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Dr Tyron Venn of the School of Agriculture and Food Sciences, University of Queensland prepared a critique of the Frontier Economics and the Australian National University report Comparing the value of alternative uses of native forests in Southern NSW, 30 November 2021.

Frontier Economics and the Australian National University provided a comprehensive response.

Dr Venn has subsequently published a partial apology and amendment to his critique.

Building a business case to confidently manage climate-related risks and opportunities

Climate change impacts will continue to unfold across Australia with increasing severity in the years ahead. This will result in a set of complex and material financial implications for business. For Australian business to confidently rise to the challenge of systematically measuring, managing and mitigating risks and opportunities of climate change it will need a sound understanding of how climate change will most likely impact its finances. This Bulletin discusses Frontier Economics and Edge Environment’s approach to extending climate risk frameworks to build business cases for climate response against the inevitable, and potentially disorderly, climate transition ahead.

Australia is in the midst of cascading and compounding climate impacts

After centuries of relative climate stability, the world’s climate is changing. As average temperatures rise, acute hazards such as floods and fires and chronic hazards such as drought and sea level rise intensify. These hazards are categorised as the physical risks of climate change.

The frequency and severity of weather events in Australia is increasing and may further intensify as ecosystems are pushed beyond tipping points.  Recent weather events in Australia such as the unprecedented rainfall and flooding in South-East Queensland, New South Wales and Victoria, extreme heat in Western Australia and the 2019–20 bushfires have resulted in highly significant financial losses for businesses and the communities they operate in.

Climate risk, however, remains an emerging discipline compared to other traditional risk areas. Climate risk management will necessarily grow in importance over coming years – recently, the Australian Prudential Regulation Authority (APRA) warned business around the need to prepare for “rapidly increasing expectations” on climate risk disclosure.

Against this backdrop, forward looking businesses are taking steps to understand, quantify and manage their climate risk exposures.The good news is we have the tools to address urban heat: integrated planning of our natural and built environment covering blue, green, and grey infrastructure.

TCFD is a lens to grapple with these risks

The Taskforce on Climate-related Financial Disclosures (TCFD) reporting framework has emerged as the global benchmark in climate risk reporting. It seeks to make businesses’ climate related disclosures comprehensive, consistent and transparent. TCFD enables effective investor analysis of a company’s demonstrated performance of incorporating climate related risks and opportunities into businesses’ risk management, strategic planning and decision making.

The TCFD was set up in 2017 by the Financial Stability Board – an international body of regulators, treasury officials and central banks – to provide voluntary recommendations on how business could voluntarily disclose the risks and opportunities from climate change (see Box 1).

Box 1: TCFD in brief

The purpose of TCFD is to provide a framework for organisations to make consistent and transparent climate-related financial disclosures. The TCFD framework document provides the following overview of the types of disclosures that it recommends:

It is recommended that the business provides its disclosures in their public annual reporting.

Source: Recommendations of the Task Force on Climate-related Financial Disclosures

Momentum in the market is growing and norms are being set

Since being first published in 2017, TCFD has been rapidly adopted by a broad range of organisations across the globe – the 2022 status report for TCFD points to TCFD “support” encompassing US$220 trillion of assets and US$26 trillion of combined company market capitalisation.

There is a trend towards mandating climate-related disclosures. Mandatory climate risk disclosures have been announced in jurisdictions including the UK, the EU, Hong Kong, Japan, Singapore and New Zealand. Significantly, the United States Securities and Exchange Commission has proposed rules to enhance climate-related risk disclosure drawing from the TCFD recommendations. Collectively, these actions will set norms and expectations for Australian businesses to develop their own disclosures.

In 2021 the New Zealand Government passed legislation mandating climate-related disclosures for around 200 financial entities.  Further to impacting those covered by the introduction of this mandate, the move is widely expected to act as a catalyst for increased climate-related disclosures across businesses operating in the wider New Zealand economy.

Decision making under complexity needs tangible financial analysis

While TCFD is ultimately intended to support more informed capital allocation by investors, it can also be an important tool for organisations to respond to the risks and opportunities of climate change.

For an approach to inform practical decision making it needs to provide climate-related impacts in financial terms:

Clearly this is a complex task, but it needn’t be daunting if we have the right tools and systematic approaches. Finding a solution requires assessing the changing climate exposure and vulnerabilities of an enterprise through time. A collaborative approach which brings together the key stakeholders across an enterprise provides the means to map the material climate impacts, their drivers and the likely financial consequences to the company. This collaborative approach also enables joint ownership of critical uncertainties to be addressed within business’ operations, financial reporting and data management. A structured approach is then required to cut through the uncertainty and deliver a clear path forward to adequately measure, manage and mitigate climate risks.

Frontier Economics and Edge Environment have partnered to combine our skills in financial analysis, ESG, risk management, climate science and sustainability to work through this complexity (see Box 2).

Box 2: Frontier Economics’ partnership with Edge Environment

Edge Environment and Frontier Economics have worked across a broad range of climate risk and resilience projects, mostly within the property, infrastructure and government sectors. Together, this partnership provides a unique opportunity to better understand both financial risks and opportunities of climate change for Australian and New Zealand businesses.

Edge is a specialist sustainability services company focused on Asia-Pacific and the Americas. Its teams are based in Australia, New Zealand, the United States and Chile. Edge exists to help its clients create value from tackling one of world’s most fundamental challenges: creating truly sustainable economies and societies. Edge does this by combining science, strategy and storytelling in a way that gives clients the confidence to take ambitious action, and do well by doing good.

Source: Frontier Economics

A collaborative approach is required to address this complexity

Confident climate-risk decision making requires a multi-disciplinary approach, incorporating climate science and financial analysis. However, deep technical expertise alone is not sufficient.

There is also a need for broad buy-in and engagement from within and across an organisation in order to access information, form granular insights, identify key operational climate-related impacts and quantify financial consequence. Organisations are encouraged to systematically look beyond the acute and direct impact of extreme events but also to the aggregated impacts of chronic and indirect effects of climate extremes.

Even with all these elements, it can be difficult to know where to start a climate-related financial analysis.

Frontier Economics and Edge have developed a practical approach

A useful starting point in analysing climate-related risk and opportunities is to assess the impacts of recent extreme climate events – such as the Eastern Australia bushfires and drought of 2019-20 and the extreme rainfall of 2021-22 – on a business’ operations and related cashflows.

This “looking back to look forwards” approach provides multiple advantages. It allows the:

The logic mapping and notional financial consequences can then be tested and validated using actual operational and financial data to identify the impacts of recent extreme events.

This approach also clearly highlights any data gaps which limit the extent to which financial consequences can be isolated – providing insight to improve risk management systems.

This baseline analysis has standalone value as it provides a snapshot of the resilience of an organisation to recent climate change events which can be linked back to materiality thresholds in a firm’s enterprise risk framework. It is also vital in building a foundation for robust and defensible scenario analyses of the likely impacts of future climate extremes on an enterprise. It can be used to inform forward looking analysis of climate change impacts, which considers both cash flow and asset valuation risks and opportunities.

The approach taken by Frontier Economics and Edge Environment focusses on undertaking robust, transparent and actionable analysis. For example, we focus first on the short-term (to 2025) before extending analyses further into the future. A short-term lens reduces uncertainty and allows organisations to home in on impacts which require urgent action. It also allows for extensions such as cost-benefit analysis to support investment decisions around certain interventions.

Building the business case to confidently make decisions about managing your organisations climate risk is a journey – come and talk to us about getting started.

Figure: Logic map framework



Storing energy generated by solar and wind into batteries is not the only option available to address issues of reliable supply. Other forms of storage can more economically hold greater quantities of potential electricity than batteries. Hydrogen is one of these options, and it provides real promise.

Produced using an electrolyser with no emissions (green hydrogen), when burned the hydrogen produces only electricity and water. The technology to produce green hydrogen already exists, but does not operate at large scale. The challenge is not making hydrogen, but it economic. Electrolysers use a lot of energy to make hydrogen. If there is a large enough difference between the costs of buying green electricity to make hydrogen and the price at which hydrogen produced power is sold, then it can be done economically. This is possible in a system like South Australia where there is so much green power being supplied through the day that prices are now often negative – that is, an electrolyser actually gets paid to take power. At night, power prices rise because more expensive (but more reliable) generators switch on to meet demand. That’s when hydrogen generators cover the costs of producing the hydrogen and making green electricity.

Frontier Economics helped SA Labor design a world first large scale (250 MWe) electrolyser paired with a highly flexible gas generator (200 MW). The electrolyser would have a big enough load to help stabilise the grid in the middle of the day when there is surplus electricity and the generator is big enough to make a difference to prices at peak demand times when there is no solar generation. Government backing of this world first large scale plant combination will, like the Tesla Big Battery, propel the development of this technology. Frontier Economics’ modelling showed that this plant would reduce the wholesale electricity price in SA by 8%.

The 2020 emissions projections confirm our long stated position that Australia will not need Kyoto carryover credits to meet the Paris 2030 emissions target.

Much is made of whether the Federal Government will meet Australia’s 2030 emissions target or adopt a net zero target for 2050. But all States have announced net zero emissions targets by 2050, so the lack of formal acceptance of the target at Federal level is more symbolic.

For 2030, the combination of current State 2030 emissions targets should see Australia on track for a 33% reduction of 2005 emissions, which is more than required to meet the National target of 26-28% by 2030 and closer to the 36% 2030 target that we recommended in 2015[1].

State and Territory targets provide a floor on emissions reductions. For Australia to miss the 2030 national emissions targets, it would require failure at both Federal and State level to meet respective targets.

State of play

Australia currently has a national emissions target of 26-28% reduction on 2005 levels by 2030. However, almost all State and Territory Governments (with the exception of WA and NT) have announced more ambitious 2030 targets as pathways to net zero targets that all states and territories have announced for 2050.

Table 1 summarises the State and Territory ambitions and the implications of these targets for the national target. The combination of State 2030 emissions targets should see Australia on track for a 33% reduction of 2005 emissions, which is more than required to meet the national target of 26-28% by 2030.

The following are most noteworthy:

If all State and Territory targets are achieved, then Australia should comfortably meet the national target.

It follows that if Australia is to miss the national target then this would require failure at both the Federal and the State level in meeting applicable targets. More formal bipartisan collaboration on achieving common targets would be welcome in climate and energy policy in Australia.

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