Performance
or compliance?
Your approach to climate risk matters
Susan McHattie
Stella Whittaker
YOUR APPROACH TO CLIMATE RISK MATTERS
1/23
1. We ask the pivotal question
Subheading
Introducing Subheading
our strategic
lens
Can you generate a value dividend by taking a
performance approach, placing transition to a
low carbon and resilient future at the centre
of your strategy? Or do you choose a
compliance approach, and risk siloing climate
from your planned future?
2. We understand what is at stake
This white paper brings a fresh lens to
strategy setting and climate transition
planning.
Large Australia business must now disclose
the financial impact of current and
anticipated material climate related risks,
over the short, medium and long term.
Global temperature rise impacts on people
and planet – physical risk and therefore, our
economy and your capacity to conduct
business – transition risk.
Climate transition planning is a structured
approach to managing climate risk and
opportunity to secure an orderly and
successful transition to a low carbon and
resilient future. A good transition plan
underpins and informs climate risk disclosure
reporting.
Your stakeholders care. Investors,
customers, communities, employees,
suppliers and regulators expect businesses
to play a role in decarbonising the economy
and securing the future.
Drawing from earlier transitions, climate
transition will require direction, demand and
innovation to build the new economy. This is
the competition for the future.
We share our insights and expertise here to
support you to take a performance approach
– stakeholder driven, collaborative, and
integral to your strategy, for full benefits
realisation.
We invite you to share in this critical
conversation about how to navigate this
strategic challenge with your stakeholders.
We have built a new climate that is radically
changing our world. Changes are visible now.
We take a look at the Intergovernmental
Panel on Climate Change pathways which
lead to different warming trajectories and
consider socioeconomic narratives that drive
home the need to mitigate, to adapt, and
focus, to thrive in this rapidly changing world.
3. We scan stakeholder perspectives
We operate in a global economy where
successful companies create value for every
stakeholder. This means understanding and
balancing stakeholder expectations.
4. We explore performance and
compliance approaches
We map alternative performance and
compliance approaches and recommend a
performance approach to secure sustainable
value for your stakeholders and customers.
5. We set out risk and opportunity
We follow the link from physical and
transition risks to financial impacts, through
to risk mitigation for value protection and
then to opportunities for value creation.
6. we consider enablers in the context of
what we know of transitions
We think it is critical to start with an
understanding of the enablers and challenges
in your context - global, national and industry,
and to understand and invest in your
readiness and maturity to ensure success.
YOUR APPROACH TO CLIMATE RISK MATTERS
2/23
MANDATORY CLIMATE RISK DISCLOSURE - WHAT YOU NEED TO KNOW
Australian entities must disclose the financial impact of current and anticipated material climate
related risks. The rules cover physical and transition risks, over the short, medium and long term.
Climate risk disclosure reporting captures green house gas emissions, risks in transition to renewable
and low carbon solutions, and physical risk from climate change, both acute and chronic, to assets and
operations. Entities also need to disclose opportunities, climate resilience in at least two climate
scenarios and their transition plan, if prepared. Climate transition plans address ambition, actions and
accountability, outlining goverance, strategy and metrics. Climate transition plans support and inform
the preparation of disclosures.
Reporting scope includes the entities’ operations, and those of their suppliers and customers. This will
generate demand for climate risk information from entities not caught in the scope of the mandatory
reporting regime. Disclosures must use frameworks set in the Australian Sustainability Standards
prepared by the Australian Accounting Standards Board, AASB S2. 1 for end notes see pages 21 & 22
The reporting mandate will be phased in for Australian public and private companies, registered
schemes, superannuation entities and not for profits but not charities from January 2025. Application
of the new rules is based on size - consolidated revenue, gross assets, staff, assets under management
(AUM) and those with material climate risk, see table below.
The Australian mandatory climate risk reporting regime follows similar arrangements of our trading
partners and extensive consultation in Australia. Mandatory climate reporting is supported by the
Australian Institute of Company Directors, Business Council of Australia, Australian Council of
Superannuation Investors, Financial Services Council, Australian Shareholders Association and other
key business groups and is now law. 2
Meets at least two of three criteria
GROUP
National
Greenhouse
and Energy
Reporting
(NGER)
entities
Asset
owners
Consolidated
revenue
Consolidated
gross assets
Staff
Group 1
from 1 Jan 2025
$500m+
$1b+
500+
Above NGER
threshold
N/A
Group 2
from 1 July 2026
$200-499m
$500-999m
250-499
Other NGER
reporters
$5b+AUM
Group 3
from 1 July 2027
$50-199m
25-499m
100249m
N/A
N/A
Reporting entities and timeframes 3
For more information see Directors guide to mandatory climate reporting, Climate Governance
Initiative Australia 2
Regardless of whether your organisation is included in the mandate, your capacity to answer, and
how you answer the questions about your transition to a low carbon, resilient future will
increasingly affect your access to customers, markets, finance and talent.
Susan McHattie and Stella Whittaker
YOUR APPROACH TO CLIMATE RISK MATTERS
3/23
Transition planning
Climate transition planning is a structured approach to managing climate risk and opportunity to
secure an orderly and successful transition to a low carbon and resilient future. A good transition
plan underpins and informs climate risk disclosure reporting. More importantly, it positions you to
lead in the new economy and to drive climate resilience and decarbonisation strategies.
Climate risk is categorised in two broad and interrelated categories, physical and transition:
Physical risk and opportunity considers the physical impacts of our changing climate, whether
they be acute such as flood, drought, wildfires, or chronic such as temperature and sea level rise
and ocean acidification. Using standard enterprise risk management approaches the intention is
to identify and pursue actions that will secure a more resilient future through a combination of
carbon mitigation, climate adaptation, business continuity and disaster recovery practices.
Transition risk and opportunity considers the business impacts of our changing economic,
technological and social paradigms. Risks are categorised as policy and legal, technology,
reputational and consumer and market. The objective is action to secure a resilient business
future through combinations of decarbonising, changing business, product and service models,
contributing to economy wide transition and changing behaviours across all stakeholders. 4
The Transition Plan Taskforce Disclosure Framework 4
Over the coming decades the world will undergo one of the biggest economic transformations
in living memory. Businesses which manage the risks and seize the opportunities that
transformation presents will flourish. That requires a transition plan. The TPT framework
provides the tools businesses need to get going, so our message is simple: it’s time to turn
ambition into action.
Amanda Blanc, Group CEO Aviva Plc & Baroness Penn, Treasury Lords Minister
Co-Chairs, Transition Plan Taskforce 4
YOUR APPROACH TO CLIMATE RISK MATTERS
Can you generate a
value dividend by
taking a performance
approach, placing
transition to a low
carbon and resilient
future at the centre of
your strategy?
Or do you choose a
compliance approach,
siloing climate from
your planned future?
4/23
YOUR APPROACH TO CLIMATE RISK MATTERS
5/23
Temperature rise
Global temperature has risen by 1.1oC since 1850. 5 In Australia our average temperature has
risen by 1.5oC since records began in 1910. 6 Global temperatures will continue rising based on
cumulative emissions to date. The higher the temperature rise, the greater the acute and chronic
physical risks.
acute physical risk - heatwaves, floods, wildfires and storms.
chronic physical risk - rising sea levels and increasing mean temperatures.
During the last decade extreme heat events occurred across the globe almost three-times more
frequently than in pre-industrial times. The trajectories in the graph below map the likely global
temperature consequences of current global climate targets and policies.
If we continue, by around 2050 there will be a 100% increase in the frequency of extreme
heat events compared to today, that will be about 120% more intense; there will be a 40%
increase in droughts that will be about 100% more intense.
If we achieve Net Zero Emissions by 2050 there will still be a 45% increase in frequency of
extreme heat events compared to today and about 20% increase in ecological droughts. 6
Global temperature rise drives impacts on people and planet - physical risk, and therefore, our
economy and your capacity to conduct business - transition risk.
Global GHG emissions and expected warming
by policy ambition 4
Absence of policies 4.1-4.8C
Current policies 2-7-3.1C
Pledges and targets 2.3-2-6C
Optimistic net zero targets 2.1C
2C consistent - 1.6-1.7C
1.5C consistent
At the heart of climate risk disclosure is scenario analysis.
The Intergovernmental Panel on Climate Science has commissioned five narratives of the future
(also refered to as scenarios) to consider how political, social and economic trends might shape
our climate and our adaptive planning for physical and transition risk. 7 The Australian Standard
requires entities to consider at least 2 of these in their climate risk assessment and disclosure. 2
YOUR APPROACH TO CLIMATE RISK MATTERS
6/23
Alternate futures
The narratives describe alternate futures in which we manage climate risk and opportunity.
These are essential tools for designing decarbonisation and climate resilience strategies.
Sustainability – taking the Green Road with low challenges to mitigation and
adaptation
The world shifts gradually toward a more sustainable path, emphasising more
inclusive development that respects environmental boundaries and achieves
sustainable development goals. The emphasis on economic growth shifts
toward a broader emphasis on human well-being.
Middle of the Road with medium challenges to mitigation and adaptation
The world follows a path in which social, economic, and technological trends
do not shift markedly from historical patterns. Development and income
growth is uneven. Institutions make slow progress in achieving sustainable
development goals. The intensity of resource and energy use declines.
Vulnerability to societal and environmental changes remain.
Regional Rivalry – a rocky road with high challenges to mitigation and
adaptation
Resurgent nationalism, concerns about competitiveness and security, and
regional conflicts push countries to focus on achieving energy and food
security goals within their region at the expense of sustainable development.
Economic development is slow, consumption is material-intensive, and
inequalities persist or worsen over time.
Inequality – a road divided with low challenges to mitigation, high challenges
to adaptation
Increasing disparities in economic opportunity and political power lead to
increasing stratification of knowledge, technical innovation and capital across
and within countries. Social cohesion degrades, conflict and unrest increase,
energy diversifies and environmental policies occur in high income areas.
Fossil Fueled Development – taking the highway with high challenges to
mitigation, low challenges to adaptation
Increasing faith in competitive markets, innovation and participatory societies
produce rapid technological progress and development of human capital as
the path to sustainable development. This is coupled with the exploitation of
fossil resources in resource and energy intensive lifestyles, in integrated
markets. Faith in technical solutions includes climate geo-engineering. 8
YOUR APPROACH TO CLIMATE RISK MATTERS
7/23
Your stakeholders care
Stakeholders care. They expect
businesses and others to play a role in
decarbonising the economy and securing
their future. 13
Investors
78% of studies drawn from top-tier
journals report a positive
relationship between corporate
sustainability and a firm’s financial
performance. Demand for
sustainable investments is projected
to increase over the next decade. 9
Awareness of climate change and its
implications for business success has grown
in the last decade. This stimulated initiatives
in environmental, social and governance
(ESG) frameworks, risk analysis, standards,
reporting and shareholder engagement.
Customers
Over 73% of people in every
country worry about climate
change and support action to
tackle it, but the public
consistently underestimates this
share. 10
Concern about climate change amongst
Australian citizens has varied in intensity, and
in 2023 was in line with global concern at
70%. 14 Variation can be related to political
narratives, extreme weather events,
economics and competing priorities.
Employees and particularly millenials and
GenZ are increasingly sensitive to the stated
and enacted values of their employers, with
trends impacting employer selection and
competition for talent.11
Employees
83% of UK Office workers in 2020
said their companies were not doing
enough about climate change. 11
The attitude of suppliers is also crucial. A
majority recognise environmental risks as
significant. Larger business have greater
capacity to act, smaller businesses have less
capacity to act with a significant aggregate
carbon footprint. 12
Suppliers
54% of businesses in developed
economies say environment risks
are significant for their business,
60% of large businesses are taking
action, and 48% of small businesses
are taking action. 12
Whilst there are good sources of general
data to provide a guide, it is critical for
transitioning businesses to understand and
engage with their stakeholders. Effective
engagement will strengthen reputation and is
likely to generate opportunities.
Most stakeholders – from shareholders, to employees, customers, communities and
regulators – now expect companies to play a role in decarbonizing the global
economy. Few things will impact capital allocation decisions – and thereby the longterm value of your company – more than how effectively you navigate the global
energy transition in the years ahead.
Larry Fink Letter to CEOs 2022 13
ADD
YOUR APPROACH TO CLIMATE RISK MATTERS
8/23
Investors
Sustainability and climate risk resilience
is reshaping investing. Assets under
management (AUM) for sustainable
equity and fixed-income funds reached a
record 7.9% of global total AUM in the
first half of 2023. 15
Demand for sustainable investments is
projected to increase over the next
decade, generating finance options for
your climate transition.
Demand is driven by investor preferences,
net-zero transition, resource scarcity,
technical and social innovation, demand for
sustainable supply chains, regulatory
frameworks and opportunities for return.
In 2023 ESG ratings were the top factor
influencing investment decisions. 17
Whilst this is small it has grown rapidly and
is likely to grow exponentially.
Investors, as distinct from traders, are
focused on long term value creation.
Closer to home the Australian Council of
Superannuation Investors, representing
members with $1t in funds under
management, reviewed transition plans and
emissions targets of ASX listed businesses.
They found, generally, that plans and targets
lack detail, depth, comparability and
credibility, impacting investor confidence. 18
78% of studies drawn from top-tier journals
report a positive relationship between
corporate sustainability and a firm’s
financial performance. 9
The impact of sustainability practices on
firm performance is growing over time and
is expected to grow further in the coming
years. 16
The Council advocated for government to
broaden the scope of risk disclosure to
include other sustainability issues
intertwined with climate including circular
economy, nature and biodiversity, First
Nations and social impacts. 19
The results in these quoted studies are
replicated in the performance of ESG and
climate action oriented funds and the
statements of fund managers. 14
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-4.0 -5.8
-2.4 -2.5
7.1
5.6
Africa
Asia
Europe
8.2
5.7
North America
6.1
2.4
Oceania
17.4 16.3
South America
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Sustainable funds outperformed traditional funds in all regions, particularly Oceania and
North America in 1H2023 14
Mindy Lubber CEO and President CERES
ht
u
oS
h
rto
N
There is no doubt that the largest U.S. investors and companies will continue embracing the
opportunities of the current clean energy boom, setting net zero emissions goals, and
adopting transition action plans.
YOUR APPROACH TO CLIMATE RISK MATTERS
9/23
Customers
Trust is increasingly important to
customers and this is reflected in concerns
about greenwashing. 22
More customers care about climate change
and nature. There is a core group of
customers who choose products and
services using sustainability as their guide.
Sustainability is a driver of trust to millenial
and gen z generations, who will soon hold
the greatest purchasing power. 22
The majority of people in every country
worry about climate change and support
action to tackle it, but the public consistently
underestimates this share. 20 People think
climate change is a serious threat, and
humans are the cause. Concern is high: even
in the country with the lowest level of
concern, 73% agreed on the seriousness of
the threat. 10
Highly trusted companies can outperform
others by up to 400% with each increase in
trust score increases value. The TrustID
Platform measures business intent - caring
for people and planet and transparency and
competence - capability and reliability. 22
Another factor is price. The 2023
International Consumer Congress agreed
that sustainability including actions on
climate change, cannot be a luxury.
Over 70% of Australians say they are
concerned about climate change and its
impacts, including the potential it has to
compound existing cost-of-living pressures.
14
The Congress is calling on businesses to
offer sustainable products and services
promote reuse, resell and repair
ensure sustainable options are
affordable and accessible
raise consumer awareness of sustainable
living opportunities
promote benefits of sustainable
consumption such as health, style,
technology, and performance.23
In other surveys 67% of Australians believe
moving beyond traditional to regenerative
sustainability is important, recognising the
link between climate mitigation and
adaptation, the role of nature based
solutions and the importance of biodiversity.
21
0
Always
Often
Sometimes
Rarely
Never
10
5
20
12
14
30
31
38
Australians were asked in 2024, how often they
consider sustainability in their shopping choices.
An overwhelming majority always or often do. 21
Most people in the world are convinced and concerned, and want to see strong and urgent
action...We need to shift the conversation about climate change towards solutions — what
they are, how effective they are, what the benefits might be...
The majority — in all countries — agree.
Hannah Ritchie, Our World in Data 20
YOUR APPROACH TO CLIMATE RISK MATTERS
10/23
Employees
Employees care about your environmental values, and by extension, your action on transition
to a low carbon, resilient economy.
80% of C-suite leaders surveyed by Deloitte in 2022 reported that their employees have
(positively) impacted their climate and sustainability plans, or soon will. In a related survey of
employed adults 69% said they want their companies to invest in sustainability efforts, including
reducing carbon, using renewable energy, and reducing waste. Sentiment is strongest in the
youngest adult population third but present in all groups. The latest Gen Z and Millenial Survey
found that among adults between the ages of 18-40 from 44 countries, 64% of respondents
believe in the power they have to drive organisational change, and that their organisations are
listening and incorporating feedback. 24
0
20
40
60
80
My company is not doing anything or enough on climate change
83
My company's emvironmental values don't match mine
80
72
I am concerned about environmental ethics
I am more likely to work for a company with strong environental policy
65
I want to learn more green skills to be more valuable at work
63
I need more information on my company's environmental goals
57
A majority of UK based office workers are concerned by the gap between their environmental
values and their experience of their company’s environmental values, based on responses to a
Unily survey in August of 2020. 11
In 2021 Australian software company Atlassian commissioned research into the attitudes of
employees in Australia and the USA. Their finding - it is now clear that employees expect their
employers to make a difference.
‘We are seeing an increasingly activist workforce that holds business to account and prioritises
wellbeing over career progression. More than 60 percent of workers also want their employers to
take action on social and environmental issues like climate change, equality, and poverty. The
return on action for businesses tackling the issues that matter to their workers is demonstrated in
increased engagement. 54% of employees are satisfied with their current employer. This increases
to 89% amongst those satisfied with the level of action their employer takes’. 25
Engaged employees will add power to your climate transition.
There’s really going to have to be a paradigm shift in realising that every job needs to be a
sustainability job at some level.
Bethany Patten, Sustainability Initiative, MIT Sloan School of Management 26
YOUR APPROACH TO CLIMATE RISK MATTERS
11/23
Suppliers
Reporting entities are expected to account
for their upstream and downstream carbon
emissions, climate impacts and risks. This
includes suppliers and customers. 2
Improving resource and energy efficiency
brings multiple benefits to all businesses.
Benefits include emission and cost reduction,
raised product quality and visibility,
improved operations and workplaces, access
to new markets, reduced vulnerability to
energy price volatility and compliance with
environmental standards. 27
Most entities captured in the three groups of
the mandatory climate risk disclosure regime
will have large, medium and small businesses
in their supply chain, whether onshore and
offshore. Onshore large suppliers are
covered by the reporting requirements.
Small suppliers are not.
OECD SMEs in sectors with higher GHG
emission reduction over the past decade
display higher levels of environmental
engagement. ‘Greening’ SMEs are more
productive, pay higher wages and their sales
grow faster than non-greening SMEs. Solar
energy, recycling and energy efficiency are
the most cited actions. 30
The OECD estimated that SMEs in the EU
account for 37-45% of greenhouse gas
emissions in 2018. They found metrics of
energy and carbon intensity vary widely
across countries and sectors. 27
Globally, 28 micro, small and medium
enterprises (MSME) account for
90% of businesses, 97% in Australia 29
60-70% of employment, 49% in Australia 29
50% of GDP, ~33% in Australia 29.
Barriers still prevent SMEs from investing in
climate mitigation and adaptation for their
own resilience. Barriers include limited
awareness, skills and expertise, challenges
with financing and in lease arrangements, and
limited access to innovation, growth
ecosystems and professional networks. 27
MSMEs are on average less energy and
resource intensive than large firms, but in
aggregate they have a substantial
environmental footprint. 28
How you work with SMEs in your supply
chain will influence your transition success.
0
Large firms taking action to reduce environmental risk
Environmental risks are significant for my business
Small firms taking action to reduce environmental risk
20
40
60
60
54
48
Suppliers in developed economies in 2021 are generally
aware of environmental risk including climate risk and
are taking some action . 12
There are strong examples of innovative, collaborative SMEs and start ups working in partnership
with national and global firms within the OECD to solve problems and introduce new business
models, products and services. 27 Australian business can benefit from scaling these practices.
Susan McHattie
YOUR APPROACH TO CLIMATE RISK MATTERS
Regulators
12/23
Trading
partner
Scope
Implementation
China
FY2025
Globally, regulators are taking an action to translate
the Paris Agreement and climate and sustainability
risk into market, finance, competition and consumer
regulations. This is also the case in Australia.
1&2
double
materiality
Japan
TCFD
aligned
The Reserve Bank of Australia monitors the build-up
of climate-related financial stability risks, including
how these risks are priced and who ultimately bears
the physical and transition risks of climate change.
FY2023
Prime market,
then all listed.
Standards incl
scope 1-3 in 2025
USA
1&2
if material
2029-32, legal
challenges
SEC listed
Korea
Sustainability
1, 2 & 3
In development
India
1,2 & 3
In development
FY27-29
Singapore
1,2 & 3
2025-29
New
Zealand
1, 2 & 3
2023-24
The Australian Competition and Consumer
Commission, ACCC, is the chief competition
regulator with the mandate to protect consumer
rights and business rights and obligations. They
perform industry regulation and price monitoring to
prevent illegal anti-competitive behaviour. The ACCC
is protecting consumers through greenwashing
regulation and education.
Malaysia
Sustainability
Climate risk
2025-2030
Phased approach
Taiwan
IFRS 1 & 2
aligned
2026-27
Phased approach
Taken together these regulations require Australian
businesses to manage climate risk and opportunity.
They are designed to ensure Australian business is
competitive in global markets where similar
regulations are in place or in development.
Thailand
TCFD
aligned
ESG and
climate
2021
Listed businesses
The Australian Securities and Investment
Commission, ASIC, is the regulator of business,
financial services, consumer credit and markets with
responsibility for sustainability governance and
disclosure. It guides against overstating green
credentials of investment products. Climate risk
disclosure is the most urgent of the reporting areas.
The Australian Prudential Regulation Authority,
APRA, is the regulator for financial services sector
with responsibility for ensuring our financial system is
stable, competitive and efficient. APRA publishes
prudential guidance for banking, general insurance,
life insurance, private health insurance and
superannuation, such as CPG 229 Climate Change
Financial Risk.
Climate risk discosure regulations in our top
10 trading partners 31
If companies and industries fail to adjust they will fail to exist.
Mark Carney Governor Bank of England
YOUR APPROACH TO CLIMATE RISK MATTERS
13/23
Compliance approach
Climate risk disclosure is, at minimum, a compliance approach.
That approach is investor, and now regulator driven.
The disclosure of climate risk began with investor interest in the long-term stability and value
creation of investments. The first step for investors is to ensure investees are aware of the
physical and transition risks to their business, and are putting in place the governance, scenario
analysis, and risk management to address those risks and disclose them to the market. 2
Over time interest has increased and expanded. More investors, and now stock exchanges and
governments in Europe, UK, Singapore, China, US and others around the globe, are requiring
disclosure. 31
This disclosure approach is a compliance approach and can risk being a siloed exercise. There
may be a gulf between risk identification, assessment and disclosure and corporate strategy.
Compliance may deliver a ‘tick the box exercise’ with limited ownership across the organisation
and poor or negative impacts on perceptions of investors, regulators and stakeholders. It may
focus on cost reduction – what is the cheapest way to reduce our risk?
Businesses preparing climate transition plans in the first wave in the UK identified challenges.
Financial planning was their greatest challenge, followed by understanding business model
implications and thinking through business planning and operations. Other challenges were
related to products and services, engagement with their value chain, financial metrics and
targets and carbon credits. 32
The outcome of a compliance approach is likely to be business as usual with little appreciation
of the rapidly shifting crises in climate, resources, supply chains, talent and customer demand.
This compliance approach risks separating climate risk and transition from strategy. It does
not ask a myriad of crucial questions, and in particular ‘what do our stakeholders need and
require of us, in any plausible future?’
Regulator driven
Siloed activity
separate to
corporate strategy
Boxes ticked, but
conflicts with strategy
mean benefits are not realised
YOUR APPROACH TO CLIMATE RISK MATTERS
14/23
Performance approach
A performance approach delivers more value.
There is another way to think about climate change and the transition to a low carbon, resilient
economy. A performance approach to managing climate risk is the path to future success – if it is
core to business strategy.
The performance approach is stakeholder driven – in all the diversity that this implies - investors,
regulators, people, customers, suppliers, communities. It aligns with and shapes strategy and
engages leaders across the business. A performance approach can deliver a shift in business
models, service and product offerings and practices over future horizons.
Engagement with all of your stakeholders will deliver strong ownership across the business and
a positive reputation with investors, customers, employees, suppliers, communities and
regulators. It will still consider cost management and balanced investments to realise new
business models, assets, portfolios, products and services.
In strategic terms the outcome is integral to new strategy that positions the business to adapt,
address the rapidly shifting crises in climate, resources, supply chains, talent and customer
demand and potentially thrive.
Positioning climate transition in the centre of strategy invests time to engage all
stakeholders in questions crucial to climate riskand transition and in particular ‘what do our
stakeholders need and expect from us, in any plausible future?
We think there are three steps in preparing a performance approach:
1. Understand the structure of transitions and position your strategy
2. Grasp the scope of physical and transition risks and consider mitigation in terms of value
protection and opportunities for value creation
3. Assess your enabling conditions, both externally and internally, and how you can use and
increase those supports to derisk your transition.
We explore this content in the following pages.
Stakeholder driven
Collaborative activity,
integral to
corporate strategy
Climate and
strategy align for
full benefit realisation
YOUR APPROACH TO CLIMATE RISK MATTERS
16/23
Shaping transition
Transition to the low carbon, resilient future requires economic, technological and social
change across all sectors and regions to drive direction, demand and innovation to build the
new economy. Understanding the interactions will inform your climate transition strategy
over multiple horizons.
Institutional
Ideas &
behaviours
Demand
Frameworks
Direction
Transition
Production
capital
Innovation
Paradigm
Innovation
Financial
capital
Economic
Technological
Interactions in a transition that shift innovation to a new paradigm 33
This diagram shows how the three technological, economic and institutional domains interact.
• social and institutional ideas and behaviours become frameworks
• technological innovations become paradigms
• economic activity turns production capital into financial capital.
The intersections between domains drive demand, direction and innovation:
• social and institutional activity interacting with economic activity drives demand
• social and institution activity interacting with technological activity drives direction
• economic activity interacting with technological activity drivers innovation
Together they drive transformation. 34
Transitions occur in fits and starts, over time. They are uneven, there are winners and losers. This
is the competition for the future. Companies can lead, generate demand, invest in innovation and
secure enabling conditions, with a performance-oriented climate transition plan.
This shift to a low carbon, resilient future is similar in scale and impact to earlier economic
transitions driven by cheap energy sources - coal, oil and gas. The significant difference
between earlier transitions and transition to the low carbon, resilient economy is that this
transition is driven by global existential threats.
Susan McHattie
Example
Impact
Acute
Storms
Precipitation
Flooding
Heatwave
Drought
Chronic
Temperature
Sea level
Ocean
acidification
Internal
disruption
Supply chain
disruption
Scarcity & rising
cost
Depressed
markets
Physical
damage,
maintenance
& adaptation
Increased
insurance
premiums
Uninsurability
Stranded assets
Policy &
legal
Carbon taxes
& trading
Mandatory
disclosures
Fines &
penalties
Legal claims
Required
investments
Political &
regulatory
uncertainty
Tighter
investor
criteria
Reputation
damage
Liabilities
Lock-in
Delays
Uncertainty
Investment
uncertainty
across choice,
cost, timing,
results
Asset
devaluation
Reduced
product &
service
demand
Material
scarcity
Balance sheet
& share value
Market share
across
portfolio,
products &
services
Price &
production
impacts
Significant
investments
Stakeholder
expectations
Social license
Inequitable
transition
Loss of
reputation,
license to
operate,
customers &
markets,
community &
workforce
capacity
lacisyhP
Category
Technology
noitisnarT
Market &
economic
Reputation
Mitigation
Assess exposure &
vulneraility
Prepare
adaptation plan
Establish
monitoring
systems
Conduct scenario
analysis & stress
testing
Climate resilience
strategy
V
A
L
U
E
P
R
O
T
E
C
T
I
O
N
&
C
R
E
A
T
I
O
N
Opportunity
New climate
science insights
Actionable
insights
Nature based
solutions
Supply chain,
industry,
regional &
community
partnering for
resilience
Measure Scope 1, 2
& 3 GHGe
Establish Net Zero
targets
Shadow carbon
price
Plan energy
transition &
decarbonisation
Monitor plans &
disclose
New assets,
portfolios,
products &
services
New financing
Shift to renewable
energy
Electrify
processes
Innovate hard to
abate GHGe
Purchase power
& asset
utilisation
Breakthrough
innovations
Divest and
decommission
carbon intense
assets,
investments
products &
services
Vertical
integration
Innovation to
common materials
New assets,
portfolios,
products &
services
Breakthrough
pricing for
market share
Circular
economy
models
Stakeholder
engagement &
alignment
Leadership & early
action
Transparency &
disclosures
Just transition
Brand value
Climate risk and opportunity framework aligned to the Taskforce on Transition Planning
The response to climate risks is not a future task - people and capital are at great risk now.
There has been a lot of focus on decarbonisation. Physical climate risks need attention. Assets
may be stranded, products and services that are not climate proofed may fail, your business
may be open to legal challenges. Addressing the physical risks is pivotal to transition planning.
Stella Whittaker
YOUR APPROACH TO CLIMATE RISK MATTERS
17/23
Enabling conditions
Enabling conditions provide a strategic framework to
assess and address climate drivers, enablers and
challenges. 35 These are external - in the locations and
systems of your operation, and internal to your business.
Internal enablers shape your readiness and maturity.
EXPOSURE
INDUSTRY
STRUCTURE
Assessing enabling conditions allows you to:
underpin your performance ambition with the enablers
in your operating contexts
position your leadership within your industry
associations and advocacy
invest strategically in your internal and value chain
knowledge and change
navigate competition and shifts in priorities over time.
POLICY
LANDSCAPE
Exposure captures both climate risk categories - physical
and transition.
MARKET
& FINANCE
Industry structure captures the structure of your industry,
and your stance within it, with a focus on transition risk and
opportunity.
Policy landscape captures global and national targets and
supporting legislative and incentive frameworks, along with
your targets and plans.
TECHNOLOGY
Market and finance capture the preferences of
stakeholders, particularly investors, customers and
suppliers, and design and availability of transition finance.
Technology captures the gap between current technology
and standards and those needed for a low carbon, resilient
future, and your stance towards innovation diffusion.
Education captures the education, knowledge and
expertise within your industry, workforces, and your
leadership and people.
Culture captures the culture, diversity and values of place
where you operate and within your organisation.
EDUCATION
CULTURE
Adapted from CLIMATEFIT
Maturity Assessment Model 35
A compliance approach to climate risk disclosure and planning focuses on collating data,
analysis and reporting following the steps set out in the Taskforce for Transition Planning
disclosure framework on page 3. Compliance can miss key risks and opportunities which are
teased out in our more nuanced performance approach, aligned to the Taskforce and starting
‘
with our assessment of enablers and design for effective stakeholder engagement.
Stella Whittaker and SusanMcHattie
YOUR APPROACH TO CLIMATE RISK MATTERS
Call to
action
We believe businesses that treat
climate risk as a compliance exercise
will lose opportunity in the short,
medium and long term.
This is the time to build sustained value
for your organisation and stakeholders
with a performance approach to
climate transition that is embedded in
business strategy.
Engagement of your people and
partners in a collaborative approach to
set ambition, design implementation
pathways and drive accountability for
action will strengthen your success.
We are keen to hear your reflections
on this white paper.
And we are here to help you navigate
to a successful, low carbon and resilient
future.
Let’s talk!
Susan McHattie
susanmchattie@gmail.com
Stella Whittaker
stella.whittaker@rhdhv.com
18/23
YOUR APPROACH TO CLIMATE RISK MATTERS
19/23
Stella Whittaker
Stella is Climate Change, Adaptation and Resilience Lead
at Royal Haskoning DHV. She holds more than 30 years’ of
global expertise in climate finance, adaptation strategies,
and sustainability across the Asia-Pacific, Europe and the
United States.
Stella has a strong background in environmental science,
sustainability and climate change with a focus on climate
adaptation and resilience. She is an international specialist
and leading professional in climate finance, sustainable
finance, climate risk/adaption, climate disclosure and
environmental and social governance (ESG).
She has effectively designed, implemented and
championed numerous urban sustainability projects and
programs and has led major change management, training
and coaching programs for private and public sector
organisations.
Stella has led groundbreaking projects in climate finance.
This includes spearheading the ClimateFit initiative, a
European Horizon project focused on financing climate
adaptation across European territories. This pioneering
effort was the first European Commission adaptation
project to address financing strategies, a critical
component of climate resilience planning globally.
She has held Board positions on the Australian Government
Earth Science and Climate Change Advisory Group,
Victorian Catchment Management Council, Global
Reporting Initiative, NSW Nature Conservation Trust, and
UK Ecolabelling Board.
Stella Whittaker
Climate Change,
Adaptation and Resilience
Lead at Royal
HaskoningDHV
https://www.linkedin.com/in
/stella-whittaker-36b39123/
stella.whittaker@rhdhv.com
YOUR APPROACH TO CLIMATE RISK MATTERS
20/23
Susan McHattie
Susan is a strategic advisor in strategy, governance and
roadmaps. She designs and leads engaging approaches to
harness the power of your stakeholders working together.
This delivers actionable products that reflect shared
ambition and collective knowledge, research and real world
experience.
Susan works in and across multi agency partnerships,
businesses, large bureaucracies, universities and social
enterprises and start ups. She brings the benefits of broad
experience in governance, strategy, policy and operations,
built on a foundation of engagement and collaboration
across NSW Government and for the inner metropolitan
region of Sydney.
As a strategic advisor Susan has designed, implemented
and championed transition to the circular economy,
addressing climate risk and opportunity, through corporate
strategy in the water sector, state government policy,
regional planning, ecosystem design and innovation. For
other clients she has shaped global transformation
strategy, contemporary governance, new entity formation
and social enterprise scale ups.
Susan is a director and secretary United Nations
Association of Australia, and has held elected governance
roles with the Institute of Public Administration Australia
(NSW), and other professional and community
organisations. She is a graduate of the Australian Institute
of Directors Company Director’s course, holds the GARP
Sustainability and Climate Risk Certificate and has earned
the BA (Communications) from UTS and the Executive
Masters of Public Administration from Sydney University.
Susan McHattie GAICD
Strategic Advisor
Strategy, governance and
roadmaps
https://www.linkedin.com/in
/susan-mchattie-gaicd/
susanmchattie@gmail.com
YOUR APPROACH TO CLIMATE RISK MATTERS
22/23
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YOUR APPROACH TO CLIMATE RISK MATTERS
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35. Enabling conditions adapted from CLIMATEFIT Maturity Assessment Model, CMAM, from CLIMATEFIT Adaptation
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framework, Smith & Raven, 2012
Susan and Stella acknowledge the contribution
of Dr Anumitra Mirti to this paper.
Copyright © 2024 Susan McHattie and Stella Whittaker. All Rights Reserved.