Climate scenario analysis under UK SRS

What UK SRS S2 actually requires

UK SRS S2 was published by the Department for Business and Trade on 25 February 20261, alongside UK SRS S1. Both standards are currently available for voluntary use; the FCA has consulted on making climate-related disclosures proposed mandatory reporting for in-scope listed issuers from financial years beginning on or after 1 January 2027.

Paragraph 22 of UK SRS S2 contains the substantive requirement. An entity shall disclose information that enables users of general purpose financial reports to understand:

The mechanics are set out across paragraphs B1 to B18 of the application guidance1.

Paragraphs B2 to B7 cover how an entity assesses its circumstances; paragraphs B8 to B15 cover how an entity determines an appropriate approach; paragraphs B16 to B18 cover additional factors over time.

The structure of the requirement is important: an entity does not freely choose its method.

The method is determined by the entity's circumstances, and those circumstances must be reassessed each time the analysis is carried out.

The proportionality principle

The defining feature of UK SRS S2 scenario analysis is that the approach must be "commensurate with the entity's circumstances." This is not a get-out clause — it is a calibration rule.

The IFRS Foundation factsheet published in March 20263, which applies equally to UK SRS S2 because the two standards are aligned, describes this as a matrix approach.

Two further calibration mechanisms apply. Under paragraph B15, qualitative information — including scenario narratives, either alone or combined with quantitative data — can provide a reasonable and supportable basis for the resilience assessment1.

Under paragraph B18, the entity is not required to refresh the underlying scenario analysis annually; it may align the scenario analysis with its strategic planning cycle, which the standard suggests could be every three to five years1. However, the entity must update its assessment of resilience annually to reflect new insight.

This creates an important update asymmetry. The resilience output disclosed under paragraph 22(a) is refreshed every reporting period. The scenario methodology disclosed under paragraph 22(b) may remain unchanged across multiple periods if no new scenario analysis was carried out in the period.

Which scenarios

UK SRS S2 does not mandate a specific scenario or scenario provider. Paragraph B12 instead requires the entity to use "reasonable and supportable" inputs to its scenario analysis, taking into account the entity's particular circumstances and the geographical location of its activities1.

In practice, three scenario families dominate UK practice:

A material change in the 2025 update: the IEA now states that exceeding 1.5°C in the short term is inevitable; the updated NZE Scenario sees temperatures rise to around 1.65°C before falling back below 1.5°C by 2100. Companies using IEA NZE as their 1.5°C-aligned pathway should reflect this in their disclosure rather than relying on the original 2021 framing.

IPCC scenarios. The IPCC's Shared Socio-economic Pathways (SSPs) — SSP1-1.9, SSP1-2.6, SSP2-4.5, SSP3-7.0, SSP5-8.5 — are widely used for physical climate risk modelling and are referenced by the NGFS scenarios.

For most entities, the standard expectation is at least two scenarios: one consistent with the latest international agreement on climate change (typically a 1.5°C or well-below-2°C pathway) and at least one scenario with higher physical risk to test resilience against transition failure.

Paragraph B11 of UK SRS S2 explicitly contemplates that the scenarios should include consideration of the latest international agreement on climate change1.

What the FCA proposed in CP26/5

The FCA published Consultation Paper CP26/5 on 30 January 20262. The consultation closed on 20 March 2026; a final Policy Statement is expected in autumn 2026 with rules taking effect from 1 January 2027.

Under the CP26/5 proposals, in-scope listed companies — commercial companies (UKLR6), non-equity shares and non-voting equity shares (UKLR16), and the transition category (UKLR22) — would be required to report against UK SRS S2 on a mandatory basis.

The scenario analysis requirements in paragraph 22 therefore apply in full. The FCA proposed an exception for Scope 3 emissions, which would continue on a comply-or-explain basis given persistent value chain data limitations.

CP26/5 does not propose to amend or soften the scenario analysis requirements themselves. The proportionality mechanism in S2 climate standard — that smaller or less exposed entities may use simpler approaches — is preserved.

Consultation responses from the Quoted Companies Alliance and others argued for explicit FCA confirmation that smaller listed issuers are not expected to undertake externally validated or quantitatively modelled scenario analysis. The final Policy Statement will indicate whether the FCA accepts that framing.

Quantitative versus qualitative

The standard does not require quantification. It permits it, expects it where capability and exposure warrant it, and pushes entities toward more quantitative approaches over time.

Paragraph B17 states that an entity with high exposure and access to the necessary skills, capabilities or resources "is required to apply a more advanced quantitative approach to climate-related scenario analysis."1 Paragraph B16 states that an entity using a simpler approach initially is expected to build capability and apply a more advanced approach over time1.

In practice, three levels of analytical depth are commonly used:

• Qualitative scenario narratives. A description of how the entity's strategy and business model would respond to scenario conditions, supported by reference to external scenario sources but without parametric modelling of financial impacts. Appropriate for smaller entities with limited climate exposure.
• Hybrid analysis. Qualitative narratives supplemented by directional or order-of-magnitude quantification of selected impacts — for example, exposure of fixed assets to physical risk by geographic location, or estimated cost of carbon under a transition scenario.
• Quantitative modelling. Full financial modelling of scenario outcomes through revenue, cost, capital expenditure and balance sheet line items, with explicit assumptions about climate policy, energy prices, demand patterns and physical risk. This is the expected approach for larger financial institutions and high-exposure industrials.

The FCA's cost-benefit analysis in CP26/5 assumes that the majority of in-scope listed companies will move toward more quantitative approaches over time but does not require uniform quantification at the point of first application2.

What the resilience disclosure must contain

Paragraph 22(a) requires the entity to disclose its assessment of climate resilience itself. This is not a summary of the scenario analysis methodology; it is a statement about the entity's strategy and business model1.

The disclosure should address the implications of the scenario analysis for the entity's strategy and business model, including the implications for the entity's existing assets, planned investments, financing requirements and access to capital.

It should explain how and when the entity expects to respond to climate-related risks and opportunities, including any planned transition activity. Where the entity has published a climate-related transition plan, paragraph 22 is interconnected with the transition plan disclosures and the FCA's separate proposal in CP26/5 to require disclosure of whether a transition plan has been published.

Paragraph 22(b) then sets out what the entity must disclose about the analysis itself: the scenarios used, the time horizons, the scope of operations covered, and the key assumptions including those about climate policy, macroeconomic trends, national or regional variables, energy usage, and technology1.

For entities operating across multiple jurisdictions, the analytical choices must be made transparent enough that a user can assess whether the inputs are reasonable in light of the entity's circumstances.

How this fits with the wider framework

UK SRS S2 sits within a broader UK regulatory framework. The standard is explicitly designated by Government as a national reporting framework under section 414CB(2A) of the Companies Act 20067, which means an entity using UK SRS S2 does not need to separately satisfy the climate-related financial disclosure requirements in section 414CB(1)-(5) — provided the use of UK SRS S2 is clearly referenced in the Non-Financial and Sustainability Information Statement.

This was confirmed by the FRC6 and applies whether UK SRS S2 is applied on a mandatory or voluntary basis. For listed companies, the existing TCFD-aligned Listing Rule disclosures continue to apply until the FCA's final Policy Statement takes effect.

Companies preparing for UK SRS compliance should expect their existing UK SRS vs TCFD scenario work to transfer substantially, with two principal areas of upgrade: greater quantification of financial impacts, and tighter linkage between scenario analysis outputs and the resilience disclosure required by paragraph 22(a).

What to do this year

Companies in scope of the FCA's CP26/5 proposals should treat 2026 as a transition year. The practical sequence:

• Map current <SEOLink href="/uk-srs-vs-tcfd" variant={2}>differences from TCFD</SEOLink> scenario work against UK SRS S2 paragraph 22 and its application guidance. Most TCFD-aligned scenario analysis will satisfy the methodology disclosure under paragraph 22(b) with limited modification; the resilience disclosure under paragraph 22(a) is more likely to require new work.
• Decide which scenario set will anchor the disclosure. For most non-financial entities, a combination of one 1.5°C-aligned pathway (IEA NZE or NGFS Orderly) and one higher physical risk scenario (NGFS Hot House World or an SSP3/5 pathway) is the minimum credible set.
• Assess where on the proportionality matrix the entity sits, and document the assessment. The "commensurate with circumstances" calibration is a defensible judgement, but it must be a documented judgement.
• Align the scenario analysis cycle with the entity's strategic planning cycle. There is no requirement to repeat the full scenario analysis annually, but the assessment of resilience must be refreshed each <SEOLink href="/uk-srs-timeline" variant={0}>UK SRS timeline</SEOLink> reporting period.
• Engage the audit committee early. Scenario analysis outputs feed the strategy resilience disclosure, which sits within the Strategic Report and is therefore subject to the same governance as financial reporting.