Climate scenario analysis has a clear and useful place within IFRS S2 work, but it is easy to overstate what a single report achieves. A physical-risk screening of a portfolio is evidence. It is not, on its own, a complete disclosure. Used well, it becomes the first structured layer of an organisation's climate-risk process: broad enough to cover the whole estate, transparent enough to review, and disciplined enough to show where deeper work is required. This note sets out where it fits, and where it does not.
Scenario analysis is evidence, not the whole disclosure
IFRS S2 asks an organisation to consider its resilience to climate-related risks and opportunities across a range of scenarios, and to disclose how climate risk is governed, managed and reflected in strategy. Scenario analysis can support that assessment of resilience. But a hazard report does not, by itself, establish:
- Investor materiality.
- Current financial effects.
- Anticipated financial effects.
- Strategic resilience.
- Governance effectiveness.
- Integration into risk management.
- Adaptation commitments.
- Metrics and targets.
These are organisational processes and judgements that sit around the analysis. The screening informs them; it does not replace them. Keeping that boundary clear is what makes the evidence credible.
What portfolio screening can support
Within that boundary, screening provides a great deal. It can offer evidence concerning:
- Geographic exposure across the estate.
- Exposure by hazard.
- Exposure by scenario and time horizon.
- Concentrations of higher exposure.
- Differences between countries or business units.
- Potential supply-chain exposure.
- Locations requiring further review.
- Potential operational implications.
- Possible resilience priorities.
This is exactly the kind of structured, portfolio-wide evidence that resilience assessment and risk identification need as a foundation.
Connect physical exposure to business context
The next stage is to relate hazard exposure to the business itself. A geographic signal becomes decision-useful only when it is read against:
- Business model and value chain.
- Asset or supplier criticality.
- Employees.
- Revenue.
- Operating expenditure.
- Production capacity.
- Customer service.
- Substitutability of sites or suppliers.
- Insurance.
- Existing controls.
- Capital-planning cycles.
This step turns a hazard band into business evidence. It is also where the analysis draws on people who know the assets, rather than on the model alone.
Materiality requires further assessment
A High exposure band is not automatically material under IFRS S1 or IFRS S2. Materiality depends on whether information could reasonably be expected to influence the decisions of the primary users of general-purpose financial reports. That is an entity-specific judgement, and it cannot be established by a screening band alone. Determining it still requires consideration of:
- Magnitude.
- Likelihood.
- Timing.
- Financial pathways.
- Existing controls.
- Strategic importance.
- Aggregation across locations.
- Dependencies and uncertainty.
Screening helps surface candidates for that assessment and helps prioritise it. It does not pre-empt the judgement.
Linking findings to financial effects
Boards reasonably ask what exposure means in financial terms. Screening can point to the pathways through which physical risk could translate into financial effect, without turning a band directly into a monetary loss. Those pathways include:
- Business interruption.
- Reduced labour productivity.
- Increased cooling costs.
- Asset damage.
- Insurance availability or premiums.
- Maintenance expenditure.
- Water-security costs.
- Supply interruption.
- Logistics disruption.
- Adaptation capital expenditure.
- Changes in asset life or useful-life assumptions.
Quantifying any of these requires additional finance, engineering, operational and insurance information. Transition exposure follows the same logic from a different starting point: it is assessed from organisational emissions and financial data against carbon-price pathways, as set out in our transition-risk model, rather than from geography.
Supporting governance and risk management
Screening results are well suited to the governance and risk-management questions IFRS S2 raises. They can be used to:
- Brief the board and management.
- Populate or update climate-risk registers.
- Prioritise detailed assessments.
- Assign ownership.
- Identify monitoring indicators.
- Inform escalation thresholds.
- Integrate climate considerations into enterprise risk management.
- Support capital and adaptation planning.
Aggregation and the portfolio view
Individual assets rarely tell the whole story. A handful of High sites may matter less than a large cluster of Medium sites that share a single hazard, a single supplier or a single region. Reading results at the portfolio level, rolled up by group, country, region and business unit, surfaces concentrations that asset-by-asset review can miss. It also helps an organisation avoid the trap of disclosing only its most prominent locations while leaving the long tail of the estate unexamined. Aggregation is where screening earns its place as the broad first layer of the process.
Supporting resilience assessment
Resilience is assessed by comparing results across plausible scenarios and time horizons, and asking whether the strategy still holds. Good analysis does not merely produce maps. It helps management consider:
- What changes?
- When does it change?
- Which assets or business activities are affected?
- What controls exist?
- What actions are available?
- What assumptions or uncertainties could change the conclusion?
The role of limitations and traceability
A report that supports governance and review must document how it was made. That means setting out sources, methods, model versions, baselines, scenarios, time horizons, resolution, assumptions, limitations, data gaps and intended use. This supports governance, repeatability and audit review. It allows a reviewer to trace a result back to its inputs and methods. It does not imply that an auditor endorses the analytical conclusion, and the distinction between management use and audit review should be kept clear throughout.
Conclusion
Portfolio screening is most valuable when it becomes the first structured layer of an organisation's climate-risk process: broad enough to cover the full portfolio, transparent enough to review, and disciplined enough to identify where deeper operational, financial or site-level work is required. Read that way, it does not claim to complete an IFRS S2 disclosure. It gives the organisation the evidence base from which a credible disclosure can be built. The services and methodology pages set out how we produce that evidence, and the sample outputs show what it looks like.