For many companies preparing for mandatory climate reporting under AASB S2, the idea of scenario analysis can be intimidating. It conjures images of complex climate models and high-stakes assumptions. But the reality is far more approachable, and scenario analysis might just be the key to unlocking long-term business resilience.
At NetNada, we’ve been working with businesses of all sizes to demystify scenario analysis and show how it can become a practical and valuable decision-making tool, not just a box to tick for compliance.
What Is Climate Scenario Analysis, Really?
At its core, scenario analysis is simply a way of exploring what could happen to your business under different climate futures.
Under AASB S2, companies are expected to test their strategy and resilience against at least two climate-related scenarios:
- One aligned with a 1.5°C warming pathway (the global target to avoid the worst climate impacts), and
- One based on a higher warming trajectory—showing what happens if the world fails to curb emissions.
This isn’t about predicting the future. It’s about preparing for it.
Why Scenario Analysis Matters for Business
From our Compliance Countdown workshops, one insight came through loud and clear: companies that take scenario analysis seriously are better equipped to manage uncertainty and make confident, future-facing decisions.
Here’s why it’s important:
- It reveals hidden vulnerabilities in your supply chain, infrastructure, or investment strategies.
- It supports more robust risk management and financial planning.
- It builds credibility with investors and stakeholders by showing that you’ve thought through a range of potential outcomes.
- It lays the groundwork for aligning your business strategy with real-world climate risks and opportunities.
You Don’t Need to Be a Climate Scientist
During the session, an audience member made a point that resonated with many attendees: “Scenario analysis isn’t about getting the modelling perfect. It’s about surfacing the right conversations internally.”
That means:
- You don’t need to run a global climate model in-house.
- You can use publicly available scenarios, such as those from the IPCC, IEA, or CSIRO, and apply them to your context.
- What matters most is your internal interpretation—how different climate futures might affect your business, customers, and community.
Think of it as strategic planning with a climate lens.
Start with What You Know
If you're wondering how to begin, consider the following steps:
- Choose two or more scenarios—a lower-emissions and higher-emissions future.
- Identify key variables that would affect your business in those scenarios (e.g. energy prices, extreme weather, carbon pricing, insurance costs).
- Ask: What changes under each scenario? How does this impact operations, revenue, costs, and resilience?
- Document your findings and assumptions clearly. This isn’t just for regulators—it’s for your own strategic benefit.
As one webinar participant shared, "We started by comparing a business-as-usual strategy to a 1.5°C-aligned path, and it helped us see gaps in our capital planning we hadn’t spotted before."
Common Pitfalls to Avoid
Based on feedback from our Countdown audience, here are a few traps to steer clear of:
- Waiting for perfect data – You’ll never have full certainty. Regulators know this.
- Overcomplicating the process – Simpler, well-documented thinking is better than complex black-box models.
- Treating it as a one-off – Scenario analysis should be revisited regularly as risks evolve and your business strategy shifts.
How Scenario Analysis Fits into AASB S2
Scenario analysis sits under the Strategy pillar of AASB S2. You’re required to:
- Disclose the scenarios used, the assumptions made, and the impacts on your business model.
- Demonstrate how your strategy holds up in these future states.
- Explain how this informs your risk management, investments, and decision-making.
Final Thought: Scenario Analysis = Strategic Advantage
When done well, scenario analysis becomes more than just a compliance task. It’s a strategic advantage that helps future-proof your business in the face of uncertainty.
Need help getting started? We’ve guided dozens of Australian companies through this process—whether it's selecting the right scenarios or simplifying your reporting.
Ready to make scenario analysis work for your business?
Book a call with our team to get expert guidance and streamline your path to AASB S2 compliance.
