AASB S2 Paragraph 22 Climate Scenario Analysis: A...

AASB S2 paragraph 22 asks for scenario analysis commensurate with your circumstances. In practice that means depth scaled to your climate exposure, not your size, and the pattern Group 1 reporters have settled on is three named scenarios backed by a one-page selection rationale. Paragraph 22 is the single most-argued paragraph in AASB S2. It is fewer than 100 words long. It drives a large share of the analytical effort in a first AASB S2 disclosure, and a scenario analysis that is not well documented is hard to defend in a reasonable-assurance walk-through.

The reason is one word. Commensurate.

Paragraph 22 asks each reporter to use climate-related scenario analysis to assess climate resilience "commensurate with the entity's circumstances". The standard does not define commensurate. The AASB has not defined it. Neither has ASIC. The AASB staff paper on proportionate application released in September 2025 gives more guidance, but even it stops short of a bright line. So reporters are left to argue proportionality with their auditor after the fact, which is the worst place to be having that conversation.

This guide walks through what paragraph 22 actually says, which published scenarios reporters are using, how to choose between them, and how to make the resulting analysis auditable. It is grounded in the AASB S2 text, the AASB proportionality staff paper, and the published scenario sets from IPCC, IEA and NGFS.

What paragraph 22 actually says

AASB S2 paragraph 22 requires an entity to use climate-related scenario analysis to assess its climate resilience. The analysis must reflect the entity's exposure to climate-related risks and opportunities, and the approach used must be "commensurate with the entity's circumstances". The standard then points to paragraphs B1 to B18 in Appendix B for further application guidance.

Two things matter here. First, scenario analysis is not optional. It is required for every reporter subject to AASB S2, whether that is a Group 1 entity already reporting or a Group 2 entity whose first reporting period starts on 1 July 2026. Second, the standard is deliberately non-prescriptive about method. Reporters can use qualitative narrative analysis, quantitative modelling, or a mix. What matters is that the depth of analysis is defensible relative to the reporter's climate exposure.

That deliberate non-prescription is where the money gets spent. And where auditors push back hardest.

The AASB proportionality staff paper published September 2025

The AASB released a staff paper on proportionate application of AASB S2 in September 2025. It does not have the status of a standard. It is guidance. But it is the closest thing reporters have to an interpretation of what commensurate means in practice.

The staff paper acknowledges that scenario analysis is one of the areas where proportionality applies most strongly. It confirms that qualitative scenario analysis can be sufficient for entities with limited climate exposure, and that quantitative modelling is expected where climate risk is financially material. It also introduces the concept of scaling analytical depth with the significance of the identified risks and opportunities, rather than the size of the reporter.

The practical read is this. A large ASX 200 property REIT with limited direct fossil-fuel exposure and no Safeguard Mechanism facilities can defensibly run a largely qualitative analysis for transition risk and a semi-quantitative analysis for physical risk. A mid-market resources company with a single Safeguard-covered facility will be expected to run quantitative modelling for transition risk regardless of its market cap. Proportionality is exposure-driven, not size-driven.

If you are working through the broader question of what materiality means under AASB S2, our climate materiality assessment guide covers the sibling problem.

Which scenarios to select

The standard does not name specific scenarios. It refers reporters to "climate-related scenarios that are relevant to the entity's exposure to climate-related risks and opportunities". In practice, Australian reporters are drawing from three published scenario libraries. All three are free to use and widely referenced in published climate disclosures.

IPCC AR6 Working Group I Representative Concentration Pathways (RCPs). These are physical climate scenarios expressed as radiative-forcing pathways. RCP2.6 broadly aligns with a below-2 degree world. RCP4.5 aligns with roughly 2.4 to 2.7 degrees by 2100. RCP8.5 is the high-emissions pathway, roughly 4 to 5 degrees by 2100. RCPs are the workhorse for physical risk analysis because they map to downscaled hazard datasets that Bureau of Meteorology and CSIRO have published for Australian regions.

IPCC AR6 Working Group III Shared Socioeconomic Pathways (SSPs). These pair socio-economic narratives with emissions trajectories. SSP1-1.9 is the Paris-aligned pathway with strong sustainability action. SSP2-4.5 is the middle-of-the-road pathway broadly consistent with current policies. SSP5-8.5 pairs fossil-fuelled development with high emissions. SSPs are used where the analysis needs a socio-economic overlay, for example when modelling consumer demand shifts or regional GDP effects.

IEA World Energy Outlook 2025 scenarios. The IEA publishes three transition scenarios each year. Net Zero Emissions by 2050 (NZE) is the Paris-aligned 1.5 degree pathway. Announced Pledges Scenario (APS) assumes governments deliver on their announced net zero pledges in full and on time. Stated Policies Scenario (STEPS) reflects current policy settings only. IEA scenarios are the standard reference for transition risk analysis because they publish detailed pathways for oil demand, gas demand, carbon prices, electricity price trajectories and technology adoption curves that feed directly into financial models.

NGFS climate scenarios. The Network for Greening the Financial System publishes six scenarios refreshed roughly every 18 months. Net Zero 2050 and Divergent Net Zero are the two Paris-aligned pathways. Delayed Transition and Fragmented World are the disorderly transition pathways. Current Policies and Nationally Determined Contributions are the two hot-house pathways. NGFS scenarios are widely used by APRA-regulated entities because APRA's Climate Vulnerability Assessment referenced them, and by financial-services reporters more broadly.

No single library covers everything. In practice most Australian reporters combine one physical-risk source (IPCC RCP or SSP) with one transition-risk source (IEA or NGFS), which is a common pattern in published disclosures.

How to pick two or three scenarios

Paragraph 22 does not specify how many scenarios you must analyse. The common reference point is TCFD's 2017 guidance, absorbed into AASB S2 via the ISSB, which recommended at least two scenarios including one aligned with the Paris goal.

The pattern that has settled in Group 1 disclosures is a set of three:

One Paris-aligned scenario, typically IEA NZE or NGFS Net Zero 2050, to test transition risk under aggressive decarbonisation.
One intermediate scenario, typically IEA APS or NGFS Delayed Transition, to test the disorderly-transition case.
One high-warming scenario, typically RCP8.5 or NGFS Current Policies, to test physical risk under a hot-house world.

This combination gives auditors a clear line to walk. It bounds transition risk between two named pathways and gives you a defensible upper bound on physical risk. It is also a common structure in published Group 1 disclosures.

Two scenarios can be enough for entities with limited exposure. The AASB staff paper is explicit that qualitative single-pathway analysis can be commensurate where materiality is low. The point is that the number of scenarios must be justified in the Basis of Preparation, not chosen by default.

The three time horizons

AASB S2 paragraph 10(a) requires you to define short, medium and long-term time horizons and to apply them consistently throughout the disclosure. Paragraph 22 asks you to use scenario analysis over those horizons.

The framing most reporters have landed on is:

Short-term: to 2030
Medium-term: to 2040
Long-term: to 2050

Those horizons align with the IEA and NGFS scenario reporting periods, the Australian Government's 43% by 2030 target, and the net zero by 2050 commitment. They are not mandated by the standard. If your business planning horizon is shorter, say a five-year rolling operating plan, then aligning short-term to five years is defensible. What is not defensible is choosing horizons that conveniently exclude your material risks. If a stranded-asset risk crystallises in 2038, you cannot cap your medium-term at 2035.

What commensurate means in practice

Because the AASB has declined to define commensurate, the practical read has to come from the pattern of Group 1 filings and the AASB staff paper's proportionality framing. Three exposure archetypes cover most of the field:

Low-exposure archetype. A mid-market services or property reporter with no Safeguard facilities, limited fossil-fuel value chain, and no material physical asset concentration in high-hazard locations. Commensurate here can mean a largely qualitative narrative scenario analysis, with directional financial impacts (increase, decrease, no material change) and a small number of quantified line items where data is available. The AASB staff paper explicitly supports this approach.

Mid-exposure archetype. A logistics, manufacturing or distributed-asset reporter with a diesel-heavy operational footprint, no Safeguard obligation, and some geographically concentrated physical assets. Commensurate here means semi-quantitative analysis: quantified transition-risk pathways for the top three financial line items (fuel cost, carbon price exposure, revenue-at-risk), and modelled physical risk for the highest-value or highest-hazard sites. Qualitative analysis for the tail.

High-exposure archetype. An ASX 200 resources, energy or heavy-emitter reporter with Safeguard Mechanism obligations, material Scope 3 exposure, and either substantial physical infrastructure or substantial capital tied to fossil-fuel demand. Commensurate here means quantitative modelling across all three scenarios, integrated to the financial model, with sensitivity ranges and documented assumption logs. Anything less is likely to be hard to defend under reasonable assurance.

If your Safeguard baseline exposure is material, or if you are a NGER reporter transitioning into your first AASB S2 disclosure, our NGER vs AASB S2 dual framework guide covers the interaction.

Both risk axes you have to cover

Paragraph 22 sits inside the broader climate resilience assessment framework of AASB S2 paragraphs 22 to 30. That framework distinguishes transition risk from physical risk. Both are in scope.

Transition risk is the set of risks associated with the move to a lower-carbon economy. AASB S2 groups them as policy and legal, market, technology, and reputation. Practically, transition risk analysis quantifies the financial impact of carbon prices, fuel-switching costs, stranded assets, demand shifts and legal exposure under each transition scenario.

Physical risk splits into acute (extreme events: bushfire, cyclone, flood, heatwave) and chronic (long-run shifts: sea-level rise, temperature trend, precipitation change). Physical risk analysis quantifies the financial impact of asset damage, business interruption, insurance-cost changes and supply-chain disruption under each physical scenario.

Both axes need to be addressed. A common weakness is thin physical-risk analysis, particularly for reporters who focused almost entirely on transition risk. The fix is a clear physical-risk methodology that ties named IPCC scenarios to named asset locations and named financial impacts. Our transition risk quantification guide covers the transition-risk side of the calculation.

How to make scenario analysis auditable

The scenario analysis your consultant delivers is the front of the paper. What auditors ask for is the back of the paper. Five artefacts matter:

Scenario selection rationale. A dated document that explains why you chose the specific scenarios (say IEA NZE, IEA APS and IPCC RCP8.5), why you rejected alternatives, and how the choice reflects your exposure. One page is enough. Undocumented scenario choice is a common gap.

Time horizon rationale. A short note that explains why short, medium and long-term are 2030, 2040 and 2050 (or whatever you chose), and how those horizons align with your business planning cycle and material risks.

Parameter mapping. For every scenario variable that feeds your model (carbon price by year, electricity price by year, demand shift by sector, temperature anomaly by region), you need a table showing where the parameter came from (IEA WEO 2025 table X, NGFS phase V dataset Y) and where it feeds in your internal financial model. This is the artefact auditors trace against.

Snapshot of inputs and outputs. The model inputs and outputs at the point the disclosure was signed. Not the live model. A frozen snapshot. Every scenario parameter, every intermediate calculation, every output value. If your consultant runs the model in Excel or Python, the snapshot is a versioned file. If they run it in a proprietary tool, the snapshot is a PDF export of every input screen and every output view.

Version control and restatement log. Scenario methodologies will change year to year. IEA publishes new WEO scenarios annually. IPCC AR7 will refresh the physical scenarios. NGFS phase VI is due. The restatement register logs every methodology change, tags the reporting period it takes effect, and preserves the prior methodology so that restatements are traceable.

Carbonly records restatement reasons and writes typed audit events on ledger changes, so when the underlying emissions data changes for the next reporting cycle the audit trail shows what changed, when and why. Our emissions restatement note guide covers the mechanics.

What your ledger gives the scenario model and the auditor

What you get from Carbonly here is the baseline your scenario model reads and the evidence your auditor traces, not the model itself. Straight answer: Carbonly does not run climate scenario models. That work stays with the reporter or the consultant.

What Carbonly does is hold the underlying data that scenario models draw from and the evidence that auditors will trace. The verified capabilities are:

The emission ledger, with source-document tracking on every record, is what quantitative scenario models read as the current-year baseline.
Each record stores the emission factor version applied, which is what auditors trace when they check that the right emission factor was used for the right reporting year.
Period locking and restatement reasons keep the baseline stable once a period is signed off.
The evidence pack for assurance packages the ledger and its source documents as a structured deliverable to hand to the auditor.

What Carbonly does not do is generate the scenario narrative, run the climate model, or produce the sensitivity analysis. Those remain the reporter's authored work, typically supported by a specialised climate risk consultant.

We are honest about this because over-promising scenario analysis is worse than the honest disclosure. An AI-generated scenario narrative that reads well but cannot be defended in assurance is a liability. A scenario analysis grounded in the reporter's actual operations, authored with a specialised consultant, and evidenced against the Carbonly ledger is far easier to defend in assurance.

The consultant angle

Most AASB S2 scenario analyses are authored by specialised consultants. Large professional services firms, boutique climate advisory firms and transition-risk modellers offer scenario analysis as a service. That work is skilled, and it is the right way to run this exercise.

Carbonly is the layer underneath the consultant's work. The consultant authors the analysis. Carbonly holds the data the analysis draws from and the evidence that auditors trace. The consultant is a buyer of the platform, not a competitor to it. If a consultant is running your scenario analysis, handing them a versioned emission ledger with the factor version recorded on each record means they spend their time on the modelling and less time reconciling spreadsheets.

Our climate risk register guide covers the risk register that feeds the scenario analysis, and our climate opportunities guide covers the opportunity side of paragraph 22.

FAQ

What scenarios does AASB S2 require? AASB S2 paragraph 22 does not name specific scenarios. It requires reporters to use climate-related scenario analysis commensurate with their exposure. In practice, Australian reporters draw from IPCC AR6 (RCP and SSP scenarios), IEA World Energy Outlook 2025 (NZE, APS, STEPS), and NGFS climate scenarios (Net Zero 2050, Delayed Transition, Current Policies and three others). All three are widely referenced in published disclosures.

How many scenarios must I analyse? The standard does not specify. The pattern that has settled in Group 1 disclosures is three: one Paris-aligned (typically IEA NZE), one intermediate (typically IEA APS or NGFS Delayed Transition), and one high-warming (typically IPCC RCP8.5 or NGFS Current Policies). Two scenarios can be defensible for low-exposure reporters if justified in the Basis of Preparation.

What time horizons should I use? AASB S2 paragraph 10(a) requires you to define short, medium and long-term horizons and apply them consistently. Most Australian reporters use 2030, 2040 and 2050 because those align with the IEA and NGFS scenario reporting periods, the Australian 43% by 2030 target, and the net zero by 2050 commitment. Different horizons are acceptable if they align with your planning cycle and cover your material risks.

Do I need quantitative modelling or is qualitative enough? The AASB staff paper published September 2025 confirms both are acceptable. Qualitative narrative analysis can be sufficient for low-exposure reporters. Quantitative modelling is expected where climate risk is financially material, particularly for Safeguard Mechanism facilities, ASX 200 resources or energy reporters, and reporters with concentrated physical asset exposure. The test is whether the depth of analysis is commensurate with the exposure, not the size of the reporter.

Does Carbonly generate the scenario analysis for me? No. Carbonly holds the emission ledger and factor history that scenario models draw from, and packages that data and audit trail into an evidence pack for assurance. The scenario narrative, climate model and sensitivity analysis remain the reporter's authored work, typically produced with a specialised climate risk consultant.

Where to start

If you are a Group 2 reporter with a first reporting period beginning 1 July 2026, the sequence that works is: build the emission ledger first (Scope 1 and 2 by 30 September 2026), commission scenario analysis with a consultant in Q4 2026, and version-lock the model and Basis of Preparation in Q1 2027 for assurance in Q2. Doing scenario analysis before the ledger is defensible is spending consulting fees on an empty foundation.

If you want to see how the emission ledger and evidence pack come together for an auditor walk-through, email hello@carbonly.ai. Per-project pricing with a $100/month workspace minimum. Our first AASB S2 climate disclosure guide and the transition plan template sit next to this one in the sequence.