Climate scenario analysis under UK SRS S2: a practical guide

What paragraph 22 actually requires

Climate scenario analysis is not a presentational flourish. Paragraph 22 of UK SRS S2 requires an entity to use climate-related scenario analysis to assess its climate resilience, using an approach that is commensurate with its circumstances^[1].

Where climate-related risk is material, this is a hard requirement. The entity must demonstrate the resilience of its strategy and business model — and disclose how it reached that conclusion^[1].

The phrase that matters is “commensurate”. The standard scales the rigour to the entity. Appendix B1 explains that the approach must enable the entity to consider all reasonable and supportable information available at the reporting date without undue cost or effort^[1].

An entity with high exposure and access to the necessary skills, capabilities or resources is required to apply a more advanced, quantitative approach. An entity with high exposure but limited capability may begin with a simpler approach and build towards quantitative analysis over time^[1].

The Paris-aligned scenario

Among the inputs it discloses, an entity must state whether it used a climate-related scenario aligned with the latest international agreement on climate change^[1].

That agreement is the Paris Agreement, whose Article 2 sets the goal of holding the increase in global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit it to 1.5°C^[6].

In practice this means at least one ambitious decarbonisation pathway — a 1.5°C or net zero scenario — sits in the analysis.

But a single ambitious scenario is rarely enough on its own.

The standard also asks whether the analysis used a diverse range of scenarios, because different pathways surface different risks: an aggressive transition pathway exposes transition risk, while a high-warming pathway exposes physical risk^[1].

The four pillars these disclosures sit within — governance, strategy, risk management, and metrics and targets — are set out in our UK SRS S2 climate disclosures guide.

Physical risk versus transition risk

UK SRS S2 asks an entity to disclose whether the scenarios it used are associated with climate-related transition risks or physical risks^[1]. The distinction shapes which scenarios you reach for.

Physical risk comes from the changing climate itself. Transition risk comes from the shift to a lower-carbon economy. The two are, in a sense, in tension: the faster the world decarbonises, the lower the physical risk but the higher the transition risk — and vice versa.

Because no single scenario captures both well, a credible analysis usually pairs an ambitious decarbonisation pathway with a higher-warming one.

The Paris-aligned scenario covers the transition end; a hot-world scenario covers the physical end.

Scenarios commonly used: NGFS and IEA

UK SRS S2 does not mandate a particular scenario provider. It requires the entity to disclose which scenarios it used and the sources of those scenarios^[1]. Two public sets dominate practice.

The NGFS scenarios, produced by the Network for Greening the Financial System for central banks and supervisors, are designed to explore how the economy and financial system might evolve under different levels of climate policy ambition. The Phase V set comprises seven scenarios grouped into four categories: orderly transition, disorderly transition, hot world, and too little too late^[4].

The IEA scenarios, from the World Energy Outlook and the Global Energy and Climate Model, are widely used for the energy transition. They include the Net Zero Emissions by 2050 (NZE) scenario, the Announced Pledges Scenario (APS) and the Stated Policies Scenario (STEPS)^[5].

How to scope and run the analysis

There is no prescribed methodology in the standard, but the disclosure requirements imply a sequence.

1. Scope it to your exposure. Decide how rigorous the analysis needs to be. High exposure plus capability means quantitative; high exposure with limited capability can start simpler and mature over time^[1].

2. Choose a diverse range of scenarios. Include at least one Paris-aligned pathway, and pair it with a higher-warming pathway so both transition and physical risk are explored^[1].

3. Set time horizons. The standard expects disclosure of the time horizons used; align them with the life of your assets, strategy and capital plans^[1].

4. Map impacts and assumptions. Translate each pathway into effects on your operations, value chain and financial position, recording assumptions about climate policy, macroeconomic trends, energy use and technology^[1].

5. Draw a resilience conclusion. The output is a judgement about the resilience of your strategy and business model — supported by the analysis, not asserted alongside it^[1].

For the underlying climate metrics that feed and follow this work, including Scope 3, see our Scope 3 reporting guide.

What to disclose

Paragraph 22(b) sets out what the entity must disclose about the analysis itself. The aim is auditability: a reader should be able to judge how robust the resilience conclusion is^[1].

Where the entity has published a climate-related transition plan, the resilience disclosure interconnects with it — and the FCA’s separate CP26/5 proposal would require disclosure of whether a transition plan has been published^[3].

When this becomes mandatory

UK SRS S1 and S2 were published on 25 February 2026 and are available for voluntary use^[2].

The FCA consulted in CP26/5, published on 30 January 2026, on requiring in-scope listed companies to report against UK SRS S2 for accounting periods beginning on or after 1 January 2027^[3].

CP26/5 closed on 20 March 2026, and the FCA aims to publish a Policy Statement in autumn 2026^[3].

For in-scope companies, the paragraph 22 scenario-analysis requirement applies in full from first application^[1]. Who falls in scope, and from when, is set out in our UK SRS × FCA framework.

Climate scenario analysis: frequently asked questions