Eric Seo & Alistair Marsden Flashcards
1 January 2023 entities were required to disclose
according to the standards set for periods starting on or after this date
The NZ Climate Related Disclosures (CRD) apply to
NZX-listed entities, banks/credit unions/building societies, investment scheme managers, insurers
27 October 2024 additional requirements were added for
mandatory GHG assurance requirements
4 Elements of Climate Reporting
Governance
Strategy - scenario analysis, risk identification, anticipated impacts
Risk Management
Metrics and Targets - measurement and reporting
Scenario Analysis
must describe the scenario analysis undertaken to help identify climate related risks and opportunities
Scenario Analysis helps to
better understand the resilience of its business model and strategy
Risks
Physical - what are the physical risks of climate change?
Transition - what are the risks associated with transition to a low emissions economy?
Climate Related Opportunities - what are the potential positive outcomes?
3 scenarios often used
Net Zero 2025 - 1.5 degree warming trajectory
Current Policies - uncontrolled warming of 3+ degrees
A third-climated related scenario made up
Scope 1 Emissions
Direct - owned and controlled emissions directly from operations
Scope 2 Emissions
Indirect - from purchased electricity, steam, heating or cooling
Scope 3 Emissions
Indirect - emissions from the supply/value chain
Calculation of Emissions =
activity data x emission factor
Climate Related Risks in Financial Statements - Entity
Are they operating in a high-risk environment?
Do they have operations in other climate reportig countries?
Climate Related Risks in Financial Statements - Management
Has leadership considered climate risks?
Do they have SLL’s or green bonds?
Any public metrics, targets or commitments?
Climate-Related Risks in Financial Statements - Indicators of Physical risk
Risks for flooding, drought, etc?
Any insurance claims against climate matters? Increased premiums?
Is the supply chain effected by climate?
Climate-Related Risks in Financial Statements - Indicators of Transition risk
Government plans to reduce emissions?
Changing consumer preferences?
Reliability of ESG Scores
Low correlation between ESG scores from different providers - 0.54
Do companies with higher ESG score have lower cost of capital and hence, higher shareholder value?
No, there is an association but no necessarily causation
Until carbon price risk is fully priced in the market…
we may observe a period where low co2 firms have lower cost of capital and higher returns - equilibrium will be reached when high co2 firms have higher cost of capital and higher forward looking returns
Project NPV =
-investment + sum of (revenue - costs - (carbon price x GHG emissions))/(1+ discount rate)
