Understanding climate scenario analysis for Australian Sustainability Reporting Standards (ASRS) compliance and beyond

We know that if global greenhouse gas (GHG) emissions are not rapidly reduced, we will face increasingly severe and frequent climate hazards. At the same time, reducing emissions at the scale required demands fundamental, accelerated changes across our economies spanning energy, transport, policy, regulation, and technology. These two forces, escalating physical risks and the deep shifts needed to avoid them, create a future that is inherently uncertain and highly dynamic.

This uncertainty makes it difficult for organisations to plan, invest, and adapt with confidence. That’s where climate scenario analysis comes in.

Scenario analysis enables companies to explore a range of plausible future climates and policy environments, and assess how each could impact their operations, value chains, and business models. Done well, it reveals vulnerabilities and opportunities, and helps businesses stay resilient in the face of accelerating climate-related change.

What does ASRS require?

Under the new ASRS, large companies are required to report on their climate resilience through the use of climate scenario analysis.

Here’s what the standard requires:

• Number of scenarios: a minimum of two climate scenarios.
• Temperature outcomes:
  • One low warming scenario consistent with the Paris agreement (well below 2°C).
  • One high warming scenario (exceeding 2.5°C).
• Time horizons:
  • Three time horizons must be considered.
  • Short, medium, and long term. (Companies must define what these mean based on their context.)
• Scope of the assessment: scenario analysis must consider the organisation’s entire operations, assets, investments, and value chain. You must assess the implications of each scenario for your strategy, business model, and ability to respond.
• Quantification: financial effects of climate-related risks and opportunities should be qualitatively assessed as well as quantified, unless doing so is not possible, not useful due to high uncertainty, or beyond their current capabilities.

Getting started with climate scenario analysis

If you’re just beginning this journey, scenario analysis can seem abstract at first, but it’s more accessible than it appears. Here’s a simplified approach to help guide your team:

1. Select or build your scenarios

You don’t need to build them from scratch. Use publicly available scenarios from the Intergovernmental Panel on Climate Change (IPCC), International Energy Agency (IEA), or Network of Central Banks and Supervisors for Greening the Financial System (NGFS) as a starting point, adapting them to their own context.

2. Identify key risks and opportunities

Start by understanding where climate change could affect your business. Think about supply chains, operations, customers, regulation, and physical locations.

3. Assess business impacts

For each scenario, ask: what changes? What becomes more costly, more uncertain, or more valuable? How could this effect revenue, costs, assets, or operations?

4. Engage the right internal stakeholders

This isn’t just a sustainability exercise. Finance, risk, strategy, and operations teams all bring valuable perspectives.

5. Integrate findings into governance and reporting

Scenario analysis shouldn’t sit in a standalone report. It should inform your risk management processes, strategic planning, and disclosure.

Why it matters — beyond compliance

While ASRS makes scenario analysis mandatory, it offers far more than a compliance tick. Done well, it can:

• Inform better strategic decisions.
• Uncover long-term risks and cost drivers.
• Identify new opportunities or markets.
• Demonstrate resilience to investors and stakeholders.

Companies that treat climate scenario analysis as a strategic tool, not just a reporting requirement, will be better positioned to thrive in a rapidly changing world.

Final thoughts

If your organisation hasn’t yet started its scenario analysis journey, now is the time. The regulatory bar has been set, but the real value lies in using scenarios to understand, plan, and build resilience in the face of climate uncertainty.