Climate-related scenario analysis is one of the more demanding requirements in UK SRS S2.
Paragraph 22 of the standard requires every entity in scope to disclose information that enables users of its general purpose financial reports to understand the resilience of its strategy and business model to climate-related changes, developments and uncertainties —
and to use scenario analysis to support that disclosure.
This page sets out what the standard requires, how the FCA's proposed Listing Rule changes apply it from 1 January 2027,
which scenarios are commonly used, and where the standard accommodates entities with less mature analytical capability.

What UK SRS S2 actually requires

UK SRS S2 was published by the , alongside UK SRS S1.
Both standards are currently available for voluntary use; the FCA has consulted on making UK SRS S2 proposed mandatory for in-scope listed issuers from financial years beginning on or after 1 January 2027.

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

FCA consultation process

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 combination of these factors determines whether a simpler or more advanced approach is appropriate.
The IFRS Foundation factsheet published in March 2026, which applies equally to UK SRS S2 because the two standards are aligned, describes this as a matrix:
an entity with high exposure and high analytical capability is expected to apply a more advanced, quantitative approach;
an entity with low exposure or limited capability may use a simpler approach such as qualitative scenario narratives.

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 assessment. 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 years. 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 activities.

In practice, three scenario families dominate UK practice:

NGFS scenarios.
The Network for Greening the Financial System publishes a set of reference scenarios designed for financial sector use.
The NGFS published an updated Guide on climate scenario analysis on 13 November 2025, organised around four scenario families:
Orderly transition, Disorderly transition, Hot House World, and Too Little Too Late.
The updated guide added more granular short-term scenarios for near-term risk assessment.
NGFS scenarios are the de facto reference for UK financial services firms and are routinely cited in Bank of England supervisory exercises.

IEA Net Zero Emissions by 2050 (NZE) Scenario.
The IEA's NZE Scenario, updated in October 2025 as part of World Energy Outlook 2025, translates the Paris Agreement's 1.5°C goal into a global pathway for the energy sector.
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 change.

What the FCA proposed in CP26/5

The FCA published Consultation Paper CP26/5 on 30 January 2026. 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; for the FCA's broader Scope 3 treatment see scope 3 under UK SRS.

CP26/5 does not propose to amend or soften the scenario analysis requirements themselves. The proportionality mechanism in UK SRS S2 — 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."
Paragraph B16 states that an entity using a simpler approach initially is expected to build capability and apply a more advanced approach over time.

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 application.

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 model.

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 technology. 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 2006, 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 FRC 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 mandatory UK SRS S2 reporting should expect their existing 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 TCFD 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 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.

Sources and References

• UK SRS S2 Climate-related Disclosures — Final UK SRS S2 published by DBT on 25 February 2026
• FCA CP26/5 — FCA consultation published 30 January 2026 proposing mandatory UK SRS S2 reporting
• IFRS Foundation Factsheet — March 2026 implementation factsheet on the proportionality matrix
• NGFS Guide to Climate Scenario Analysis — Updated guide published 13 November 2025
• IEA Net Zero Emissions by 2050 Scenario — IEA's updated NZE Scenario, October 2025
• FRC Sustainability Reporting FAQ — FRC FAQ updated 26 February 2026
• Companies Act 2006, Section 414CB — Non-Financial and Sustainability Information Statement provisions