Episode 17: The four pillars of TCFD - managing climate risk, disclosure and the role of governance

For Energetics’ first podcast of the year, we begin with a focus on the Taskforce on Climate-related Financial Disclosures (TCFD). In this episode we discuss governance, the first of the four TCFD pillars. Energetics’ Sally Cook who leads our TCFD advisory services is joined in conversation by Principal Consultant and lead on the IGCC report Full Disclosure: Improving Corporate Reporting on Climate Risk, Olivia Kember, and governance expert, Susan Staples. Together they consider the elements of governance – oversight, foresight and insight.

Featuring: Olivia Kember, Principal Consultant, Energetics and Susan Staples, governance and climate risk specialist

Our host: Sally Cook, Principal Consultant, Energetics

Note: 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.

Transcript

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 business should not rely on the content in this podcast without first seeking advice from a professional,

Speaker 2: 0:29

Welcome to energetics podcast conversations with climate and energy experts. I'd like to start today by acknowledging the traditional owners of the lands on which we meet here in Adelaide. I particularly acknowledged the garner people of the Adelaide Plains and pay my respects to all elders past, present and emerging. We recognize and respect their cultural heritage, beliefs and relationship with the land I'm Sally cook, principal consultant, energy I'm head of Australia and policy team. So let's dive straight into today's topic in 2017, the task force on climate-related financial disclosures or TCFD issued a set of recommendations to increase the understanding of climate related risks and opportunities by organizations improve the quality and level of disclosure and ultimately allow financial markets to price, climate related risks, more accurately. Their recommendations are centered around four pillars, governance, strategy, risk management, and metrics and targets. This governance podcast is the first one, our four part series on TCFD pillars. When looking at the TCFD recommendations, did you mentally tick the governance boxes and move on? Governance is generally well established in most organizations, and isn't really thought about deeply until it fails. So how can you get the best outcomes from your governance structures? Joining me today is my colleague, maybe a Canberra principal consultant with energetics and our guest governance and risk management experts. Susan staples. Today we will discuss why governance is important. What good governance looks like, external stakeholder expectations. What happens when governance fails and how you can work effectively with the governance structure in your organization? Firstly, what does governance and what does good governance look like Susan?

Speaker 3: 2:08

Uh, so thanks Sally. I think you right, uh, governance is often overlooked and it's often a bit invisible to organizations and that's partly because it's something that's done inherently in an organization. I mean, if you think about the derivation of the word being to govern it, we start to get a bit of a mixed picture of what that involves its structures, its processes for administration overseeing the operational decision-making environment, um, policies and procedures, et cetera. But, um, we've got accountability. We've got transparency management of risk. There's a whole bucket of, um, topics and words that come to mind when you think about what governance is. But I think fundamentally corporate governance is really a set of rules, um, structures, processes that are used to direct and control an organization that is essential to its sustainability over the longer term. So at a high level governance really involved, avoiding a bit of anarchy, I suppose. Um, and what does that look like? It's about putting in place those systems and processes to understand what decisions need to be made, but also how they're going to be made and having those structures in place that are clear. And, uh, and, and that people understand really well. So that there's a lot of transparency in what that looks like. Um, and there's no surprises in terms of, um, how a decision is made and, and an outcome achieved, but there's also an oversight process in there as well. And making sure that those agreed actions in those decisions that have been put in place are having the desired effect and that their outcomes are being achieved. You're achieving a strategic objectives and so on and doing this in a, in an ethical, legal and socially acceptable manner is, or often is one thing that's becoming more and more important in the governance space. I mean, good governance is a little bit nebulous. It's a little bit hard to define, um, because it often sounds like a bunch of motherhood statements like, Oh, we're going to have effective structures and systems and we're going to be transparent in our decision-making we're going to comply with relevant regulations and we're going to be accountable, set the tone effectively, manage risk and ensure that we've got a positive culture, which are difficult things to really define in a practical way. So I think sometimes it's often useful to think about governance in terms of, um, defining it in terms of when it's failed. So it's important, um, to think about what good governance looks like when you think about what a failure looks like is what I'm trying to say. So, you know, we've seen a lot of governance failures in many of the sectors financial sector was probably one of the most obvious with the Royal commission. Um, and you know, we've seen that through examples of poor conduct. We've seen examples of that through, uh, decisions that didn't take into account the full remit of information. And essentially what it's shown is that governance is being highlighted where businesses have behaved badly. Um, Volkswagen was another one where the diesel deep, where they misled the market and the, the border essentially held accountable for, um, the conduct or the misconduct there. We had Enron, we had BP and horizon issue. We had Rio Tinto recently, um, in the Yukon Gorge. So there has been major impacts for those entities because they failed to comply with the regulations. They misunderstood the risks, or they underestimated the downside of a decision. So I think the governance failures here relate to those with the ultimate decision making and oversight authority, really failing to address or identify the issues, um, and the consequences that it might have for their business. Um, I think to sum up in terms of your question about what does good governance look like, kind of boil it down to three things that I have heard through the traps over the years, and it's about, um, it requires a lot of those charged with governance responsibilities, which are directors and management, but it requires them to have oversight of the policies, the practices, and the performance of the organization, insight into the risks and the opportunities that are available for the business and foresight to proactively identify and respond to emerging issues and to build this into their decision-making structures and their operating environment to ensure that it's sustainable and viable into the future.

Speaker 2: 6:21

That's really interesting, uh, particularly your points around to how it's not just a board activity, that it's a, it's an activity that engages the horrible the organization and the insight and foresight. And Kelly just wants to think of that. Is there some aspect, I guess, of board governance that goes to the specific motion of climate change risk, why is governance important and management requirement like risk and what do we need to ensure that, um, our governance practices have to effectively manage comma?

Speaker 4: 6:50

So I think that, um, there's two ways which governance is important for the management of climate related risks. What is that? Of course you can't actually manage your climate related risks and if your governments structures and processes, aren't aligned with that objective. So, um, if your rules and processes and relationships that direct the direct your company, aren't, um, hitting in the direction of climate risk mitigation, then any efforts you make outside of those are effectively, um, rendered irrelevant. But I think the other important part of it is that actually governance requirements under the law, in fact, mandate climate risk management. And so we've seen in the last few years that, um, building on sections of the corporations act, uh, that require company directors to act with care and diligence and act in good faith in the best interest of the company that, um, and this was a Seminole opinion that came out from no hotly se and 27 16, that that effectively requires company directors to understand the climate risks that their companies might face because it's considered a foreseeable risk. It's actually part of director's duties to understand what those climate risks are, to the extent that they intersect with the interests of the company, if they require, if that means that they need to be managed, manage them and also disclose them. And so we're seeing now more expectations around the disclosure requirements, uh, coming through from EPR and Isaac and ASX. And this really got another shot in the arm in 2017. Of course, when the TCFD framework came out and made governance, one of the four key pillars, uh, I think another interesting aspect was the wrist super case where one of the risks, super members file suit against the fund, claiming that it was violating the corporations act because it was providing information about how it was dealing with climate change risk and came up to the courts. And it was settled before trial, but basically because rest admitted to that, it needed to do all of this, that, and it made a number of commitments around de-carbonization and how, what structure climate risk management processes through this, the managers and advisors and what it would disclose. So governance is an enabler of climate risk management, and it's also in climate risk management is a necessary part of governance. So these things are completely interrelated

Speaker 3: 9:17

And, and as he's risk, you know, that's all about risk management. So if you think about it as a very, um, high level, you've got the governance framework, which is responsible for your risk management framework, which is responsible for ensuring that you are foreseeing and managing risk. Um, and as you've seen it, Olivia, there's a lot of, um, legal opinions and things that have been evolving legally that we're really driving that as a, a risk that directors are required to manage because it is foreseeable and it is material to the organization. I think we, yeah, the, um, yeah, the development in that space, in the ASX corporate governance principles and recommendations, and over the years, they've certainly evolved to be, you know, standards of better practice for governance, whether you're listed or not listed, but essentially there's, um, uh, the principles there talk about what good governance looks like for an organization and the most recent iteration in 2019 actually calls out TCFD and climate risk as a material risk that organizations need to be reporting on, um, because it is foreseeable and it has a significant impact on the value of the organization from an investors perspective. So the ASX guidance is there to ensure that organizations keep the market informed about issues that might impact on the value of the entity. And 7.4 actually recommends it all listed entities do align with the TCFD or at least acknowledge that climate risk is a material in a foreseeable risk. So it does need to be addressed. And I think it just goes to the point that, um, we're seeing a lot of, a lot of drivers really, um, indicating that climate risk is significant and it is something that you need to have considered at the very sort of top levels of an organization. And I think the other point was that opera, RBA and ethic are also pushing for greater, uh, consideration of climate risk by all organizations. And it's just, it's just fundamental now in terms of being able to, and having to, to think about that as a significant part of your business and, um, the risk management framework.

Speaker 2: 11:24

And I think all of those requirements, and we're seeing it also comes through the mandatory TCFD reporting Zealand as well, there increasing expectation of regulators and other stakeholders as well. It's really driving, um, a strong arm of the TCFD recommendations that we might on the ones, see what stakeholders expect from companies in terms of their governance. And what's the current state of practice.

Speaker 4: 11:49

I think that expectations have been rising very rapidly and will continue to rise rapidly. And at the same time we've seen the current state of practice improving quite fast as well though. There's quite a, um, a range in terms of what companies are doing. And so just thinking about investors as a, as a S as a key stakeholder group, that, um, we've got most visibility of what they expect, but I think your point about the regulators are also, um, thinking through what it is that they are expecting and how they can, um, require that. And that process will come. And I think of the next few years as appro puts out as Prudential practice guide, uh, which has been a bit delayed by COVID, but setting aside the regulators for a moment, focusing on the investors as a, as a key user of, um, TCFD inflation and a, uh, consider as of climate risk, and that probably should specify most institutional investors here. Um, obviously very influential in Australia in particularly important because they've got a long term outlook. Um, and so climate risk is, is directly relevant to them in terms of what they want companies to provide in governance. Uh, we've seen that, uh, there's sort of been reasonably good disclosure to date of the structures that companies have set up, um, and the processes, and now the next step, or the investors have said that they're interested in, and I'm thinking here of the IGCC, which put out a report, uh, looking specifically at what investors want from the TCFD, um, demonstration of expertise or what Susan calls, climate literacy, uh, management and, uh, directors. And basically that's the requirement to actually show that you do understand what you're talking about when you're talking about climate risk, because it's big, complicated area of risk it's of, it's also quite fast moving in its own, right? And it's not necessarily in the areas of information that board members are going to be automatically familiar with. So showing that you have building that expertise, that sort of capacity to understand climate risk across the, uh, management and board members is becoming really important. And then another important aspect is how do you tie this with your performance management? So how do you ensure that, um, the incentive structure that the company has is actually including climate risk management, as well as not just a kind of side issue. So those are the two things that we've seen a really rapid recently. I think

Speaker 3: 14:26

Coder expectations, um, Olivia's talked to around investors and some of the regulators are obviously real and they growing. Um, but I think there's also an expectation from shareholders in general, around remuneration, as Olivia mentioned, like how are we encouraging, um, and rewarding, um, board directors and executives around, uh, their performance in relation to management of climate risk. So I think that's an emerging and evolving area that no one's really nailed yet. It's a difficult area to, to get across, but it's certainly something that's getting a lot of, um, interest at the AGM. But I think also from a customer perspective, um, there's a lot that's going on and, and society in general, there's a lot that's going on in terms of expectation. Um, if you look at Royal commissions and you look at the, I guess the publicity that's sort of surrounds them in, in say the financial services sector is a really good example. Um, but governance comes up as a major issue, um, in all of those contexts. And it's about the information not being received by boards, boards, not getting the right level of oversight on, on the risks that are within their business, the risks that are going to have a substantial impact on the sustainability of the business, um, the financial and non-financial costs and how those are being considered. Um, and I also think just reputationally, um, people are making, they're voting with their feet, I guess that, you know, staff and customers may move around on the basis of how organizations are performing as corporate citizens, which is an old language, but it's, I think it's a, it's an ethical and moral question. That's getting a lot more gravitas in, in organizations, even just from a competitive, competitive advantage perspective. If you're trying to, um, uh, have, I guess, a competitive advantage over one of your peers, then your performance in climate risk management and other non-financial areas is a real, can be a really big game changer for some organizations.

Speaker 4: 16:25

Um, some of the responses that we've seen from companies as well, particularly in these areas in terms of, um, trying to respond to these fast emerging expectations have been really interesting. So I've seen really rapid adoption of net zero targets. Um, a lot of focus on, um, commitments to be aligned with the Paris agreement. We're seeing experiments in, um, remuneration in terms of sort of experimental incentive linked targets. And one of the, I want to mention one of the top 10 most useful elements of the TCFD as, um, identified for the annual status report that their TCFD itself actually puts out every year, um, is focus of on board consideration of climate related issues for major capital expenditures, acquisitions and divestitures. So their integration of climate into the big decisions. And so the, like the leading companies have been really, I think, in the last year or so even just like, there's been some step changes and how companies have tried to integrate these things. There's been a interesting Verizon to how they, how they do that. And I don't know that it's clear what stakeholders most preferred at this point and stakeholders, of course, being a very broad group, but I think we're definitely entering phase of a really interesting experimentation on the next level. And we'll, we'll see some more clarity about what, what key stakeholders do find sort of substantial, as opposed to maybe say, just picking Nidera commitments, what, what versions of those they find substantial versus those that they consider to be, um, greenwashing.

Speaker 3: 18:12

Yeah. And I think it's interesting because if you think about governance in terms of, you know, having to understand the broader environment within which you're operating so that you can inform, make an informed decision about what's going to be a sustainable option for your business, whether it's an investment decision or compliance, even, um, you know, you look around there's, there's all of the Bush fires, there's a lot of natural disasters that are, you know, really elevating the, the issue of climate risk for a broader society. It's something that organizations are now picking up on because they've had real experience of this. And so thinking about, well, from a governance perspective, what do we need to do to be more proactive about this environment that's changing around us? Um, it's getting ahead of some of the policy or anticipating that whilst we don't have a national commitment to, um, the Paris agreement, we have, um, a lot happening globally that could be driving a change down the track. So if we don't act now, what, what are we going to be faced with them down the track? Um, so from a governance perspective, it's, it's re it's requiring you to kind of lift up and think about the bigger picture, think about the external environment that's opera that you're operating in and those stakeholder and, um, stakeholders that are not necessarily directly within your sphere of sphere of influence might actually have influence over your decisions in the longer term. So I guess it's just an important consideration for that foresight element of governance to really think about what's coming down the track. Um, and how do you build that into your strategy development, into your risk management processes, into your oversight and performance processes as well?

Speaker 2: 19:53

Excellent, very interesting point. So like the conversation around experimentation and stakeholder expectations that I think it's not, it's not going to be a one size fits all for all organizations. You talked about getting more information ready and communicating up to the board, but you also need to understand is how do you build that are exposed to the climate under a seat is speaking out. And how do you demonstrate that you've effectively built that?

Speaker 3: 20:20

I think the key thing to note here is that, you know, there is a, it's a very technical area, some of the climate's sort of scenario modeling and, uh, it can be overwhelming and that there's just so much information out there. But the key thing to note is that directors and executives don't have to be experts, but they do have to, um, they do have to have a working knowledge of the issues. So just like you don't have to be an accountant to be on a board, you know, to be a financial specialist, you have to be financially literate. Um, and then the same way that you need to have a level of climate literacy. And I think that, I mean, that applies to any element of a business, but you've got to have a working knowledge of some of the issues that are going to impact on the organization. And this is a material issue. This is a material issue for many organizations, and you really need to understand what those impacts and risks and opportunities could be. So, um, I guess it means understanding the high level scenarios in terms of the impacts on the business, the changing expectations of stakeholders, like what is that going to mean for your decision-making? Is it going to change anything in terms of your investments, even, um, you know, thinking about the insureability of, of your assets, um, you have to be able to be able to pull those pieces together. And it also means inherently that there's a level of acceptance of the reality of climate change. And I think some boards haven't quite got to that space yet, um, or some directors perhaps, but in terms of your question around building the knowledge and how do you build the expertise of the board? I think it's really, it comes down to fundamentally understanding where everyone is at. Um, what's the baseline literacy, what a directors and executives currently know and understand about climate risk. And once you've got that in train, you can then do a bit of a gap analysis against what you think we should know and which I was describing before it's at a high level sort of climate literacy about what the issues are and how they're going to impact the business. So once you've got that gap analysis done, I guess, um, it's, it's around how you address that. And that can be simply things around, um, board and executive briefings. We could have some external SMEs come into any of those meetings or, or internal specialists who might come and present to the board or the executive regular or irregular basis. You would make sure that you have some refresher training as any part of director training or, um, uh, development. You would include climate related issues on that program. Um, I think you can also do even site visits and sort of understand some of the physical impacts potentially after an event or, or in anticipation of, um, of an issue that might impact on an asset or an investment. You can go and have a look at where it's, where it's positioned and, you know, very basic things like that. But from a, I guess, a process perspective, one of the key things is just getting the climate risks and issues on the agenda, making sure they're included in the discussion. Um, and that's really simple. That's just putting it as an agenda item on your risk committee. It's, it's including, uh, our climate risk categorization, uh, element or attribute in some of your project investment criteria or business case analysis, and then law, and making sure that you align that to your risk appetite, make sure any risk appetite statements got a climate related, um, uh, aspect to it so that it then gets incorporated into the decision-making processes within the organization. Um, getting some climate related KPIs on the performance dashboards, just the intention being to elevate the climate information, that's getting to the board and then ensuring that the board is asking questions. It's the job to ask questions and to challenge. So being able to ask questions that can go back to the business to say, well, how is this going to impact on our strategy? Can you give us a little bit more insight into the, the scenarios and what they mean for our strategic objectives in terms of formal training? Look, there's probably not around all a huge amount around climate risk that is formalized in terms of qualifications, but you know, there's certainly, um, people that you can get in who have incredible expertise to, to give those updates and briefings. I think one of the really important things is to make it practical. So you can do war games. You can do scenario planning, you can think about what would be the impact of this scenario on our strategy, um, during the strategy development phase, um, that all boards and executives would go through. So making sure that you include climate risk, um, in those scenarios as part of that strategy development, they're the sort of basic simple ways of upskilling the board and executive demonstrating that is, is really trying to articulate that in your TCFD disclosures. I think the TCFD requires you to talk about the expertise and the skills of your board and directors. It's very easy to say that yes, our board has, um, has those skills, but demonstrating it through talking about some of the activities that have been undertaken to fill the gaps is really important. And I think being as transparent and open as you can about where those needs are and what you're going to do about them, if you haven't, if you haven't addressed it yet, what do you plan to do it about it in the future? Just to show that you have accepted that there's a gap there and that, that the market is aware of the activities that you plan to take to get to, I guess, fill that gap

Speaker 4: 25:45

The general, tell me if this is fair or not, but basically my sense is that because Australian companies went through the carbon pricing period, there's a very high level of familiarity with most things to do with emissions, emissions management, emissions reduction policy, which is a great starting point. Um, but also has had some sort of downsides where potentially people think they, uh, they, they, they may, they know they know more than they do or rather that, um, they know how it went last time. And so that set an expectation about how policy risks, for example, might play out in future. Um, at the same time, in terms of physical risks, there are some companies that have been dealing with, uh, physical climate risks will, or extreme weather events as a matter of course. And they've got a lot of internal capacity to deal with that and to adjust that for climate risk. But, uh, but most companies aren't in that position. And even those that are aware of the degree of difference, which they would face on the climate scenarios. So as a overall, I think when people are more comfortable with transition risks than physical risk, um, but that can count that comfort itself as a bit of a civil sort of risk because there's ways in which transition risk is actually changing very, very fast. And so part of maintaining expertise expertise is probably also developing a sense of comfort with the fact that this is an issue, which there's going to need to base it off ongoing developmental over time, because what we're doing is working with, um, scientific advances, uh, with technological advances, with policy experimentation. And there's a lot happening overseas as well, and to try and keep track of as lot of happening within specific sectors. Uh, if you're a company that counts a lot of it goes, there are many things to keep abreast of. And, um, translating that out to a label, which is relevant to say a board member is it's not easy, but, um, it's something. And then I think the other part of that is how do you persuade them that it's worth it?

Speaker 3: 27:50

Yeah. And I think your point Olivia, around the fact that it is constantly changing means that it can't be just a one-off thing that you do. And you put on the shelf that directors really need to make. And executives really need to keep on top of those issues because they are evolving and they will have an impact in relation to expectations in relation to regulation, in relation to the risks that are being faced by the organization. So I think, um, you know, it, it's an important point to note that it's not a static thing and it's evolving quickly and you've got to remain on top of the issues, but again, you don't have to be an expert. You just have to understand what's changing and how it could, um, at a macro level influence your organization and then deep dive into areas where, where it will have a significant X where you will have a significant exposure. Um, but you've got to kind of understand those leavers and those risks and opportunities at a, at a high level to be able to do that deep dive analysis. I think it's also an important consideration that when you, when you make a disclosure, you don't necessarily have to have like, there's no right to disclosure. The disclosure is a right. Disclosure is one that's accurate and transparent and is telling the full story. Um, I think that people get a bit nervous about saying, well, we can't say that because we haven't done enough. Um, whereas actually I think you, if you can, or that we've, we've focused our efforts in an area that others don't agree with. And I think, um, the point of doing the analysis and having the governance and oversight around the risks and, and the performance of the organization is so that you can say we've done the analysis and we understand where our exposures are, and this is why we've taken this action. Um, so it's really creating that defensible position and your disclosure so that people understand why you've come to the decision that you've come to. And rather than putting yourself on the back foot and saying, well, we did it just because we thought we had to, you can say we did it because we've done the analysis and we understand where we're exposed and therefore we've prioritized our resources and our actions into a specific area. And haven't addressed another area which, which someone might feel is more important, but at least you've got that defensible position to say that, um, you understand the issues and you know, how it's going to impact on your business. And therefore this, we have taken this particular course of action.

Speaker 2: 30:06

Yeah, absolutely. It's a really relevant one of the challenges as well with engaging, engaging with boards and senior executives is that you often have to give them a 15 minute slot in an already packed agenda to try and take them through something that's very complex. And so if you haven't been doing that ongoing engagement or building of capacity with your board and your executive, sometimes that can be a really, um, we're going to challenging, uh, saying to kind of, uh, bring to them again with that context. And then from that we've seen, uh, like that one where governments processes aren't necessarily used effectively. What are the causes of failure in common governance and what, what can happen when, um, when the governance processes in your organization? No.

Speaker 4: 30:54

So I was thinking about some examples of what those failures might be. And, um, I think some that we see fairly frequently, um, where the climate risk sort of work or responsibilities are relatively siloed within a company or where the work is done at a level, but then excess of caution, perhaps at levels above that mean that a lot of it doesn't actually make it out into disclosure or potentially that, um, there are some sort of areas of such sensitivity that, um, the, the work on climate risk has to tiptoe around them. But I wonder if there are any that, uh, any others that strike you too.

Speaker 3: 31:34

I think fundamentally, if you think about what some of the failures are, it's essentially that there's no understanding of the issue or, uh, and that's because the information hasn't been, um, accepted or that the issue itself hasn't been accepted by the board. Um, so I think there's varying levels of acceptance of climate risk and the reality of it and, and what it means for organizations. I think some have been pushed into, um, responding from a regulatory perspective or from a, um, I guess a broader policy perspective. Some have been pushed into that. And an emissions is a good example where the, uh, emissions intensive industries have had to respond to a regulatory requirement. Um, I think failures in general tend to be that there's not, there's a disconnect between the sustainability team, within an organization who are working really hard to kind of address some of these issues that they've identified, but, but the board hasn't really been able to get access to that information maybe because it's not in the risk, the enterprise risk register. So it's not considered to be an organizational risk. It's considered to be an environmental risk that sits in the environmental team and hasn't escalated up to a material, um, level that the board would be interested in, um, or that, um, you know, that there's a disconnect between, uh, the information that's getting reported up. Um, so it's just not, it hasn't been built into the risk processes or the reporting processes within an organization. So there's, there's a failure there in terms of the disconnect between sometimes the disconnect between board and operations. I think there is also, as you've said, Olivia, a bit of a disconnect between, or a bit of an appetite issue, perhaps in terms of what people are willing to disclose. Sometimes I feel there's a lot of great stuff that organizations are doing, but they're just not reporting on. So I think they might get, um, an unfair representation in the market, or it gets miscommunicated or misinterpreted by the stakeholders or by, um, analysts about what an organization's doing. And it, that sort of fundamentally can put organizations on the back foot if they're questioned. Um, because it's a bit like why, what are you doing? Why haven't you told us about this? What have you got to hide? Which goes back to my point before about, you know, if you, if you can be a little bit confident and bold about some of the assumptions in the work that you've done and why you've taken a certain path, it gives you a more defensible position. I think so. Um, I think the other thing in terms of failures, if you just think about some of the asset failures that have occurred out of, um, natural disasters that have been driven by climate change, uh, I think it's just people really didn't understand and do the analysis and the scenario work to really understand what those impacts are and felt that perhaps it was something that's going to happen 10, 20 years from now, when actually we're seeing the impacts of the climate change today, and we're seeing them more and more frequently. So, you know, it's really up to the urgency and a lot of organizations are trying to catch up, um, catch up in terms of analysis and processes and risk mitigation.

Speaker 4: 34:45

The things that came out of the investor group on climate change research was, um, a recommendation by them that companies get comfortable disclosing, um, negative outcomes in their scenarios rather than making and, and, and, and, but we'll detail around those rather than making the claim that they're resilient under Avery under all of this scenarios and potentially all conceivable scenarios. But I just, I wonder whether there's putting a lot of emphasis on what companies need to do, but whether the stakeholders or the investors in that regard can, can help a bit as well by making it safer to be, um, more transparent in your disclosures, because there's certainly a lot of quotes about putting something out there. I think that part of the, part of the questions probably justified because they held their expectations. Haven't been particularly clear yet also there and often the literacy among say the investors also being developed at the same time. So they're all, we're all learning as we go. And so what that means is that there is a great deal of commotion about say putting out a scenario that has negative in PV, there's a fear that you might be punished for it in some way. It's not necessarily clear at the moment that you weren't. So I think there's a bit of work to be done on both sides, but I'm just wondering what you think are the sort of the good reasons for caution and maybe the bad ones.

Speaker 3: 36:02

The good reasons for caution are, you know, if you have, um, an analysis that's not quite as fully formed as you would like. And so you'd like to do more work on the analysis to understand what that is, but then you can get into a situation where, uh, best is the enemy of good. So you actually over analyze it to the point where you don't do anything. Um, so I think, I think, um, you know, there's caution obviously in disclosure around making sure that you're not giving away some strategic advantage or competitive advantage. If you're saying things that your competitors aren't, or you're giving away a position that you don't want to give away, I think that's also, or a vulnerability that you don't want to expose. I think that's, um, to your competitors, I think that's important, but you do need to be able to be transparent with your shareholders. So, um, you know, your shareholders obviously need to know where the risks are and the business so they can make an informed decision.

Speaker 4: 36:56

And one useful aspect of that is also make it easier over time. Like the technical tasks might become more complex, but the muscle memory that you develop within the organization as everyone just gets a bit more familiar with these things, with these things, get more embedded, meaning that you can develop as you go. And that, um, it's, I mean, I'd be interested to hear what you guys think from what I've seen, the ability of studies after the, just thinking of taking scenario analysis. For example, after one, go with scenario analysis, uh, after no one else's for the first time, it's a bit it's often quite painful and hard and frustrating for a lot of people within the organization. Um, there's a lot of, uh, questioning of why are we actually doing that once the second time, the degree of sophistication that they can actually bring to the, um, to the analysis, this is hugely advanced and the value that they can get out of it is also hugely advanced. And, you know, if you, if you do it a third time, you're going to be doing it at another level entirely. Um, probably apply for a lot of other aspects around climate risk alone. Maybe not necessarily quite so easily, um, because you might be dealing with, um, rigid preexisting structures, but we took away the building is up a base for a bit of progress.

Speaker 2: 38:18

Okay, cool. Um, so I liked your Susan on the other side is hot and foresight on, you touched about the development capacity with your beds. I understand, um, what they're listening, um, mentioning shortly, assuming responsibility champions for, um, these climate issues, um, in the exec, if you can, um, understand your, um, external landscape, so what your peers and your stakeholders are doing and really demonstrating the need and the value in the context, that context that resonates with your organization. So whether that be a legal requirement, whether that be with peers or responding to so on the feedback, thank you. And having been a second in this TCFD series, I was planning to return, as you can tell from this discussion, if I had a discussion about governance without having discussion, so that woman and she section yeah.

Speaker 5: 39:20

Energetics exchange, podcast conversations with energy and climate experts.