Most climate scenario analysis does not fail an AASB S2 audit on the science. It fails on the process. Across the climate risk workshops I run with Australian finance teams, the reasons an auditor pushes back are remarkably consistent, and almost all of them are avoidable.
A scenario analysis stands up to audit when it is documented, grounded in financial terms, and consistent with how the business ranks every other risk. Auditors are not asking you to predict the climate. Under AASB S2, and with limited assurance in year one, they are looking for a defensible, evidenced process rather than perfect foresight.
This article sets out the mistakes I see most often, and the do's and don'ts that keep your scenario analysis credible under review.
What makes a scenario analysis fail an audit?
It is almost never the climate science. Scenario analysis gets rejected on process, not prediction. The recurring failures are the same three things: ratings that cannot be traced back to a source, consequences described in words instead of dollars, and a climate risk register that sits in its own silo, ranked differently from every other risk in the business.
An auditor reviewing your first AASB S2 disclosure wants to see that you considered the right scenarios, applied a consistent method, and can show who decided what and why. Get the process right and the disclosure follows. Get it wrong and no amount of polished narrative will save it.
Common scenario analysis mistakes, and what to do instead
Most of what trips teams up comes down to six habits. Here is what to avoid, and what to do instead.
Don't pick your two scenarios on instinct. Do choose one low-emissions scenario aligned with around 1.5°C and one higher-emissions scenario above 2.5°C, and write down why you selected each.
Don't describe risks in vague narrative. Do define consequences in financial bands an auditor can actually test, so a rating is a number rather than an opinion.
Don't rank climate risk on its own separate scale. Do use the same likelihood and consequence framework you already use for enterprise risk, so climate sits alongside everything else.
Don't dismiss the 1.5°C scenario as unrealistic. Do stress-test against it anyway, because for Australian companies under ASRS the low-emissions scenario is required, not optional.
Don't treat an AI chat transcript as evidence. Do keep a documented trail showing who agreed each rating and on what basis.
Don't record only the risks that made the cut. Do document the immaterial ones too, so your auditor can see you considered the full list.
Can you just do this with AI?
This is the question I get asked most, so here is my honest take. General AI tools are genuinely useful for the early work: explaining the standard, drafting a first-pass risk list, and tightening your wording. Used like a sharp junior analyst, they save real time.
They fall down because they do not know your sites, your contracts, or your supply chain, so they invent risks that do not apply and miss the ones that matter. And critically, an AI chat transcript is not assurance evidence. The teams who get value from AI use it inside a controlled, evidenced process, not instead of one.
What audit-ready scenario analysis looks like
Audit-ready scenario analysis is structured, consistent, and evidenced. Two documented scenarios. Consequences defined in dollars. The same ranking framework as your enterprise risk. A clear materiality threshold, with the immaterial risks recorded alongside the material ones. And a source trail behind every rating.
None of that requires you to be a climate scientist. It requires the same discipline you already apply to financial reporting. We have pulled the full method into a free guide, Scenario Analysis That Stands Up to Audit, which walks through it step by step, including a candid assessment of where AI helps and where it falls short. If you would rather talk it through, you can book a free 30-minute call to map your ASRS scenario analysis.
Trace is a climate reporting platform specialising in ISSB and AASB standards, helping businesses navigate mandatory climate disclosure with clarity and confidence.
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