing efforts to limit the temperature increase to 1.5°C above pre‑industrial levels

On that basis, SSP1-2.6 is clearly consistent with both the wording and intent of the Australian requirements. It represents a future in which governments, markets and society take substantial action to reduce emissions in pursuit of climate goals, and where warming of 1.5°C above pre-industrial levels remains a possible outcome. This position has been reinforced by the recent DEECCW guidance.

What the standard does not say

The purpose of climate scenario analysis is to help organisations identify and plan for the impacts of climate change.

That is why climate reporting frameworks consistently emphasise the use of plausible futures. A scenario that is not considered plausible may still be academically interesting, but it is of limited value for strategic planning.

The ASIC guidance reinforces this purpose stating:

The key objective of these requirements is to ensure that users have the benefit of information about the reporting entity’s climate resilience and material financial risks and opportunities relating to climate that are informed by a scenario that:

1. Contemplates rapid global decarbonisation in the near term (lower global warming scenario); and
2. Contemplates more pronounced climate impacts over the medium to long term (higher global warming scenario).

Requiring companies to assess SSP1-1.9, therefore, misses the point. The objective of mandatory climate reporting is to improve how organisations identify and prepare for climate risk and provide the users of the reports with the insight they need to make decisions. Forcing businesses to model an increasingly implausible future does little to advance that objective and risks reducing scenario analysis to a box-ticking exercise, or worse, damaging confidence in the outputs that emerge under an unrealistic scenario. The focus should be on testing resilience against credible futures, not satisfying an arbitrary preference for a single pathway.

What needs to be true

SSP1-2.6 is consistent with both the letter and the spirit of the AASB S2 requirements. It aligns with Australia's commitment to pursue efforts to limit warming to 1.5°C, while providing a credible and plausible basis for assessing future resilience.

The current uncertainty is therefore unnecessary. Regulators and auditors should provide a consistent interpretation and we recommend making three points clear:

1. SSP1-2.6 is a valid low-warming scenario for AASB S2 reporting.
2. SSP1-1.9 can be used as a “stress-test” scenario, helping organisations explore the implications of an exceptionally rapid transition.
3. Either scenario is acceptable for AASB S2 disclosures, assuming a clear rationale and justification are provided

Want to learn more?

Catch up on the articles below to learn more about the support and solutions our specialists are providing clients navigating ASRS & Mandatory Climate Disclosures:

• Key strengths and gaps in Australia’s National Climate Scenario Guidance: What this means for your analysis | SLR Consulting
• Mandatory climate reporting in Australia: What we can learn from Group 1
• Australian Sustainability Reporting Standards (ASRS): Why does it matter and what do stakeholders actually want to know?
• Understanding Climate Scenario Analysis for ASRS Compliance
• 6 Key Takeaways from the AASB’s Guidance on Disclosing Anticipated Financial Effects
• Mandatory climate reporting in Australia: what Group 2 companies need to know for ASRS readiness