Speaker 1: 0:04

Welcome to the Energetics Exchange podcast, conversations with Energy and Climate Experts. Please note that the information and commentary in this podcast is of a general nature only, and does not take into account the objectives, financial situation, or needs of any particular individual or business. Listeners should not rely upon the content in this podcast without first seeking advice from a professional.

Speaker 2: 0:30

Well, hello and welcome to another episode of Energetics Exchange podcast series. I'm Steven Kapo , finance sector Leader Energetics, and today I'm joined by Dr. Tanya Fiedler , accountant, senior lecturer at the University of Sydney. And from next year, CNTA fellow of the recently launched UNSW Institute for Climate Risk and Response, ICRR, and most importantly, energetics alumni. Together we're going to discuss the wider ramifications of the upcoming Mandatory Climate Disclosures, the importance of building the right capabilities and the role of ICRR in business and government responses to climate risks. Before we start today's podcast, I'd like to acknowledge the traditional owners of country throughout Australia and recognize their continuing connection to lands, waters, and communities. We pay our respects to Aboriginal and Torres Strait Islander cultures and to elders past and present. I'd particularly like to acknowledge the ca people of the EO nation as a country from where I'm broadcasting today. Tanya , thanks for taking the time to catch up about this today. I'm just gonna dive right in. Climate disclosure is set to evolve in 2024 from , for Australia and the world, the Australian government's in the process of implementing a globally aligned mandatory climate disclosure framework that will be based upon the International Sustainability Standard Board is SBS Climate Standard f sst . It has been positioned as the biggest change in accounting standards since the tructure of the GST , but I'm worried business's biggest focus is gonna be on finding the right numbers. I think businesses should be thinking about this more strategically about how the world is changing and how their business will have to change. Do you agree with this? How do you , you think businesses should be thinking about mandatory climate disclosures?

Speaker 3: 2:17

Okay, well, firstly , uh, thanks very much Steven . And , um, I'd also like to acknowledge the dal people of the URA Nation , um, where I'm currently speaking from. So thanks for the invitation to come and join you today. And yes, this is a hot topic , uh, for everyone at the moment. And in terms of the focus, there's a lot of talk around the numbers and how the numbers are difficult in this space. People are being asked to collect forms of data and to disclose information that they've never had to disclose before. The challenge is that for us to really effectively tackle this monumental problem, we actually need to think much more deeply about the numbers. That is, we need to really think strategically and you can't actually begin to get the numbers right or think about the numbers in a way that's going to lead you somewhere that you don't regret if you don't think strategically. So yes, the focus initially might be on the numbers, it might be this is scary, but if you don't start thinking more holistically about where this is going, and the whole focus in this, in this space is on the value chain, the boundary doesn't begin and end just simply with your financial control boundary. It is the value chain. So you need to start thinking to actually get those numbers right. And I put right in inverted commas here because these, a lot of these numbers are very, very much estimates, but to get them right in the strategic sense, you do need to start thinking much, much more holistically.

Speaker 2: 3:59

And can you help unpack that a little bit more for us? There's, I guess traditionally the numbers that businesses have been reported have been things that they've been very confident, they've been able to pull off a balance sheet or internal systems. What are the, the big challenges with some of the numbers, like the scope three numbers, like the forward looking climate risk numbers that , uh, businesses will be reporting as under these disclosures, and where do you see the challenges?

Speaker 3: 4:25

Okay, so scope three numbers. Um, the challenge there is, and that has been for a very long time, is that people are largely recording this sort of information and making calculations and assumptions, or they're making people have to make assumptions to calculate scope three emissions , but the calculations are being performed on spreadsheets, <laugh> . So from , if you think about it from an internal control perspective as well as you know, how to , how you begin integrating that information into your internal systems. There's lots of room for error. And then there's just simply the matter of understanding, well , which assumptions are I going to use? And that requires a degree of insight and an understanding of the types of assumptions and data that exist in the marketplace that can be utilized in terms of forward-looking estimates of both physical and transition risk. There are deep complexities. I'm probably more familiar with the , uh, physical risks side of things. I mean, I could speak for the next hour about the complexities, but they're also, I, I personally find 'em really exciting 'cause they're really interesting. It's very interdisciplinary, the space. Another way of thinking about it is, well , companies have always been asked to provide forward estimates and they're always uncertain. So in some respects, climate information is no different to other types of forward looking financial information. The nature of the complexities are the complexities that companies are not, are less familiar with. Would you like me to go into those at all?

Speaker 2: 5:58

That'd be great. I think our listeners would really value that.

Speaker 3: 6:01

So, well, some of them had to do with the data that we're relying on. So for example, we're relying on data that's derived from climate model simulations, knowing which of those models are appropriate to be used, whether other types of information need to be brought in or not, what the uncertainties are associated with that information. Then there are, you know, all of the complexities say within the climate system itself, that need to be thought through the respect to, you know, which uh , sources of information am I going to use. Yeah, look, I'm probably gonna stop at that point. So, but there's, there's a lot of layers to it and it's one of those spaces where you really do need to invest in, in expertise, both in-house and , and externally to arrive at these estimates. But again, that's why we also, I I think businesses going back to that idea really need to start thinking much, much more strategically because it is a whole of company approach. How do you face the future in an uncertain climate? The world is changing, it's not going to look like what it did in the past. And so businesses have to change as well.

Speaker 2: 7:14

And as we speak to clients, what's interesting is that some of the ESG professionals we speak to are struggling to get the organization really mobilized around this. I mean , really interested in your thoughts on what more they can be doing and, and what organizations can be doing to really get some traction around what is gonna be a , a really quite fundamental change to the way a business operates.

Speaker 3: 7:37

A lot of companies are still seeing climate change as an environmental risk, and I think that's, that's the fundamental shift. So as , as an ESG professional, if you're trying to get traction internally, it's around helping the finance part of the organization to understand that actually this is a financial risk. It's just the same as foreign exchange risk or credit risk or, you know, it's, it's no different.

Speaker 2: 8:01

So it's about pulling down that fence internally that's sort of Yeah , kept it off in one corner and bringing it front and center is what you're saying?

Speaker 3: 8:09

Yeah , that's right. And then there's just purely the, you know, the stick aspects of it, and that's the, you know, the requirements that are going to be coming forward now in terms of the changes to the Corporations Act that are going to be made, that will require companies to produce or to present climate related information in their annual reports. And if that information, if the financial effects of that are material either quantitatively or qualitatively, then they , then it should be presented in the financial statements as well.

Speaker 2: 8:38

Yeah . And that's a massive shift from today. Do you think there's a capability gap? And if so, what do you think needs to happen to close it?

Speaker 3: 8:46

I think there's an enormous capability gap. I'm hearing that from everyone. So as a researcher, I'm , I'm a qualitative researcher, and so I interview people across the marketplace. So I'm interviewing standard setters, I'm interviewing auditors, I'm interviewing regulators , uh, preparers, investors everywhere. Everywhere I look, there's a capability gap. Everyone is, is concerned with how they're going to go about preparing this information, how they're going to go about understanding and analyzing this information, how it's going to be regulated, how it's gonna be assured, how are we gonna fix that for companies. A large part of that is just getting your hands dirty. I think because it's a type of information that people are so unfamiliar with. You just have to dive in and start getting your hands dirty. And you have to involve external expertise because it's highly unlikely that you're going to have internal expertise, but you need to work together. It's not something you can just hand over to experts externally, either because the information that you are going to disclose, it needs to be co-produced because you will have learnings internally about your organization that will determine how analysis is conducted so that it provides you the better strategic outcomes. It's too complex. There's, there are too many uncertainties and if you don't incorporate both external expertise and internal knowledge, local knowledge, you're going to get it wrong.

Speaker 2: 10:18

Yeah, and that's something we've certainly noticed here in Energetics is that partnership model and that collaborative approach. Yeah . To problem solving with the clients is the only way to get there. Clients know their business the best, but they just can't be across everything that's happening in the world, and they need someone who is to really help them along that path. Yeah . Sort of on that capability building , uh, a couple of months ago I was at the launch of the UNSW Institute for Climate Risk and Response, which you are going to be part of. Um, can you tell our listeners a little bit about the ICRR and the research areas you'll be working in and how that lines up with some of the challenges we've talked about today?

Speaker 3: 10:56

Yeah, sure. So the ICRR is a new interdisciplinary institute at the University of New South Wales. It's a collaboration between a number of faculties , so faculty of science and the Climate Change Research Center there at UNSW, as well as , uh, the faculty of business law . Um, so psychology from science, they're also heavily involved. And my own position is, is a sort of a joint position between the , uh, school accounting there as well as , um, with, with the institute. So there'll be a variety of different types of research that are being conducted there. So in terms of the work that I'm interested in, as I mentioned, I , I've got quite a strong interest in the physical risk aspects, so I'm already working with some of the climate scientists there to understand how information is translated from climate models into financial figures. So ultimately into the financial statements as well as from a sort of managerial accounting perspective, you know, how, what sort of systems companies do you need to develop internally to manage these new data flows? How they internally come to terms with the levels of uncertainty that we're facing, which was very, very different in nature. So yeah, what, how their internal systems can, I suppose, handle those levels of uncertainty. So that's also been crossing a little bit into psychology.

Speaker 2: 12:23

Yeah, I think it's really exciting the way that it's bringing together all these different elements from across the university in this really Yeah . Uh , interdisciplinary way. And I think coming back to the earlier point around within organizations that need to break down the silos, I think that's so exciting the way that the ICRR is doing the same thing across the university. Yeah. And hopefully sort of tackling some of these challenges that we've got.

Speaker 3: 12:45

It's the only way that we can do this. You know, it's just, it's just the same as climate change itself. It's a whole of society response. It has to be a whole of society response. And so within organizations as well as within universities, which is can be quite challenging because universities can be quite siloed places. There has to be this really deep interdisciplinary engagement or cross disciplinary , uh, engagement. Um, because we need to build new forms of knowledge is , and these new forms of knowledge aren't disciplinary in nature. So it's what other people might call transdisciplinary knowledge. Um, because, because we are building a new knowledge system from scratch and we have to do it very rapidly, so everyone has to come together.

Speaker 2: 13:28

Yeah. I think that's a massive challenge and a massive opportunity.

Speaker 3: 13:33

Absolutely.

Speaker 2: 13:33

It's really exciting to see it happening. Yeah . And , uh, it's great. Yeah , totally chatting with you and hearing about, you know, how it's at the forefront. So is there any final words you'd like to leave our listeners with today?

Speaker 3: 13:45

Um, don't be scared <laugh>. Um, just because it's, yeah, I, I do think if we get this right, climate change actually presents an enormous opportunity for us all. It presents an opportunity for us to live differently and for many businesses there can be great opportunity in the transition.

Speaker 2: 14:05

Well , that's a pretty inspiring note to end on. And so with that, I'd like to thank you, Tanya , for taking the time to talk with us today. I've taken away some , uh, insights and I hope our listeners do too . You know , go forward. Don't be scared.