Climate Risk and Scenario Analysis
Climate risk and scenario analysis for Malaysian organisations.
Understand how physical climate impacts and the transition to a lower-carbon economy could affect your operations, value chain and financial prospects.
Scout360 helps organisations identify material climate-related risks and opportunities, select relevant scenarios, assess strategic resilience and prepare decision-useful information for IFRS S2 and Malaysia's National Sustainability Reporting Framework.
For organisations beginning climate scenario analysis or strengthening an existing assessment for disclosure and management review.
The two risk families
What are climate risk and scenario analysis?
Climate risk assessment examines how climate change and the economic transition responding to it could affect an organisation. IFRS S2 groups climate-related risks into physical and transition risks.
Physical risk
Arises from weather and longer-term changes in climate. Acute risks include events such as floods, storms, heatwaves and droughts; chronic risks include changing rainfall patterns, rising temperatures, water stress and sea-level rise. Effects may be direct, such as damage to an asset, or indirect through suppliers, logistics, workforce productivity, insurance availability, customers and infrastructure.
- A plant on a flood plain
- Heat limiting outdoor working hours
- A single-source supplier in one basin
- Insurance withdrawn from a location
Transition risk
Arises as markets and economies respond to climate change. It may result from regulation, carbon pricing, technology, changing customer demand, financing conditions or other shifts associated with moving towards a lower-carbon economy. Transition also creates opportunities, including demand for lower-carbon products, resource efficiency and access to emerging markets.
- A carbon price on a covered activity
- A customer setting supplier targets
- Capital cost of plant replacement
- Financing conditions tightening
Climate-related scenario analysis
Scenario analysis explores how the organisation might perform under several plausible future conditions. It is not a forecast and does not attempt to identify one correct future. It tests whether the business model and strategy remain resilient when assumptions about temperature, policy, energy, technology and physical hazards change.
IFRS S2 requires an organisation to use climate-related scenario analysis to inform its assessment of climate resilience. The approach must be commensurate with its circumstances, including its exposure to climate risks and its available skills, capabilities and resources. Qualitative analysis may be appropriate in some circumstances; organisations with greater exposure or capability may require more quantitative assessment.
Applicability
When does climate scenario analysis apply?
Under Malaysia's NSRF, IFRS S2 is being introduced according to organisation group. Climate-related scenario analysis forms part of the IFRS S2 climate-resilience requirements.
- 1
Group 1
Main Market issuers with market capitalisation of RM2 billion and above.
- IFRS S2 reporting begins
- 2025
- Expected first report
- 2026
- 2
Group 2
Other Main Market issuers.
- IFRS S2 reporting begins
- 2026
- Expected first report
- 2027
- 3
Group 3
ACE Market issuers and non-listed companies within the NSRF threshold.
- IFRS S2 reporting begins
- 2027
- Expected first report
- 2028
Expected report dates assume a calendar-year reporting period. Actual timing depends on the organisation's financial year and applicable requirements.
Requirements and transition arrangements may change. Organisations should confirm what applies to each reporting period.
Climate-first transition relief allows eligible organisations to focus initially on IFRS S2 before applying the complete IFRS S1 requirements. It does not remove the IFRS S2 requirement to use scenario analysis to inform the climate-resilience assessment.
The analysis does not have to be rebuilt from the beginning every year. IFRS S2 permits it to be updated in line with the organisation's strategic planning cycle, while the resilience assessment and related disclosures are reported annually. Material changes in risk exposure, strategy or assumptions may require earlier reconsideration.
Why it matters
Why this analysis matters.
It is an IFRS S2 disclosure requirement
An emissions inventory alone does not satisfy IFRS S2. Reporting organisations must explain their assessment of climate resilience and how scenario analysis informed it, including the scenarios, time horizons, inputs and key assumptions used.
Historical data cannot test future conditions
Conventional risk registers often rely on past events and current controls. Scenario analysis examines conditions that have not yet occurred, such as higher carbon prices, changing technology, more severe heat or disrupted access to vulnerable locations.
Material risks must connect to business decisions
The assessment should help management understand where climate conditions could affect assets, supply chains, revenue, expenditure, financing or capital allocation. If the analysis cannot inform a decision or disclosure, its scope and assumptions should be reconsidered.
Scope of support
What Scout360 can support.
Readiness assessment and scope
Confirm the reporting objective, applicable requirements, entities, assets, value-chain exposures, time horizons and decision areas to be covered by the assessment.
Climate-risk identification
Identify relevant acute and chronic physical risks, transition risks and climate-related opportunities across operations, suppliers, customers and key geographical locations.
Scenario selection and design
Select reasonable and supportable scenarios and assumptions suited to the organisation's exposure. Sources may include current NGFS, IPCC, IEA and locally relevant hazard data, adapted where necessary to the organisation's sector and locations.
Exposure and vulnerability assessment
Assess how exposed assets, activities and value-chain relationships could be affected, consider existing controls and adaptation measures, and prioritise material vulnerabilities for deeper analysis.
Business and financial implications
Work with finance, risk and operational teams to evaluate possible transmission channels into revenue, costs, assets, liabilities, financing and capital decisions. The depth of quantification is matched to available evidence and capability.
Resilience and disclosure preparation
Document the scenarios, assumptions, limitations and management responses; assess strategic resilience; and prepare or review IFRS S2-aligned disclosure for management and board consideration.
How the work runs
A practical climate scenario analysis framework.
- 1
Establish the decision context
Define why the analysis is being performed, which reporting requirements apply and which strategic or financial decisions it should inform.
OutcomeA clear purpose, boundary and governance structure.
- 2
Identify material exposures
Map physical and transition risks across assets, operations and the value chain, considering location, sector and time horizon.
OutcomeA prioritised climate-risk register.
- 3
Select relevant scenarios
Choose scenarios that create meaningful contrasts in physical impacts and transition pathways. Document why they are relevant and any adaptations made.
OutcomeA defensible scenario set and assumption record.
- 4
Assess impacts and vulnerabilities
Evaluate how each scenario could affect exposed activities, existing controls and critical dependencies. Apply qualitative or quantitative methods appropriate to the organisation's circumstances.
OutcomeA structured view of potential impacts under each scenario.
- 5
Evaluate resilience and responses
Consider whether the strategy remains viable, where adaptation or transition action may be needed, and which responses require management attention or investment.
OutcomeAgreed resilience findings and response priorities.
- 6
Disclose, govern and update
Prepare the required disclosure, record uncertainties and limitations, complete management and board review, and define when the assessment will be refreshed.
OutcomeA repeatable process supported by documented judgement.
Deliverables
What the final output can include.
Depending on the agreed scope, the engagement may produce:
- a physical and transition climate-risk register;
- documented scenario selection, assumptions and time horizons;
- asset, location or value-chain exposure analysis;
- qualitative or quantitative impact assessment;
- resilience findings and management-response priorities; and
- IFRS S2-aligned disclosure content and supporting workpapers.
Scenario outputs are subject to uncertainty and model limitations. They should be interpreted as decision-support information rather than predictions or guarantees of future outcomes.
Where this connects
Related services.
Common questions
Frequently asked questions.
Not in every case. IFRS S2 requires an approach commensurate with the organisation's circumstances. Qualitative scenario narratives may provide reasonable and supportable information for organisations with lower exposure or limited capability, while more exposed or experienced organisations may need quantitative analysis.
IFRS S2 does not prescribe one scenario set. Scenarios should be relevant to the organisation's risks, activities and locations. The selection may draw on recognised sources such as NGFS, IPCC or IEA pathways and should include documented assumptions and limitations.
No. Scenario analysis is a broader method for exploring plausible future conditions and strategic resilience. Stress testing generally applies more specified shocks to assess financial vulnerability. The appropriate method depends on the objective and applicable regulatory requirements.
Yes, where the scope is justified. An organisation may begin with its most exposed assets, locations or transition drivers, provided material exclusions and limitations are documented and the approach remains suitable for the reporting objective.
Understand where your strategy may be exposed, and what to do next.
Scout360 can tailor the assessment to your reporting obligation, climate exposure, available information and internal capability, from a proportionate first exercise to a more detailed resilience assessment.
We aim to respond within two business days.
Technical and regulatory information last reviewed: 7 August 2026.
Official references: IFRS Foundation: IFRS S2, IFRS Foundation: climate resilience and scenario analysis, Securities Commission Malaysia: NSRF tools and data resources, Securities Commission Malaysia: NSRF, and NGFS climate scenarios.