Climate Change Regulatory & Risk Update Alana Lampitt / Nicola - PowerPoint PPT Presentation

Climate Change – Regulatory & Risk Update Alana Lampitt / Nicola Swan EFFECTIVE DISCLOSURE AND STAKEHOLDER ENGAGEMENT FORUM - AIRA, JARDEN AND CHAPMAN TRIPP 30 JANUARY 2020

Overview • Climate change regulatory update ― Zero Carbon Amendment Act and ETS reform • Current and proposed carbon reporting requirements • Climate-related financial risk: TCFD reporting proposals • Obligations on directors and fund managers • ‘From the coal - face’: litigation risk 2

1. Climate change regulatory update Zero Carbon Emissions Trading Complementary Amendment Act Reform Bill Policies Multiple connected policies: 1 Statutory emission reduction billion trees, agriculture Bill at Select Committee stage targets emissions, landfill levy and more Changes to unit price and Renewable Energy and Stepping stone budgets supply Energy Efficiency (closes Feb) ETS settings (closes Feb) Industrial allocation phase Emission reduction plans down Adaptation: Risk Assessment and Adaptation Plan Independent oversight Forestry changes Corporate reporting proposals 3

Current and proposed carbon reporting requirements NZX Listing Rules and Zero Carbon Amendment Act Other Proposals Corporate Governance Code Reporting •Public organisations and “lifeline • Recommendation 4.3 • Publishing ETS emissions utilities” data • Trigger: request of Minister or • Issuers should report on: Commission • Corporate Energy • exposure to environmental Transition Plans sustainability risks • More targeted reporting (submissions close 28 • risk management plans requirement February) • governance • measurement of targets • energy use and emissions • processes to identify, assess and • energy efficiency actions manage risk • 2019 Guidance Note • plans to reduce emissions • impacts on business, strategy and financial planning by 2030 • metrics and targets • intensity metrics • audited, with Board review • Not published, unless necessary for statutory function • TCFD Reporting 4

2. Climate-related financial risk – Disclosure 5

Climate-related financial risk – MfE/MBIE proposal • MfE/MBIE proposal October 2019 (TCFD) • Proposal to require TCFD-style annual disclosures from listed issuers, banks, general insurers, asset owners, asset managers • Physical risk + transition risk • Expected for FY 2022/2023 6

3. Obligations on directors and fund managers: CT legal opinion Consideration of climate change as a potential Directors Scheme managers financial risk Duty to act in best interests / Duty much less likely to be Duty clearly engaged for proper purposes litigated Duty to exercise reasonable Duty engaged, but less likely Duty clearly engaged care, diligence and skill to be litigated 7

Conclusions of CT opinion Consideration of climate change as a potential Directors Scheme Managers financial risk Permitted? Yes Yes Required? Yes Yes, where material 8

What this means? Directors Fund Managers Directors must, at a minimum: Fund managers must, at a minimum: identify foreseeable climate related • ensure SIPO and marketing reflects • financial risk to the company investment policy periodically assess the nature and • when making investment decisions, • extent of the risk, including by seeking take climate change risk into account and critically evaluating advice as (including potentially through climate necessary change investment strategy) if a material financial risk decide whether to take action in • response, taking into account the during ongoing portfolio review, keep • likelihood of the risk occurring and updated on climate change risk and possible resulting harm take action if material financial risk evolves disclose material risks as appropriate • 9

Implications for Boards of Directors • Agenda ― identify risks ― assess nature and extent of risks (including advice) ― consider potential action likelihood of risk occurring • possible resulting harm • • Expertise ― board sub-committee ― management ― advisors • Reporting / disclosure World Economic Forum 10

Implications for fund managers • Investment committee (investment decision) ― review risk appetite; investment horizon; SIPO ― consider overall exposure and materiality of potential climate-related risk ― consider formal climate change investment strategy: climate change adaptive stocks • Ongoing review of portfolio ― keep abreast of regulatory changes (NDCs) ― ensure understand investor preferences / expectations ― update SIPO; marketing materials • Expertise ― consider advice on impact of potential regulatory change on investments; stranded assets; market preferences 11

4. From the coal-face: Litigation risk • Commonwealth Bank of Australia • Exxon – NYAG investigation • Enea – Polish construction of coal-fired power plant • Shell (Netherlands) 12

Questions? Alana Lampitt / Nicola Swan