What does AASB S2 compliance cost?

There are three separate costs and conflating them is why quotes look incomparable: preparation of the report, assurance as a separate engagement with a separate provider, and your own internal time. Preparation cost moves on the number of entities and sites, whether Scope 3 is in scope, and how retrievable your activity data already is. Assurance cost moves mostly on the quality of your working papers.

Should we use a consultant, software, or do it in-house?

They solve different parts of the problem and most first-year reporters need more than one. Software produces numbers, consultants produce judgements and documents, and in-house produces control while carrying the risk. The deciding question is which option leaves you holding a complete assurance file at the end.

What is the materiality threshold for climate disclosures?

There is no prescribed number. Under AASB S2, information is material if omitting or misstating it could reasonably be expected to influence users' decisions. Separately, your assurance practitioner sets a quantitative materiality for testing, and the two are related but different.

Glossary›AASB S2 disclosure requirements / AASB S2 mechanics›Scenario analysis (AASB S2 requirement)

Glossary term

Cluster C · C10

Tier 1 · differentiator

Scenario analysis (AASB S2 requirement)

Definition

Scenario analysis is the technique AASB S2 requires an entity to use when assessing the resilience of its strategy and business model to climate change. The entity considers how it would perform under different plausible future climate and policy conditions. The standard requires an approach commensurate with the entity’s circumstances, not a fixed number of scenarios.

AASB S2

· paragraph 22, with Appendix B paragraphs B1 to B18 ·

In force

On this page

In practice
What the assurer does with it
Commonly confused with
Timing and relief
Sources
Related terms
Related questions

Cluster

C · AASB S2 disclosure requirements / AASB S2 mechanics, 25 terms

In practice

Start with the correction, because most readers arrive holding the wrong position.

AASB S2 does not require two scenarios. It does not require a 1.5°C scenario. It does not require a high-warming scenario. A great deal of Australian vendor and advisory content says it does, often citing paragraph numbers that do not exist in the standard. The requirement in paragraph 22 is that the entity use climate-related scenario analysis to assess its climate resilience “using an approach that is commensurate with the entity’s circumstances”, with the guidance at Appendix B paragraphs B1 to B18.

Why the error spread is worth understanding, because it tells you what the standard does ask. Paragraph 22(b)(i) requires the entity to disclose which scenarios it used, whether the analysis included a diverse range of climate-related scenarios, whether the scenarios relate to transition or physical risk, and whether the entity used, among its scenarios, a climate-related scenario aligned with the latest international agreement on climate change. Those are disclosure questions about what the entity chose. They are not requirements to choose particular scenarios. An entity that used one scenario answers them by saying so. The separate Appendix B paragraph B14 illustration mentioning “a 1.5 degree Celsius outcome” has been widely misread as the second half of a mandate. Read in place, B14 is about analytical choices, and it says that incorporating multiple carbon price pathways associated with a given outcome is likely to strengthen the assessment if the entity can do so without undue cost or effort and if such an approach is warranted by its risk exposure. Two conditions, both about proportionality.

What “commensurate with the entity’s circumstances” actually means is set out in the guidance, and it is more specific than it sounds. Appendix B paragraph B2 requires the entity to assess two things: its exposure to climate-related risks and opportunities (B4 to B5), and the skills, capabilities and resources available to it for the analysis (B6 to B7). Appendix B paragraph B4 states the direction of travel plainly: the greater the exposure, the more likely it is that a more technically sophisticated approach is required, and users would be less likely to benefit from sophisticated modelling where the entity’s exposure is limited. Appendix B paragraph B3 requires the circumstances to be reassessed each time the analysis is carried out.

Four consequences that matter to a mid-market private business.

Qualitative analysis can be enough. Appendix B paragraph B15 states that qualitative information, including scenario narratives, either alone or combined with quantitative data, can provide a reasonable and supportable basis for the resilience assessment. Appendix B paragraph B17 says an entity may use a simpler approach such as qualitative scenario narratives where that suits its circumstances. A business with modest exposure is not obliged to commission quantitative modelling, and the belief that it is has caused a lot of unnecessary spending.

Published scenarios are deemed available. Appendix B paragraph B11 states that publicly available climate-related scenarios from authoritative sources, describing future trends and a range of pathways to plausible outcomes, are considered available without undue cost or effort. Appendix B paragraph B12 permits the entity to use one or more publicly and freely available scenarios, and requires it to have a reasonable and supportable basis for the ones it chooses. It gives two worked illustrations: an entity concentrated in a jurisdiction where emissions are or are likely to be regulated might appropriately use a scenario consistent with an orderly transition or with jurisdictional commitments to the latest international agreement; an entity with heightened physical exposure might appropriately use a localised scenario reflecting current policies. Note that both illustrations are single-scenario.

The analysis need not be annual, but the conclusion must be. Appendix B paragraph B18 permits the entity to carry out its scenario analysis in line with its strategic planning cycle, including a multi-year cycle of three to five years, and says that in some periods the paragraph 22(b) disclosures could remain unchanged. But the resilience assessment itself must be carried out annually, and the paragraph 22(a) disclosure (the results) must be updated at each reporting period. This is the single most useful cost point in the whole area and almost nobody publishes it: a proportionate entity can run the modelling once in a planning cycle and refresh the conclusion each year.

The expectation ratchets. Appendix B paragraph B7 notes that repeating the analysis develops skills and capabilities, and B16 that the approach is likely to change over time. B17 is explicit at the top end: an entity with a high degree of exposure and access to the necessary skills, capabilities or resources is required to apply a more advanced quantitative approach. Proportionality is not a permanent licence to stay qualitative. It is a licence calibrated to where the entity is now, reassessed each cycle.

The honest summary for a CFO: the standard is far more accommodating than the market says about how you do this, and considerably less accommodating about whether you can show you did it and what you concluded.

What the assurer does with it

Scenario analysis sits inside the strategy disclosures. ASSA 5010 paragraph 10(a)(ii) brings strategy risks and opportunities into the year-one review by reference to AASB S2 subparagraphs 9(a), 10(a) and 10(b); paragraph 22 itself comes fully into scope from the second reporting year under ASSA 5010 paragraph 10(b), when the review extends to all disclosures, and into audit scope from the fourth year under paragraph 10(c).

The assurer’s test is proportionality and process, not scenario count. They ask which scenarios were used and from which source, why those scenarios were chosen, what the entity’s assessment of its own circumstances was under Appendix B paragraphs B2 to B7, when the analysis was performed and whether Appendix B paragraph B18’s planning-cycle position is being relied on, what assumptions were fed in, who performed and reviewed it, and whether the disclosed conclusion follows from the work.

They accept an analysis using published reference scenarios from a named authoritative source with stated assumptions, a documented and reasoned basis for the scenario selection, a scope proportionate to the entity’s exposure and capability, and a board or committee record of consideration. A single-scenario or qualitative analysis is not a finding in itself, provided the entity can articulate why that approach is commensurate with its circumstances. Equally, an entity with high exposure and real resources that runs a thin qualitative exercise is exposed, because Appendix B paragraph B17 speaks directly to that case.

They reject a resilience conclusion with no analysis behind it, an analysis whose scenario selection has no stated basis as Appendix B paragraph B12 requires, an analysis performed in an earlier year with no evidence of the annual resilience reassessment Appendix B paragraph B18 requires, a disclosed conclusion the underlying work does not support, and a paragraph 22(b) disclosure that omits the inputs, assumptions and timing the paragraph lists. The recurring first-year finding is a consultant’s scenario deck with no evidence that management or the board engaged with it, which fails because paragraph 22 is a disclosure about the entity’s own assessment.

Commonly confused with

The climate resilience assessment, which is the conclusion; scenario analysis is the technique that produces it. An entity that discloses its scenarios and stops has answered half of paragraph 22. Also confused with financial stress testing, which uses defined adverse economic conditions over a short horizon to test capital adequacy, and with a physical risk hazard screen, which is one possible input rather than the analysis itself. And confused, most consequentially, with the widely asserted two-pathway rule, which is not in the standard.

Timing and relief

No Appendix C transitional relief applies to scenario analysis or the resilience assessment. The requirement applies in full from each entity’s first reporting period applying AASB S2. The genuine flexibility is inside the requirement, not beside it: Appendix B paragraph B18 permits the analysis to follow the strategic planning cycle provided the resilience conclusion is refreshed annually, and Appendix B paragraphs B15 and B17 permit a qualitative approach where commensurate with circumstances.