Climate Scenario Analysis Under UK SRS

What UK SRS S2 Requires

UK SRS S2 requires companies to use climate-related scenario analysis to assess the resilience of their strategy to climate-related risks and opportunities. This is mandatory — not recommended, as it was under TCFD. Companies must consider at least two scenarios, one of which should be consistent with limiting global temperature rise to 1.5°C above pre-industrial levels. The scenarios must address both physical risks (acute events such as floods and storms, and chronic changes such as sea level rise and temperature increases) and transition risks (policy, technology, market, and reputational changes associated with the shift to a lower-carbon economy).

Scenarios must cover short, medium, and long-term time horizons. The company must define what short, medium, and long term mean for its business and explain how those horizons were determined. The financial impact of each scenario must be expressed in quantitative terms where practicable. Qualitative disclosure is permitted only where quantification is genuinely not feasible, and the company must explain why.

Acceptable Scenario Frameworks

UK SRS S2 does not prescribe specific scenarios but provides guidance on what constitutes a credible scenario framework. The most commonly used frameworks include the Network for Greening the Financial System (NGFS) scenarios, which are designed for financial institutions and regulators; the International Energy Agency (IEA) World Energy Outlook scenarios, including the Net Zero Emissions by 2050 scenario; and the Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathways and Shared Socioeconomic Pathways.

Companies may also use bespoke scenarios tailored to their specific industry or geography, provided these are grounded in credible scientific and economic assumptions. The key requirement is that at least one scenario is consistent with a 1.5°C outcome and that the scenarios collectively cover a range of possible futures, not just a single central estimate.

The Step Up from TCFD

Under TCFD, many companies provided qualitative scenario narratives — describing in general terms how a high-warming or low-warming scenario might affect their business. UK SRS S2 requires a material upgrade. The financial impacts of each scenario must be quantified, the scenarios must demonstrably inform the company's strategy and risk management (not exist as a standalone exercise), and the analysis must be refreshed at least annually. Companies that have previously treated scenario analysis as a compliance exercise will need to embed it into their strategic planning processes.

Practical Guidance

• Start with a minimum of two scenarios: a 1.5°C-aligned scenario and a higher-warming scenario (3°C or current policies).
• Define your time horizons clearly — short term (1–3 years), medium term (3–10 years), and long term (10–30 years) are common, but the horizons should reflect your business and asset base.
• Identify the key physical and transition risk drivers for your industry and map them to specific financial impacts (revenue, costs, asset values, capital expenditure).
• Use quantitative modelling where data is available. Where it is not, disclose the qualitative assessment and explain the limitation.
• Document how the scenario analysis has influenced strategic decisions — this is the connectivity that UK SRS demands.