Key strengths and gaps in Australia’s National Climate Scenario Guidance: What this means for your analysis

As the first-ever year of mandatory climate-related financial reporting in Australia comes to an end and the second begins, one recurring theme amongst disclosers has been the effort and complexity required for the scenario analysis component.

The lack of guidance from the government or the Australian Securities and Investments Commision (ASIC), or the often-contradictory stances from auditors hasn’t helped either. The recent launch of the finalised Department of Climate Change, Energy, the Environment and Water’s (DEECCW) National Climate Scenario Guidance is most welcome as it provides much needed clarity for companies moving forward, especially as the assurance requirements over this component of Australia Standard Reporting Standards (ASRS) kick in to gear in Year 2.

What stands out?

A practical foundation

The guidance provides a structured, end-to-end approach to climate scenario analysis, supporting organisations from foundational concepts through to scenario selection and data use. It is explicitly designed to be flexible and applicable across maturity levels, helping both new and experienced users navigate what has historically been a complex process A strong example of this is the report’s structure, with Figure 1 in the guidance (page 4) highlighting where different audiences may derive the most value.

Stronger alignment with the disclosure landscape

This guidance also more closely aligns with Australia’s evolving regulatory framework and clarifies how it supports compliance with AASB S2 standard (page 5).

While the national guidance does not prescribe how to meet AASB S2 requirements, it provides a critical methodological backbone and reference point for organisations undertaking scenario analysis for disclosure.

A clear signal on 1.5°C alignment

One of the most important anchors for scenario selection is Australia’s Climate Change Act 2022, which explicitly links national targets to the Paris Agreement goals, including:

The interpretation of this clause has been inconsistent, with some auditors accepting only the lowest warming scenarios (e.g. SSP1-1.9).

The guidance also helps clarify this, and directly references SSP1-2.6 as an option to represent a 1.5 °C scenario, as data is more readily available than for lower trajectories.

Flexibility but not ambiguity

A key strength of the published guidance is its principles-based, flexible approach to:

• Selecting emissions pathways: We suggest considering three pathways, as this directly supports the next step of a resilience assessment. Including an intermediate scenario addresses a genuine gap if only minimum requirements are applied, and its fully consistent with the guidance.
• Defining time horizons: This is up to you, however, 2030, 2050 and 2090 are seen to align with AASB S2 short, medium and long-term horizons.
• Choosing datasets and climate variables

This directly addresses industry feedback and supports more tailored, useful decision analysis. Particularly welcome is the decision framework, which provides a simple guide for selecting emissions pathways and timeframes for use in climate scenario analysis (see page 20 of the guidance).

This decision framework also clearly identifies SSP1-2.6 as a representation of a ‘1.5 °C Scenario’, as data is more readily available than for SSP1-1.9 and 1.5 °C falls within the range of expected temperature outcomes.

However, flexibility does not remove the need for robust justification, and organisations will need to clearly articulate:

• Why scenarios were selected
• How they align with strategic risks
• How they support disclosure requirements
• How operations, assets, investments and the full value chain is considered.

What’s still missing?

Greater clarity on the interplay with AASB S2

While the guidance is very clear that it is not part of the standard, the alignment with AASB S2 is tacit for anyone reading it. To be truly helpful, it should show how to translate scenario analysis into compliant disclosures. Key questions that will remain unanswered for many will likely be:

• How should scenario analysis link to financial disclosures? How are organisations expected to translate scenario outputs into quantified financial effects?
• How much justification for scenario analysis is enough?
• How to define and evidence time horizons? What “short, medium, and long-term” really mean in practice, and how these should be justified to show alignment with strategy, asset lives, and financial planning.

Climate scenario analysis remains notoriously difficult and, while this guidance is most welcome, many organisations will still need to interpret requirements themselves. For a practical walkthrough of how to implement scenario analysis in line with AASB S2, see our recent webinar.

Lack of guidance on scenarios applied to transition risks

While the guidance focuses heavily on physical climate risk, it does not offer insight into how to apply scenario analysis to assess transition risks, such as policy, market and technology. Organisations will need to assess both types of risks under the different scenarios, but this is not covered in the guidance.

Low warming scenario: Can we please agree SSP1-2.6 is ok to use?

While the guidance points to SSP1–2.6 as a practical representation of a 1.5°C-aligned pathway, this remains a point of tension in the rollout of AASB S2. The legislative anchor (the Corporations Act referring to the Climate Change Act 2022) mandates alignment with a scenario that is “pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels. ”. However, some auditors have a narrow interpretation of this, limiting it to SSP1–1.9, which experts widely regard as ‘dead’[3] . This creates uncertainty for organisations trying to balance data availability, decision-useful insights, regulatory intent, and assurance defensibility.

From guidance to action, and why this is important for you

We have a track record of supporting organisations with:

• Translating high-level principles into repeatable methodologies: Considering current policy trajectory, which offers a useful set of conditions to undertake resilience planning and helps ensure this is grounded in a credible range of futures.
• Applying scenarios in a sector and asset specific context: As the guidance recommends SSP1-2.6 and SSP3-7.0 as a minimum, we add SSP2-4.5, to ensure consistency with the guidance and international best practice.
• Connecting the analysis to real-world risk management, strategy and adaptation planning: Transition and physical risks don't peak in the same scenario, and pathways reveal which parts of your business are vulnerable to policy risk versus physical hazard, and when.
• Positioning for assurance, don’t leave it to the last minute: Assurers and ASIC will look for how you arrive at your conclusions, so document your rationale and demonstrate diligence in your approach from the outset.

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:

• 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