What ASIC says

The Australian Sustainability Reporting Standards - AASB S2 requires entities to conduct- and disclose climate-related scenario analysis they’ve used, doing so with at least two distinct future climate scenarios. You must disclose how your strategy and business model would fare under each of those scenarios when preparing sustainability reports under AASB S2.

ASIC’s aim is to ensure that organisations are considering a lower warming pathway (often viewed as very optimistic) and a higher warming pathway (the most widely accepted trajectory) to obtain a fuller picture of the resilience of their strategies, operations, and financial performance. The two mandated scenarios are:

• a scenario consistent with a 1.5 °C increase in global average temperature above pre-industrial levels, equivalent to the IPCC’s SSP1-1.9 projections; and

• a scenario involving a global mean temperature increase exceeding 2 °C above pre-industrial levels (i.e., IPCC SSP2-4.5).

Based on the latest physical climate science – considered alongside observed socio-political behaviour, international relations, and the policy trajectories of the world’s ten largest emitters – SSP2-4.5 best reflects the current most plausible 'real-world' pathway. It assumes uneven, incremental mitigation, persistent fossil fuel use, and partial policy implementation rather than the full delivery of long-term net-zero pledges. 

Current emissions trends and enacted policies place the world on a trajectory consistent with approximately 2.5–3°C of warming this century, consistent with SSP2-4.5 modelling.

Should you go further?

After the first year of reporting and where resourcing permits, we strongly recommend fiduciaries of large organisations supplement the above two assessment scenarios by performing a stress-test using a higher emissions scenario such as SSP3-7.0. So why go further than is required?

Prudent fiduciary responsibility requires explicit consideration of tail risks, not just central estimates. SSP3-7.0 should be used as a high-impact stress scenario, reflecting a world of fragmented geopolitics, weak international coordination, delayed mitigation, and elevated physical climate risk. This pathway is particularly relevant given current geopolitical tensions, energy security concerns, and slowing multilateral climate cooperation.

Critically, processes such as ice-sheet instability, permafrost carbon release, Amazon forest dieback, and potential disruption of large-scale ocean circulation are not fully captured in standard climate-economic models (including by the IPCC). These climate system ‘tipping points’ materially increase downside risk by creating higher climate forcing scenarios. The scientific literature indicates that risks rise non-linearly beyond ~2°C of warming and increase further under these SSP3-7.0-like conditions.

Despite the wealth of evidence of their historical occurrence in the geological record, the probability, timing, and interactions of these tipping points remain uncertain. These uncertainties imply that SSP3-7.0 is not merely a pessimistic outlier, but a necessary lens for understanding exposure to these abrupt, irreversible, and system-wide shocks. Fiduciaries should therefore treat SSP2-4.5 as the baseline planning case, while using SSP3-7.0 to test resilience against severe physical disruption, asset impairment, major supply-chain failure, and insurability limits.

Scenario analysis should be updated annually as required, with explicit documentation of assumptions, confidence bounds, and governance responses tied to emerging climate signals.