Deep-dive into TCFD – climate risk

management & scenario analysis

Perusahaan Listrik Negara (PLN)

Wednesday, 18 January 2023

Disclaimer
This publication has been funded by the Australian Government through the
Department of Foreign Affairs and Trade. Any third-party views or
recommendations included in this publication do not necessarily reflect the
views of the Australian Government or indicate its commitment to a particular
course of action. The Australian Government accepts no responsibility or
liability for any damage, loss or expense incurred as a result of the reliance on
information contained in this publication.

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 Our team today

Gilles Pascual Arina Kok Russell Marsh

Partner, Power & Utilities, EY Singapore Partner, EY Malaysia Associate Partner, EY Singapore
Strategy and Transactions Climate Change and Sustainability Services Strategy and Transactions

Ika Merdekawati Tiffany Rimba Sheena Narula Nabila Sekartanti

Senior Manager, EY Indonesia Manager, EY Singapore Manager, EY Singapore Manager, EY Indonesia
Climate Change and Sustainability Strategy and Transactions Strategy and Transactions Climate Change and Sustainability
Services Services

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 What’s on for today?

Date: 18 January 2023 Time:9:00-12:00pm, 3.0 hours Venue: Pusdiklat PLN Slipi

Topic Sub-topic Speaker (Language) Duration

Introductions and opening Gilles, Partner (English) 5 mins

Recap of previous session
Introduction to TCFD
Russell, Associate
Benefits of implementing TCFD 5 mins
Partner (English)
Core elements of the TCFD recommendations

Setting the direction and Nabila, Manager

Risk governance: Design and implementation 15 mins
framework (Bahasa)

Arina, Partner (English)

 Riskmanagement framework
Risk management EYID team to moderate 105 mins
 Recap of TCFD recommendation on risk management the breakout sessions

Short break 10 mins

 Overview of the process of climate scenario analysis

 Types of climate-related risks, risk exposure and materiality
Scenario analysis assessment Arina, Partner (English) 30 mins
Scenario identification, components and development
 Scenario assessment - assessing the financial impact

OktaricoPradana
Q&A Session 10 mins
(Bahasa)

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Contents

Section Learning objectives

1. Setting the direction and framework Design and implement organisational approach to manage climate risks

Understand how to integrate climate risk into existing risk management

framework and strategies to address climate risk
2. Risk management
Understand the TCFD recommendations on risk management
Understand the process of conducting risk assessment of financial and
3. Scenario analysis
non-financial risks to identify, measure, monitor and mitigate climate risk
Recap
The TCFD

5
Question time

How would you describe your understanding of the TCFD recommendations?

Please use the polling/Whiteboard/Menti to give your

answer

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 Task Force on Climate-Related Financial Disclosures (TCFD)

The Challenge What is the Task Force on Climate-Related Financial Disclosures?

 There is no standardised approach to disclose climate-related financial
information.
 Investors,lenders and insurers are not able to evaluate which companies will
survive or thrive as the climate changes, and as decarbonisation regulations,
new technologies and behavioral change emerge.
 The Financial Stability Board (FSB) developed TCFD with the goal to
drive more informed investment, credit and insurance
underwriting decisions and increase stakeholder understanding
of climate-related risks.
 The TCFD seeks to develop recommendations for voluntary
climate-related financial disclosures that are consistent,
comparable, reliable, clear, and efficient, and provide decision-useful
information to lenders, insurers and investors.

TCFD’s Mission

• The TCFD considers the physical and transition risks associated

31 with climate change in developing recommendations and what

members
chosen by the FSB, including
Chaired by both users and preparers of
Michael Bloomberg disclosures from across the
G20 constituency covering a
range of economic sectors
and financial markets
Source: TCFD website
constitutes effective financial disclosures across industries.
Help firms to:
 Understand what • As companies and investors greater understand the financial
financial markets want implications of climate change, investments would be channeled
from climate disclosure into sustainability solutions, opportunities and business models.
 Align theirdisclosures
with investors’ needs
7
Question time

Do you think that aligning with TCFD recommendations would improve your
company disclosure to your investors and other stakeholders? Is it necessary?

Please use the polling/Whiteboard/Menti to give your

answer

8
Question time

What are the benefits of aligning with TCFD for PLN?

Please use the polling/Whiteboard/Menti to give your

answer

9
Benefits of implementing the TCFD recommendations

Better access to capital by increasing investors Smarter, more efficient allocation of capital and
and lenders’ confidence that the company’s help smoothen the transition to a more sustainable,
climate-related risks are appropriately assessed low-carbon economy
and managed

Increased awareness and understanding of Promotes an informed understanding of climate-

climate-related risks and opportunities within the related risks and opportunities by investors and
company resulting in better risk management and others
more informed strategic planning

Reduces the number of climate-related Facilitates routine consideration of the effects of

information requests received climate change in business and investment
decisions

Source: TCFD Website 10

Core elements of the TCFD recommendations

Governance Strategy Risk management Metrics and targets

Disclose the organisation’s Disclose the actual and potential Disclose how the organisation Disclose the metrics and targets
governance around climate- impacts of climate-related risks identifies, assesses and manages used to assess and manage
related risks and opportunities and opportunities on the climate-related risks relevant climate-related risks and
organisation’s businesses, opportunities where such
strategy and financial planning information is material
where such information is material

Recommended Disclosures Recommended Disclosures Recommended Disclosures Recommended Disclosures

a) Describe the board’s oversight of a) Describe the climate-related risks a) Describe the organisation’s a) Describe the metrics used by the
climate-related risks and and opportunities the organisation processes for identifying and organisation to assess climate-
opportunities has identified over the short, assessing climate-related risks related risks and opportunities in
medium and long term line with its strategy and risk
b) Describe the management’s role b) Describe the organisation’s management process
in assessing and managing b) Describe the impact of climate- processes for managing climate-
climate-related risks and related risks and opportunities on related risks b) Describe Scope 1, Scope 2
opportunities the organisation’s businesses, and, if appropriate, Scope 3
strategy and financial planning c) Describe how processes for greenhouse gas (GHG)
identifying, assessing and emissions and the related risks
c) Describe the resilience of the managing climate-related risks
organisation’s strategy, taking into are integrated into the c) Describe the targets used by
consideration different climate- organisation’s overall risk the organisation to manage
related scenarios, including a 2°C management climate-related risks and
or lower scenario opportunities and performance
against targets
Source: TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017
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1. Setting the direction and framework
Risk governance: design and implementation
 Design and implement organisational approach to manage climate risks

12
Question time

What is the current level of maturity of PLN’s governance approach in

managing climate-related risks?

Please use the polling/Whiteboard/Menti to give your

answer

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Organisational changes and transformation would be required as
companies seek to become effective managers of climate risks

Focus on enablers Formulate climate risk governance

 Acquire technical skills required to manage  Crucial for top management to set the tone
Risk
climate risk 5 1 on climate risk governance and nominate a
management
 Develop strategic understanding of how leader responsible for climate risk
physical and transition risks may affect their  Set up effective governance structure
activities Enablers Governance covering assessment, monitoring to
 Budget for climate adaptation and mitigation reporting
strategies including technology, data and
talent 4 2
Get up to speed on stress testing Stress Tailor business and credit strategy
Framework
 Critical to assess resilience
testing 3  Embed climate considerations in risk
 Identify important climate hazards and primary frameworks and capital-allocation
Alignment processes
risk drivers by industry to generate physical and
transition climate risk scenarios  Introduce policies and procedures such as
negative screening, sector-specific policies
 Quantifythe impact by counterparty and in
or impose emissions thresholds
aggregate on portfolio basis
Align risk processes
 Align climate risk exposure with risk appetite and the business strategy
 Inject climate risk considerations into all risk management processes, including capital allocation, portfolio monitoring and reporting
 Review and update risk processes periodically to capture latest risks and disruptions
Source: COSO, WBCSD and EY, Applying Enterprise Risk Management to Environmental, Social and Governance-related Risks, McKinsey, Banking Imperatives for
Managing Climate Risk
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Setting up climate governance on corporate boards

Guiding principles for effective climate

Implementation steps2
governance on corporate boards1
 Deliver a tailored training program to the board on climate risk and consider
1 2 3 using external experts where necessary
 Update board committee terms of reference to include climate risk
Climate Board
accountability Subject command structure  Provide periodic regular updates to relevant board committee(s) on:
– The organisation’s progress in preparing for and implementing climate risk
management

4 Guiding
5 – Risk reporting metrics
Materiality principles Strategic  The board to review and challenge:
assessment integration
– Undue or unexpected climate risk concentrations
– The organisation’s strategy/corporate plan, considering the climate risk profile,
through short (e.g., 3-5 years), medium (e.g., 10 years) and long term (e.g., 30
6 7 8 years) lenses
– Materiality assessments and scenario analysis by climate outcomes and time
Incentivization Reporting and Exchange
disclosure horizons
– Emerging regulatory, reputational and legal obligation

Source: (1) World Economic Forum (2019): How to Set Up Effective Climate Governance on Corporate Boards, (2) Climate Financial Risk Forum Guide 2020, Risk
Management Chapter
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Ensuring understanding, oversight and accountability for financial risks
arising from climate change at all levels

Governing body/Audit committee

Senior management
1st line of defense 2nd line of defense 3rd line of defense
Financial controller
Security

Management Internal control Risk management

Internal audit

External audit
controls measures Quality

Regulators
Inspection
Compliance

 Carryout initial climate risk assessment when  Set up and own central risk frameworks  Review control design and execution
onboarding suppliers/consumers or during  Develop the tools for identifying and assessing
periodic review of existing suppliers/consumers climate risks
 Engage with consumers to understand carbon
 Deliver climate risk training
intensities and their business plans for mitigating
climate risk  Develop scenarios and undertake stress testing
 Understand, assess
and consider uncertainties  Support first line activity to understand, assess
and developments around timing and channels and consider uncertainties and developments
of climate risk around timing and channels of climate risk

A potential indicator of the organisation’s quality of climate risk governance could be based on the extent to which climate risk management is integrated
effectively into established risk management.
Source: (1) EY, Being business-minded about climate change: Ten ways to address climate-related risks and opportunities in 2020 and beyond, (2) Chartered Institute of
Internal Auditors, 2018, Governance of Three Lines of Defense, (3) Climate Financial Risk Forum Guide 2020, Risk Management Chapter
16
Climate risk needs to be implemented across the full risk management
framework

Climate Risk Framework

Lessons learned:
Governance and Risk Identification
Risk identification and material • Team. Integrating climate risk into an
Governance committees Risk appetite
risks organisation is a cross-functional,
Products and Services (Illustrative) transformational and business-driven
System exercise that will require collaboration
Electricity sales Generation Transmission Distribution with unique skillsets and perspectives.
operations
• Strategy-driven. Risk appetite and
Risk Analytics and Reporting
limits should be aligned to company
Metrics (KPIs/KRIs) Reporting strategy and have sufficient monitoring
and controls.
Physical risk Scenario Analysis
• Data. Design with an end-state in mind
Transition risk Scenario design Forecasting and modeling Results, review and challenge and develop a data strategy related to
the procurement, storage and
External Disclosures
unification of environmental data for
Financial disclosures Non-financial disclosures financial and non-financial reporting.

Training and Communications • Learn. Ask a lot of questions and think

Training Policy and regulation Culture and awareness of climate risk as an ‘add-on’ existing
BAU capabilities
Data and Technology
Internal data External data Process and controls

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Example from TCFD adopter
Eni, Italy

Eni’s ensures understanding, oversight and accountability for climate risks at all levels

Eni’s risk management process is part of the

Integrated Risk Management (IRM) Model
developed by Eni.

The aim of the IRM is to support the

management in their decision-making process
by strengthening awareness
of the risk profile and related mitigations

Source: Carbon neutrality by 2050, Eni 18

Example from TCFD adopter
Orsted, Denmark (1/2)

Orsted provides a clear framework to ensure understanding, oversight and accountability for climate-related risks at all levels

Orsted’s Sustainability
Committee is appointed by the
executive committee and
oversees their Sustainability
Commitment

Other responsibilities include

approving the analysis of their
sustainability themes,
reviewing the company’s
sustainability strategy,
providing recommendations
for their sustainability
programs, and approving their
ESG data set.

Source: 2021 Sustainability Report, Orsted 19

 Example from TCFD adopter
Orsted, Denmark (2/2)

Orsted provides a clear framework to ensure understanding, oversight and accountability for climate-related risks at all levels

Source: 2021 Sustainability Report, Orsted 20

2. Risk management
2.1 Risk management framework
 Understandhow to integrate climate risk into existing risk management
framework and strategies to address climate risk

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Embed climate-change risk deep into Enterprise Risk Management (ERM)

Ultimately, climate change must be built into the organisation’s risk management framework. This requires embedding it into
the risk management lifecycle:

1 2 3 4
Risk identification and
Risk taxonomies Risk reporting Risk mitigation
assessment
 To identify risks, granular  In order to capture climate risk  Develop and maintain a set of risk  Climaterisk analysis needs to
analysis of customers and within existing processes and metrics that capture their own and support decision-making on how
clients by region and sector is standards, organisations will need the counterparty’s climate change to manage climate risks
useful to re-evaluate their risk taxonomies risks  This may range from:
to determine whether climate risk is
 Bifurcating between physical  Be able to aggregate those metrics
material – Altering exposure to certain
and transition risks makes the to enable board and senior sectors or region
analysis more precise and  These granular components will management reporting and
actionable need to be examined across oversight – Pricing of new loans and
portfolios to inform credit limits and underwriting of investments
 Understanding the direct  Risk reporting can be linked to
internal ratings to maintain prudent – Making decisions on how to
impacts of physical risks on existing portfolios, concentration
risk management deploy capital
the organisation’s operations and exposure threshold and limits
and third parties is essential
Source: EY, Being business-minded about climate change: Ten ways to address climate-related risks and opportunities in 2020 and beyond 22
Risk identification and assessment

 Management and stakeholders broadly identify exposure using risk statements

 Example of a risk statement: "we face a risk from increasing levels of extreme weather events damaging our
transmission and distribution lines"

 Based on the risk statement, assign a risk score equivalent to the likelihood of the risk multiplied by the impact
Risk of the risk
identification
 Exposures on physical and non-physical assets related to the companies need to be taken into account. Assets
which are owned by customers and funded by the companies should also be considered
 Non-physical assets include:
Risk
assessment – Customer and staff safety
– Financial exposures such as market risk
– Responsible investment and corporate social responsibility
– Reputational risk and loss of shareholder value
– Reputational risk and loss of shareholder value
 Key stakeholders then form a collective view of the priority of the risk – a plan will be developed in response to
priority risk
 Non-priority risk can still be identified and monitored going forward

Exposures on physical and non-physical assets related to the companies need to be considered

Source: Climate Risk Management for Financial Institutions, Actuaries Institute’s Climate Change Working Group, November 2016 23
Risks arising from climate change

Physical risk Transition risk

 Physicalrisk is the threat to tangible  Transitioning to a lower-carbon economy

assets, which would in turn affect intangible may entail extensive policy, legal,
assets1 technology, and market changes to
address mitigation and adaptation
 Itdirectly impacts assets, financials, requirements related to climate change. 1
earnings or reputation due to the increased  Depending on the nature, speed, and focus
frequency or severity of adverse climate- of these changes, transition risks may pose
related events2 varying levels of financial and
reputational risk to organisations.1

Sources: 1TCFD, Final Report: Recommendations of the Task Force on Climate-Related Financial Disclosures, June 2017; 2Bank Negara Malaysia, Climate Change and
Principle Based Taxonomy, 27 December 2019 and 3Grantham Research Institute on Climate Change, Global trends in climate change litigation, 4 July 2019 24
Risk categorisation varies based on industry, business model and
regulations

Climate risks Expected annual return impacts of

transition risks on energy sector
Transition risks
- 3.3%
Policy and legal p.a. to 2050 in 20C Scenario
Technology Impact on cash flows

Market
Impact on balance sheet
Consumer
- 65.7%
Physical risks
cumulative impact to 2050
in 20C Scenario
Acute

Chronic Impact on functioning of

organisation

Source: Climate Financial Risk Forum Guide 2020, Risk Management Chapter 25
 Breakout session 1

You will now be assigned to a breakout group. In your group, you will need to:

1. Identify climate risks faced by PLN

2. Discuss the potential impacts of the climate risks to PLN
3. Possible metrics to evaluate the financial impact of climate-related risks
20 mins discussion, 15 mins presentation

Breakout group A Breakout group B

OR
Physical risk Transition risk

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TCFD climate-related risks and opportunities

Physical risks Transition risks

Acute Policy and legal

Chronic Technology

Risks Market
1. Identify climate risks faced
by PLN Reputation
2. Discuss the potential impacts
of the climate risks to PLN Strategic planning
3. Possible metrics to evaluate Risk management
the financial impact of
climate-related risks

20 mins discussion, 15 mins presentation Financial impact

Revenues Asset and liabilities

Expenditures Cash flow Capital and financing

Income statement Balance sheet
statement

Source: TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures pg. 8, June 2017 27
Example of climate risks in the power and utilities sector (1/3)

Physical risks Generation Transmission/Sale to end-users

 Precipitation: reduced cable capacity or potential total

 Higher air temperature, wind speeds and humidity
loss of supply locally (overhead lines, underground cables)
Chronic  Nuclear and thermal: Lowered generation efficiency or decreased integrated
 Sea-level rise and storm surges could damage coastal
gasification combined cycle (IGCC) system efficiency (converting coal to gas)
infrastructure

 Higher air temperature (drought) increases the risk of

 Extreme events such as melting, floods
wildfires that damage distribution networks, potentially
Acute  Low temperature and cold outbreaks result in more demand for heating
leading end consumers to opt for Distributed Energy
(extreme demand surges)
Resources (DERs)

Source: NGFS Call for Action Report 2019 28

Example of climate risks in the power and utilities sector (2/3)

Transition risks Generation Transmission/Sale to end-users

 Increased
cost of compliance
 Reduced
assets and inflated cost of capital
Policy and legal
 Stranded assets caused by national or state carbon mitigation policy
 Removal of renewable energy supporting programs

 Changes in supply and demand for generation

 Shiftfrom fossil fuel-based generation to renewables reduces revenue and
Market
market capitalisation to fossil-based generators
 Changes in investment strategies (divestment)

 Grid management challenges related to renewables

 Shiftfrom large scale power generation to distributed power technologies
integration
Technology  Falling costs of wind, battery technology
 Electrification rate might overwhelm the distribution
 Delayed commercialisation of carbon capture, utilization and storage (CCUS)
network

 Tainted
corporate reputation due to increased CO2
Reputation  Increased shareholders’ pressure due to low quality climate disclosures
emissions

Source: NGFS Call for Action Report 2019 29

Example of climate risks in the power and utilities sector (3/3)
Electric utilities can carefully assess climate-related risks and opportunities to inform decisions about future sustainability and
profitability..

Electric utilities are particularly sensitive

 Electric
utilities face significant transition risk from the disruptive impact of the policy to physical, policy, or technological
and markets shift to a low-carbon energy system. changes affecting:

 Oil,gas and coal extraction, as key suppliers to electric utilities face physical risks from
affected water supplies.

 Both transition risks and physical risks impact operating costs and asset valuation of
Fossil fuel Energy production
organisations engaged in energy activities.
demand and usage

 The regulatory and competitive landscape for electric utilities differs significantly
between jurisdictions, making assessment of climate-related risks very challenging.

 Organisations within the Energy Group require major financial investments in fixed
assets and supply chain management and have longer business strategy/capital
allocation planning horizons relative to many other sectors.
Emissions Water
constraints availability

Source: NGFS Call for Action Report 2019 30

Possible metrics to evaluate the financial impact of climate-related risks
and opportunities for the power and utilities sector

Value driver exposed to climate change Example financial indicator

 Demand
 Product mix and production capacity  Revenue
Revenues
 Market positioning and competition  EBITDA
 Operational continuity

 Production costs
 COGS
 Energy and other operating costs
 Fixedcosts
Expenditures  Fines and regulatory compliance
 Operating and other margins
 R&D
 Resilience to supply chain disruption

 Fixed asset values and re-pricing

Assets and Liabilities
 Asset valuations and write offs
 Asset valuation and lifetimes
 Inventory loss
 R&D and innovation costs
 Return on Equity (RoE) and Return on Investment
 CAPEX requirements
(RoI)
 Return on investments

 Access to finance  Cost of capital

 Trustworthiness and creditability  Interest rates
Capital and Financing
 Relations with staff, investors and stakeholders  Long term debt
 Legal environment  Minority interest and retained equity

Source: NGFS Call for Action Report 2019 31

 Example from TCFD adopter
CLP, Hong Kong

CLP has embedded climate change into the organisation's risk management framework

Source: 2022 Risk Management Report, CLP 32

 Example from TCFD adopter
CLP, Hong Kong (1/3)

CLP described its additional risk mitigation measures for their supply chain and power generation network

CLP adopts the same set of risk profiling criteria as

other material risks when assessing climate change.

Climate change risks are managed throughout the

Group according to CLP’s risk governance structure
and risk management process, with management
oversight and assurance provided to the Board

Source: 2022 Risk Management Report, CLP 33

 Example from TCFD adopter
CLP, Hong Kong (2/3)

CLP highlights the materials risks connected with transition and physical risk drivers

Source: 2022 Risk Management Report, CLP 34

 Example from TCFD adopter
CLP, Hong Kong (3/3)

CLP highlights the materials risks connected with transition and physical risk drivers

Source: 2022 Risk Management Report, CLP 35

Types of strategies to address climate risk

Reducing exposure to risk

e.g., reducing the company’s own carbon Mitigation
footprint
Reducing damage or cost after
exposure
e.g., encouraging all power and utilities
companies to buy property insurance to
Strategies to Adaptation prepare for severe weather impacts

Transferring or hedging the

address
Transfer
risk to third parties or hedge climate risk
Insurance is the common practice to
transfer risk.

e.g., insurance for renewable energy Aligning companies' business plan

solutions, to provide natural hedge to the
e.g., in order to withstand severe weather events that
business growth Resilience have flow-on financial impacts, power and utilities
companies can consider to hold an additional capital
buffer

Source: TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures 36
2. Risk management
2.2 Recap of TCFD recommendation on risk management
 Understand the TCFD recommendations on risk management

37
Recap of TCFD recommendation on risk management

Governance Processes for identifying and assessing climate-related risks

Identifying types of risks and the impact on overall financial statement and other metrics

Strategy

Risk Processes for managing climate-related risks

management How risks can be quantified, assessed and scored using heatmaps, peer comparisons
and stress testing

Metrics Integration of identifying, assessing and managing climate related risks

and Resilience of strategy after considering different climate-related scenarios
targets

38
Organisation’s processes for identifying and assessing climate-related
risks

Describe the organisation’s processes for identifying and assessing climate-related risks
R (a)

 Organisations should describe their risk management processes for identifying and assessing climate-related risks. An important aspect
of this description is how organisations determine the relative significance of climate-related risks in relation to other risks.

 Organisations should describe whether they consider existing and emerging regulatory requirements related to climate change as well
as other relevant factors considered.

 Organisations should also consider disclosing the following:

– Processes for assessing the potential size and scope of identified climate-related risks and
– Definitions of risk terminology used or references to existing risk classification frameworks used.

Source: TCFD, Final Report Recommendations of the Task Force on Climate-related Financial Disclosures
39
Methods to identify and assess climate-related risks

Baseline disclosures Advanced considerations

Description for risk management Description for risk management

 Description of general risk management function and level of integration  Description of internal taxonomy classification using recognised
into business-as-usual capabilities (e.g., risk ID, risk taxonomy, risk framework to apply “brown to green” scale by business segment
inventory, risk appetite / limits)
 Description of internal tools and technology and external vendors
 Reference to industry recognised frameworks for identifying risks and
explanation of why your firm selected them

 An
overview of the company’s risk management processes via internal ratings reviews, scenario
Current disclosure practices of reporters: analysis and client engagement
 Identifies climate-related credit, investment, market and operational risks and evaluates and
manages each risk category through the company’s Independent Risk Management (IRM)
function

Source: 1EY IIF UNEPFI, TCFD Report Playbook, 2020; 2Institute of International Finance: Climate-related Financial Disclosures: Examples of Leading Practices in TCFD
Reporting by Financial Firms, 2019; TCFD, Task Force on Climate-related Financial Disclosures, Status Report, 2021
40
Organisation’s processes for managing climate-related risks

Describe the organisation’s processes for managing climate-related risks

R (b)

 Organisations should describe their processes for managing climate-related risks, including how they make decisions to mitigate,
transfer, accept or control those risks

 In
addition, organisations should describe their processes for prioritising climate-related risks, including how materiality
determinations are made within their organisations

Source: TCFD, Final Report Recommendations of the Task Force on Climate-related Financial Disclosures
41
Methods to manage and prioritise climate-related risks independently and
relative to other risks

Baseline disclosures Advanced considerations

Processes for managing risk Processes for managing risk

 Discussion of the linkage between risk identification processes and the  Commitments to future state capabilities
creation of limits and any other methods used to control risk within the
 Carbon measurement methodology and process to evaluate
portfolio
portfolio carbon and portfolio decarbonisation pathways
 Exposure ($ / %) and quantification of risk types by business segment
and jurisdiction  Details of training and employee readiness planning and programs
 Description of impacted risk management process and controls,
including a description of improvements planned / completed to enhance
capabilities and incorporate climate-change risk into existing risk
management framework

Current disclosure practices of reporters:  Materiality matrix in the ESG report to describe the significance of climate risks to the
organisation relative to other ESG risks

Source: 1EY IIF UNEPFI, TCFD Report Playbook, 2020; 2Institute of International Finance: Climate-related Financial Disclosures: Examples of Leading Practices in TCFD
Reporting by Financial Firms, 2019; TCFD, Task Force on Climate-related Financial Disclosures, Status Report, 2021
42
Integrating the process for identifying, assessing and managing climate-
related risks into the organisation’s overall risk management

R (c)
Describe how processes for identifying, assessing and managing climate-related risks are integrated into the
organisation’s overall risk management

 Organisations should describe how their processes for identifying, assessing and managing climate-related risks are integrated into
their overall risk management

Source: TCFD, Final Report Recommendations of the Task Force on Climate-related Financial Disclosures; TCFD, Status Report, 2021 43
How climate-related risks are managed and prioritised both independently
and relative to other risks

Baseline disclosures Advanced considerations

Integration into overall risk management Integration into overall risk management
 Description of roles and responsibilities of different risk functions and  Policies that restrict from exposures in high-risk sectors, which is
their role in how they manage risks (systems, processes, reporting) in line with the 2° or below scenario
 KPIs / KRIs by business segment  Environmental risk assessments conducted for new transactions
 Business-segment specific description of enhancements to existing
 Commitments to supporting mitigation of physical and transition
processes
risks
 Improvements made to embed physical and transition risks into existing
risk management capabilities
 Description of additional risk mitigation measures (e.g., new exclusion
policies, updated risk appetite statements)
 Management of reputational risk through position statements on climate-
related issues, leveraging support of external stakeholders and NGOs

 Discuss
the potential impact, likelihood, velocity of change and context of climate issues and describe
Current disclosure practices of reporters: its mitigating actions and next steps
 Highlight the physical and transition risks and opportunities that climate change poses to corporations,
governments and households

Source: 1EY IIF UNEPFI, TCFD Report Playbook, 2020; 2Institute of International Finance: Climate-related Financial Disclosures: Examples of Leading Practices in TCFD
Reporting by Financial Firms, 2019; TCFD, Task Force on Climate-related Financial Disclosures, Status Report, 2021
44
 Breakout session 2

You will now be assigned to a breakout group. In your group, you will need to:

Alignment with TCFD recommendations on risk management:

1. Describe the organisation’s processes for identifying and assessing climate-related risks
2. Describe the organisation’s processes for managing climate-related risks
3. Describe how processes for identifying, assessing, and managing climate-related risks are
integrated into the organisation’s overall risk management
20 mins discussion, 20 mins presentation

Breakout Group A Breakout Group B Breakout Group C

OR OR

TNB CLP AGL

45
Summary of TCFD recommendations on risk management
Describe the organisation’s
processes for identifying and
assessing climate-related risks
Describe the organisation’s
processes for managing
climate-related risks
Describe how processes for
identifying, assessing and
managing climate-related risks
are integrated into the
organisation’s overall risk
management
Source: TCFD, Final Report Recommendations of the Task Force on Climate-related Financial Disclosures; TCFD, Status Report, 2021
 Organisations should describe their risk management processes for identifying and assessing climate-related risks. An
important aspect of this description is how organisations determine the relative significance of climate-related risks in
relation to other risks.
 Organisations should describe whether they consider existing and emerging regulatory requirements related to climate
change as well as other relevant factors considered.
 Organisations should also consider disclosing the following:
– Processes for assessing the potential size and scope of identified climate-related risks and
– Definitions of risk terminology used or references to existing risk classification frameworks used.
 Organisations should describe their processes for managing climate-related risks, including how they make decisions
to mitigate, transfer, accept or control those risks
 In addition, organisations should describe their processes for prioritising climate-related risks, including how
materiality determinations are made within their organisations
 Organisations should describe how their processes for identifying, assessing and managing climate-related risks are
integrated into their overall risk management
46
 How can PLN start aligning with TCFD recommendations on risk
management?

 Embedding climate  Periodically  Putmeasures in  Develop a data  Periodic  Periodic reporting on

risks across the conduct exercise place to address the strategy related to monitoring and status of climate
PLN risk to identify and climate risks the procurement, control risks and measures
management assess climate- storage and put in place
framework related risks that unification of
can impact PLN’s environmental data
businesses for financial and non-
financial reporting

47
Question time

When you begin to adopt TCFD recommendations, what are the main
challenges that you anticipate running into?

Please use the polling/Whiteboard/Menti to give your

answer

48
Short break (10 mins)

49
3. Scenario analysis
3.1 Overview of the process of climate scenario analysis
 Understand the process of conducting risk assessment of financial and non-
financial risks to identify, measure, monitor and mitigate climate risk

50
Question time

What is your level of understanding of climate scenario analysis?

Please use the polling/Whiteboard/Menti to give your

answer

51
What is scenario analysis?

Description of scenario analysis

 Scenario analysis is a strategic planning tool to help an
organisation understand how it might perform in different future
states

“
 It is designed to embrace complexity and uncertainty,
allowing decision makers to evaluate the organisation’s
flexibility, resilience, or robustness across a range of potential In a world of uncertainty, scenarios
outcomes are intended to explore alternatives
 Scenario analysis is not designed to produce rigid predictions
nor irrational futures, but is designed to consider possible
that may significantly alter the basis
and plausible alternative futures for “business-as-usual” assumption
Task Force on Climate-related Financial
 In the context of climate change, the TCFD recommends the Disclosures
use of climate scenario analysis to help firms to explore the
potential range of climate-related outcomes and analyze the
impact of these alternative states of the world on the business
in a structured manner, as well as how the business may
respond in these circumstances

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 52
Climate scenario analysis process

1 2 4 5
Examine Identify Socio- Techno-
transmission climate- economic logical
channels related risks context evolution
Develop
Identify
suitable
potential Climate scenario analysis
climate-
exposures to process
climate- 7 related 6
scenarios
related risks Emission
Climate
and
3 8 temperature
policy
Conduct landscape
pathways
exposure Define risk
analysis measure

10 Assess 9
the financial
Assess impact Choose
financial impact
impacts and assessment
take action tools

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 53
 Using scenario analysis data to restructure resilient business strategies

TCFD recommends energy sector companies to Considerations

Consider carbon-pricing assumptions,

including any internal carbon price applied,
Income Statement and the potential impacts of climate-
related risks and opportunities, for
example:
 Research and development expenditures
 Adoption of new technology
 Costs of key inputs

Consider to include expected changes

Disclose Evaluate to reserves through impacts of climate
Any climate-related subsequent impacts on risks, for example:
scenarios considerations accounting for assets and  Additional investments
with ‘major disruptions’ on financial projections  Restructuring
Balance Sheet  Write-downs
from business as usual
 Impairment
Capital planning: Explain strategies to
lower carbon-, energy-, and/or water
intensive operations. Detail how capital
planning and allocation take the following
into account:
 GHG emissions
 Energy
 Water issues
Source: FSB TCFD, PwC, 2017 54
Analytical choices involved in scenario analysis
Parameters/ Assumptions
Example parameters/ assumptions
involved in scenario analysis include:
 Discount rate to apply to discount
future value
 Carbon price: the rationale behind the
assumptions regarding how carbon
price(s) would develop over time (e.g.,
geographic scope of implementation)
 Energy demand and mix across
different sources of primary energy and
how they develop over time
 Macro-economic variables: what GDP
rate, employment rate and other
economic variables are used
Source: TCFD website
Analytical Choices
Examples of analytical choices involved in
scenario analysis include:
 Scenarios: selecting scenarios for
transition and physical impact analyses
 Quantitative vs. qualitative
 Timing of implications under scenarios
(e.g., on a decadal level)
 Scope of application, whether applied
throughout the whole value chain or on
specific business units
Business Impacts/ Effects
Examples of business impact/ effects
involved in scenario analysis include:
 Earnings: impact on earnings and how
it is expressed (e.g., EBITDA,
dividends)
 Costs:implications on operating/
production cost and development
 Revenues: implications for revenue
from key products and services
 Capital allocation/ investments:
implications for CAPEX and other
investments by the organisation
55
How TCFD addresses different organisations’ capacity to perform
scenario analysis

Development of guidance Qualitative disclosure

TCFD was developed with the understanding that companies have different Most organisations are expected to perform qualitative scenario
approaches to climate-related scenario analysis and different disclosure analyses and will provide more qualitative disclosures.
capabilities.

Robust scenario analysis
To address concerns about burden on smaller organisations, TCFD
established a threshold for organisations to consider conducting more robust
scenario analysis to assess the resilience of their strategies (organisations with
annual revenue greater than USD1 billion in the four non-financial groups).
In-depth consideration on
qualitative disclosure
Recommends organisations that may be more significantly affected by
transition risk and/or physical risk consider more in-depth, quantitative
disclosure around scenario analysis.
Organisations may use existing external scenarios or their own, in-house
modeling capabilities depending on their planning needs and resources.

Just starting Gaining experience Advanced experience

May start with qualitative scenario narratives Can use quantitative information to Greater rigor and sophistication in the use
or storylines to help management explore the illustrate potential pathways and outcomes of data sets and quantitative models and
potential range of climate change implications analysis

Source: TCFD website and 2021 Implementing Guidance 56

Overview of the process of climate scenario analysis

Supplemental Guidance for Non-Financial Groups

 Organisation should consider discussing the implications of different policy assumptions, macro-economic trends, energy
pathways and technology assumptions used in publicly available climate-related scenarios to assess the resilience of their
strategies.
 For the climate-related scenarios used, consider providing information on the following factors to allow investors and others to
understand the procedure of gaining valuable insight from scenarios analysis:

Critical input parameters, assumptions and analytical Potential qualitative or quantitative financial implications of
choices for the climate-related scenarios used, particularly the climate-related scenarios, if any
as they relate to key areas such as policy assumptions,
energy deployment pathways, technology pathways and
related timing assumptions

Source: TCFD, 2021 Implementing Guidance 57

Question time

What do you consider to be the key challenges in conducting

climate scenario analysis?

Please use the polling/Whiteboard/Menti to give your

answer

58
3. Scenario analysis
3.2 Type of climate-related risks, risk exposure and materiality
assessment
 Understand the process of conducting risk assessment of financial and non-
financial risks to identify, measure, monitor and mitigate climate risk

59
Climate risks could affect the economy through a range of different
transmission channels

Identify potential exposures to climate-related risks by examining both physical and transition transmission channels

Climate risks Economic transmission channels Financial risks

Micro Credit risks
Transition risks
Affecting individual businesses and households  Defaults by businesses and
 Policy and regulation households
Businesses Households
 Technology  Collateral depreciation
development  Property damage and business disruption  Loss of income due to disruptions
 Consumer from severe weather  Property damage (from severe weather)

Financial system contagion

Market risk
preferences  Stranded assets and new capital expenditure or restrictions (from low-carbon policies)  Repricingof equities, fixed
due to transition increasing costs and affecting valuations income, commodities etc.
 Changing demand and costs
 Legal liability (from failure to act)
Physical risks Underwriting risk
Macro  Increased insured losses
 Chronic (e.g.,  Increased insurance gap
Aggregate impacts on the macroeconomy
temperature,
precipitation,  Capital depreciation and increased investment
Operational risk
agricultural  Shifts inprices (from structural changes, supply shocks)
 Supply chain disruption
productivity, sea  Productivity changes (from severe heat, diversion of investment to mitigation and
 Forced facility closure
levels) adaptation, higher risk aversion)
 Acute (e.g.,  Labor market frictions (from physical and transition risks)
heatwaves, floods,  Socioeconomic changes (from changing consumption patterns, migration, conflict) Liquidity risk
 Other impacts on international trade, government revenues, fiscal space, output, interest  Increased demand for liquidity
cyclones and
rates and exchange rates  Refinancing risk
wildfires)

Climate and economy feedback effects Economy and financial system feedback effects

Source: NGFS Climate Scenario for Central Banks and Supervisors 60

How transition and physical risk channels could impact businesses now
and
X beyond

Examine both physical and transition transmission channels and identify potential exposures to climate-related risks

Transmission
Transition Physical
channels

Direct As climate policies penalize fossil fuel production as well as the
production and use of emission-intensive goods and services,
organizations will face risks from:
 Stranded assets
 Negative movements in bonds and equity valuation
 Changes in cash flows
 Deterioration in the customer credit risk profile (in the affected
sector)
In contrast, climate policies will promote organizations involved in the
production of goods and services that assist in reducing emissions.
Indirect Climate policies will also have broader, indirect consequences
by:
 Changing the prices of a broad basket of goods and services
 Affecting aggregate patterns of demand and supply
Corporate balance sheets will be impacted by acute physical
events e.g., precipitation, flood, or wildfire; or by chronic physical
effects, e.g., flood risk due to sea level rise.
The direct economic impact could be:
 Loss of output
 Costs of repair
 Long-term chronic changes in climate patterns (e.g., sea level
and mean temperature rises) as well as the broader impact of
extreme events will impact aggregate demand and output.
 These broader economic costs may arise from spillovers, such
as disruption to a supply chain or support and adaptation costs
borne by the sovereign, which would then impact inflation,
interest rates and long-term productivity.

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 61
How actions in one sector may have implications in another

Transition Energy Industry and manufacturing Financial Services2

risks1
Increased solar panel Collaterals depreciation
Shift to low-carbon energy
manufacturing

Refinancing
Carbon pricing

Possible coal-phase out Forced facility closure

Internal
combustion Increased electric vehicle Changes in commodities
vehicle sales Reduced oil demand prices
manufacturing
ban

Industry Use of carbon capture and Use of carbon capture and

Investment opportunities
decarbonisation storage technology storage technology

Source: (1) Inevitable Policy Response, UN PRI (2020), (2) NGFS Climate Scenario for Central Banks and Supervisors
62
Complementary approaches that organisations can take to start
identifying climate-related financial risks

Identify climate-related financial risks and opportunities

Start from the business profile and risk register of organisations and
Start with a future climate scenario and consider how macroeconomic
questions such as which business areas or risks are vulnerable to
variables (such as gross domestic product (“GDP”) and unemployment)
the physical effects of climate change or the transition to a low-
used in existing financial risk assessments could be affected. 1
carbon economy?1

Aspects of business reviewed for climate risks and opportunities 2 Number of scenarios used, per firm2
Risk management
Strategy
Operations
Business targets
Financial planning
Other
Commonly used scenarios2
0 20 40 60 80 100
IPCC IEA SDS NGFS
Physical and transition risk – Potential impact2 Public scenarios from the UN
Intergovernmental Panel on Sets out an ambitious and Network for Greening the
Climate Change. Scenarios start pragmatic vision of how the Financial System (NGFS)
Non banks global energy sector can evolve scenarios were made available
Use of carbon capture and from projections of global
Banks greenhouse gas emissions to in order to achieve these critical in June 2020 and these will be
storage technology energy-related Sustainable leveraged for Bank of England
derive climate and
0 20 40 60 80 100 socioeconomic projections. Data Development Goals (“SDGs”) . 2021 biennial exploratory
Transition risk Physical risk Equal importance includes atmospheric scenario.
composition, land use, sea level,
among others.
Source: (1) Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter, (2) GARP GRI, Second Annual Global Survey of Climate Risk Management at Financial
Firms
63
Example from TCFD adopter
Drax Group, United Kingdom

Drax identified potential exposures to climate-related risks under different scenarios

Drax identified and assessed the

potential impacts of transition
risks in different scenarios (1.5-
degree scenarios and existing
global scenario)

Source: 2021 Annual Report, Drax Group 64

3. Scenario analysis
3.3 Scenario identification, components and development
 Understand the process of conducting risk assessment of financial and non-
financial risks to identify, measure, monitor and mitigate climate risk

65
Components of the climate scenarios are interdependent and form
feedback loops

Identify feedback loops and interdependencies between the components of climate scenarios
The socioeconomic context lays out the
scenario backdrop, defining the economy’s tolerance Organisations may
for climate change. choose to analyze
only one of these
The emission pathways components or may
represent trajectories of GHG Theclimate policy decide that analysis
concentrations in the atmosphere. should cover several
landscape is
These concentrations result from Climate represented by policy of these components.
the interaction of the three scenario ambition, which is in large
previous factors and influence the feedback part influenced by
scale and nature of physical
climate impacts. Different
loop socioeconomic
challenges. This would depend
pathways reinforce or abate the
on:
socioeconomic challenges.
 Context of business
decision
Technological evolution influences the  Type of exposures
economy’s ability to effect and cope with transition.
 Materiality of
Policy has an important role in facilitating technological
evolution and diffusion. exposures

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 66
Business decisions where scenario analysis could be appropriate and the
likely associated time horizons

Motivation to undertake climate change analysis 1 Time horizon Time horizons for scenarios2

Disclosure: TCFD-related Long

Disclosure: public reporting (e.g., Shareholders) Medium, long Most common scenario horizons are
“1 to 5 years” and “10 to 30 years” that allow
Disclosure: public policy advocacy Long organisation to understand both short- and long-
term impacts.
Business decision: underwriting and pricing Short

Business decision: capital Short

30
Business decision: outwards risk transfer (e.g., Short
reinsurance purchase) 25
Business decision: product development Medium, long
18
Business decision: business plan Medium
14
Business decision: risk management, including risk Medium, long
appetite setting

 Short term: 1 to 5 years, which is the period during which boards typically operate to develop
risk appetite, strategy and business plans
 Medium term: 5 to 10 years, which is the period that the viability of new products would need
to be tested against 1-5 years 5-10 years 10-30 years >30 years
 Long term: 10 years or more

Source: (1) Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter, (2) GARP GRI, (2020) Second Annual Global Survey of Climate Risk Management at
Financial Firms 67
Scenario analysis - core climate scenario approaches

Determine availability of scenarios in different dimensions:

Scenario  Physical risk and transitional risk: Assess whether the scenarios cover both types of risk and their level of interaction
data  Assessment of different scenarios: Use plausible scenarios, including a 2°C scenario and a no-policy scenario
 Outcome granularity: Assess applicability of scenario outcomes by sector, geography, etc.

Option 1: Public Scenarios Option 2: Internal Scenarios Option 3: Vendor Scenarios

Developed by scientific community and
NGOs to assess climate change from
different perspectives, e.g. CD-Links, EIA
Scenario  Credibility, low cost, transparency
sources  Low granularity of sectors or flexibility
In-house development to obtain risk factors
associated to specific sectors and climate
metrics
 Customization to organisation
 Complex development of assumptions
Robust scenarios to accommodate
multiple scenarios and applicability
to various sectors
 Detailed outputs and
visualization tools
 Low standardization, vendor costs

Most climate scenarios have been developed by government agencies and academics. Some vendors have developed their own
scenarios, whereas others consolidate available scenarios and data to develop modeling and reporting capabilities. Below are
some examples:
 NGFS: Scenarios were made available in June 2020 and these will be leveraged for the Bank of England 2021 biennial
Scenario exploratory scenario
examples  IPCC: Public scenarios from the UN Intergovernmental Panel on Climate Change. Scenarios start from projections of global
greenhouse gas emissions to derive climate and socioeconomic projections. Data includes atmospheric composition, land use,
sea level, among others
 IEA: The International Energy Agency provides scenario data for different energy sources on a geographical granular level.

68
Scenario analysis – to build or to buy?

Each organisation faces a basic ‘build or buy’ choice for climate risk modeling

Advantages Disadvantages

Build
 White-box – The organisation owns the methodology and
 Limited ongoing external support as fully owned
models and perpetual license
 Initial coverage likely smaller / more focused
1  Better for knowledge transfer to the organisation‘s team
 Less out-of-the-box features for outputs
 Potentially better to deal with specific sector needs and low
 Not automated data feeds
data environments

Buy
 Industrial-strength model with full range of features from
day 1  Recurringcost for data-as-a-service subscription
2  Help line support, version update (incl. scenario updates)  Less room for real-time adjustment of assumptions and
 Requires less internal resources for modeling and parameters, black box models
maintenance

69
 Example from TCFD adopter
AGL, Australia

AGL built their own white-box for climate risk modeling

AGL owns the methodology behind

their climate risk modeling, which is
better for dealing with the needs for the
energy sector

The company disclosed the critical

input parameters for their scenario
narratives

Source: Pathways to 2050, AGL 70

Example from TCFD adopter
Xcel Energy, United States

Xcel Energy engaged an external vendor to develop its climate scenarios

Xcel Energy engaged E3 to develop its climate scenarios that are consistent with Xcel Energy’s Net Zero Vision; 25%
reduction in GHG emissions by 2030 and net zero by 2050

Source: 2022 Energy Gas Business GHG Reduction Scenarios, Xcel 71

3. Scenario analysis
3.4 Scenario assessment – assessing the financial impact
 Understand the process of conducting risk assessment of financial and non-
financial risks to identify, measure, monitor and mitigate climate risk

72
Approaches for climate scenario assessment

Physical Transition
channel channel
Risk identification

Macro-economic impact assessment tools

Impact distribution by country, sector, asset class,
etc.
Assess financial impacts and
Scenario
take appropriate action
 Socio-economic context
 Profit and loss statement
 Climate policy landscape Risk measure
Credit risk ratings, expected losses, market  Balance sheet
 Technological evolution valuation, interest rate margins etc.  Capital ratios
 Emission and temperature
 Risk appetite framework
pathways
Impact of decarbonisation and physical events on
individual companies or specific assets
Asset or company specific impact assessment
tools
Risk identification
Physical Transition
channel channel

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 73
Organisations need to measure the impact of climate-related risk drivers
on their key financial metrics

Define risk measure to assess financial impact

Time horizons

 This
depends on the business decision being analyzed and the duration of the
organisation’s exposures
 Shorter-time horizons, therefore, may allow organisations to construct alternative
transition scenarios which carry the same physical scenario
 Longer-term horizons may allow organisations to explore a richer combination of
Determine both multiple transition and physical outcomes
Banks, P&U and other companies the
approach for
Will need to assess how climate-related financial impact
risks can drive variations in their financial assessment
earnings and portfolio valuations Baseline

Organisations may choose to assess the impact of climate-related risks in one of

two ways:

 As a one-off shock to their current portfolio

 Asthe difference between a central projection and alternative pathways evolving
over time

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 74
Organisations need to select appropriate impact assessment tools to
analyze the change in the chosen risk metrics for a given scenario

Choose impact assessment tools to assess financial impact

Macro-economic impact assessment tools Asset or company specific impact assessment tools

 Organisations regularly usethese tools to assess the resiliency of
their business model to macroeconomic stresses in the financial
system over the capital planning horizon (~3-5 years)
 These models can be used to quantify the impact on market and
credit risk exposures of both instantaneous and prolonged
macroeconomic stresses in the financial system
 Input variables can typically include GDP, unemployment, interest
rates, currency rates and commodity prices, as well as assumptions
on asset devaluations (equity prices and credit spreads)
 Require more involved analysis and are resource-intensive, meaning they
are typically applicable for smaller portfolios
 Characterised
by high granularity which considers company- and/or
geography-specific idiosyncrasies
 Thesetools are likely to vary more significantly from firm-to-firm, e.g.,
banks may use credit rating models, asset managers may use asset allocation
models and insurance companies will have models to project natural disasters.

 Outputs of these approaches can typically include the P&L impact

from an instantaneous market shock, as well as changes in reserve
levels to account for increased losses on lending activities.

Source: Climate Financial Risk Forum Guide 2020, Scenario Analysis Chapter 75
Example from TCFD adopter
Enel Group, Italy (1/2)

Enel assessed the impact of their climate-related financial risks by conducting a company specific impact assessment

Source: Net-Zero Ambition 2020, Enel 76

Example from TCFD adopter
Enel Group, Italy (2/2)

Enel assessed the impact of their climate-related financial risks by conducting a company specific impact assessment

Enel estimated the yearly financial impact

to their EBITDA for variations in power
demand and renewable energy output.

Expected short term variations (until 2030)

range between 1-10%

Source: Net-zero Ambition 2020, Enel 77

Example from TCFD adopter
Entergy, United States

Entergy assessed the impact of their climate-related financial risks by conducting a company specific impact assessment

Entergy estimates that the financial impact caused by physical

risks over a 10-year period would be USD 5.37B

Source: 2022 CDP Climate, Entergy 78

 What does PLN need to consider to enable it to conduct climate scenario
analysis?

Scenarios to be used Assets that are exposed to physical climate risks

Data collection for Scope 1, 2 and 3

GHG emissions Financial impact due to physical climate risks

Climate
Mitigation measures (existing and future) Scenario Adaptation plans in place to mitigate physical
to address transition risk climate risks
Analysis

Market changes that will impact PLN’s

corporate and business strategy in
PLN’s baseline emissions and base year
relation to climate

Technologies that will help in reducing Policies / regulations (existing and emerging) that will affect PLN’s
PLN’s emissions operations

79

 Select scenarios
Q&A

80
Summary

In today training, we have learnt

 The five components of governance, framework, alignment, stress testing and enablers to effectively manage climate risks

 How to set up climate governance on corporate boards

 Climate change must be built into the organisation’s risk management framework which requires embedding it into the risk management lifecycle

 Physical and transition risks identification

 TCFD recommendations on risk management and how can PLN start aligning with TCFD recommendations on risk management

 Process for climate scenario analysis and how TCFD addresses different organisations’ capacity to perform scenario analysis

 Core climate scenario approaches and how to assess financial impacts

81
Feedback

82
Thank You