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Businesses face external scrutiny of their climate risks

Wednesday, 15 January 2020 1:15pm

   Dr Karl Mallon: 'unvarnished' TCFD analysis

Businesses should be prepared for a rapid increase in TCFD analysis of their climate risk exposure commissioned by third parties such as investors, business customers and climate activists, according to leading advisor Dr Karl Mallon of consultancy XDI.

Mallon told Footprint that a lot of companies still took a "tick and flick" approach to their risk analysis for events like flooding and bushfires, but in future this was unlikely to be enough to satisfy investors and customers vetting their own supply chains.

He said part of the reason for the lack of clear risk disclosure is that businesses are often reluctant to make public potential physical climate risks so as not to devalue assets they might be considering selling.

Mallon, who is XDI's director of science and technology, said the consultancy was currently analysing risks to major listed companies in various jurisdictions on behalf of "high-value investors".

These jobs were not just requests to check claims made in company TCFD reports, but instead involved thorough and comprehensive independent reviews of risk exposure, he said.

'Hostile analytics'

Mallon said that in some cases third-party scrutiny will involve "hostile analytics", in which the businesses being assessed will not be alerted to the process.

In other situations, companies are likely to be told that the assessment will proceed "whether you like it or not", but will be invited to participate to help make the assessment more accurate, he said.

Mallon added that the prospect of detailed external scrutiny was likely to lead to a general improvement in the quality of physical risk reports.

If companies know "there is someone out there who will do unvarnished TCFD analysis" they are likely to think twice about commissioning only a cursory assessment, he said.

Utilities at the forefront

Mallon added that private sector businesses were well behind many Australian utilities in understanding their exposure to physical climate risk.

For example, every single one of Sydney Water's electro-mechanical assets – including pumps, treatment plants, the desalination plant and its reservoirs – have been analysed for exposure to risks such as bushfire, flooding and coastal inundation, he noted.

Sydney Water's world-leading approach doesn't mean all these assets have been "made bulletproof", but it does mean risk exposure has been factored into decision-making for several years, he said.

Similarly, Melbourne Water has conducted substantial research into the ramifications of climate change, including the drop in catchment flows due to increased water uptake by regrowth in catchment areas that have been burnt in bushfires.

In contrast, private sector scrutiny of their at-risk assets is generally "not nearly as evolved", he said.

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