This guide focuses on Hong Kong and Hong Kong-listed issuers. Primary official sources and important limitations are listed at the end of the page.
Scenario analysis and a transition plan are not the same thing
| Climate scenario analysis | Transition plan | |
|---|---|---|
| Purpose | Test how the business could perform under different plausible climate futures and identify vulnerabilities, opportunities and strategic options. | Explain how the company plans to respond to climate-related risks, opportunities and targets through actions, resources and governance. |
| Core question | “What happens to us if important climate variables develop differently?” | “What are we going to do, who owns it, what will it cost, and how will we track progress?” |
| Output | Risk, resilience and financial-impact insights, usually with uncertainty ranges. | Actions, milestones, capex/opex, dependencies, assumptions, target pathway and monitoring. |
Scenario analysis can inform a transition plan, but one is not a substitute for the other.
What HKEX Part D expects
Where the HKEX climate requirements apply, an issuer must use climate-related scenario analysis to assess climate resilience using an approach commensurate with its circumstances. Disclosures cover the resilience assessment, implications for strategy and business model, significant uncertainties, adaptive capacity, scenarios and sources used, time horizons, scope of operations and key assumptions.
On transition planning, an issuer discloses how it has responded and plans to respond to climate-related risks and opportunities, including any climate-related transition plan it has and the key assumptions and dependencies on which it relies. If it does not have a transition plan, the Code calls for an appropriate negative statement. It also requires information on resourcing and progress against previously disclosed plans.
What makes scenario analysis “quantitative”?
Quantitative scenario analysis translates selected scenario variables into numerical business effects. It is not a forecast and it does not require a single precise answer. HKEX permits quantitative information as a single amount or a range and includes proportionality mechanisms based on reasonable and supportable information, skills, capabilities and resources.
| Scenario variable | Possible transmission channel | Illustrative output |
|---|---|---|
| Carbon price / regulation | Energy, procurement, production and compliance costs | Cost range, margin impact, capex requirement |
| Temperature / extreme heat | Cooling demand, worker productivity, asset performance | Energy cost, downtime, productivity range |
| Flood / typhoon severity | Asset damage, business interruption, logistics and insurance | Expected loss range, days of disruption, adaptation capex |
| Technology / demand shift | Product mix, asset utilisation, customer demand | Revenue-at-risk, stranded-asset exposure, investment need |
| Energy mix / prices | Electricity and fuel costs, Scope 2 trajectory | Operating-cost and emissions pathway |
A practical quantitative workflow
- Start with decisions. Define which strategic, asset, financing or risk decisions the analysis needs to inform.
- Select material exposures. Prioritise business units, assets, suppliers or portfolios using financial and strategic importance.
- Choose contrasting scenarios. Include transition and physical-risk conditions relevant to the exposure, and explain why they are suitable.
- Define time horizons and variables. Link them to planning, asset-life and capital-allocation horizons.
- Map transmission channels. Show how a climate variable affects volume, price, cost, asset condition, credit risk, insurance or cash flow.
- Quantify where decision-useful. Use transparent assumptions, ranges and sensitivity analysis rather than false precision.
- Review with finance and business owners. Reconcile outputs with budgets, valuations, impairment considerations, risk appetite and capital plans where relevant.
- Document limitations. Record data gaps, model uncertainty, scenario limitations and management judgement.
What a useful transition plan contains
- Strategic objective and the climate risks, opportunities and targets being addressed.
- Current and planned changes to the business model and resource allocation.
- Mitigation and adaptation actions, including value-chain actions where relevant.
- Near- and long-term milestones, metrics and target trajectory.
- Capital expenditure, operating expenditure, financing and people or technology resources.
- Governance, ownership, decision rights and review frequency.
- Key assumptions, dependencies and constraints.
- Role of carbon credits, if any, kept separate from gross emissions reductions.
- Progress reporting and a process for revising the plan when assumptions change.
IFRS S2 itself does not require a company to have a transition plan. It requires disclosure of material information about the company’s climate-related transition and any transition plan it has. HKEX Part D similarly requires disclosure of any plan or an appropriate negative statement.
Connect scenario results to the transition plan
The analysis becomes valuable when it changes a decision. A scenario showing repeated flood disruption may support adaptation capex or a site strategy. A carbon-price scenario may change procurement, product design or asset replacement. A demand-transition scenario may affect investment priorities. The transition plan should explain the response, resources and milestones.
Good practice test
If management cannot identify a decision, risk limit, budget, asset plan, supplier action or strategic option that changed because of the analysis, the exercise may be technically impressive but operationally weak.
Avoid the common failure modes
- Treating a climate scenario as a forecast or probability-weighted prediction.
- Using global scenario data without adapting it to the company’s locations, sector or value chain.
- Producing a large model with no link to strategic or financial decisions.
- Reporting a single number when a range better reflects uncertainty.
- Failing to reconcile assumptions with finance, risk and asset-planning teams.
- Calling a list of aspirations a transition plan without actions, resources, dependencies or governance.
Primary references
Rules, market arrangements and good practice can change. Recheck the source before publication or decision-making.
- HKEX ESG Reporting Code — strategy and climate resilienceParagraphs 22–26 cover strategy, transition plans, financial effects and scenario analysis; proportionality mechanisms apply.
- HKEX ESG Academy — Scenario Planning and AnalysisHong Kong listed-issuer case studies and practical discussion of scenario analysis.
- HKEX reference materials by topicScenario sources and transition-plan reference materials identified by HKEX.
- IFRS Foundation — transition-plan disclosure guidance2025 guidance explaining IFRS S2 disclosures about climate-related transition and transition plans.