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Welcome to the Energetics Exchange

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podcast, conversations

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with Energy and Climate Experts. Please

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note that the information and commentary in this podcast

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is of a general nature only, and does not

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take into account the objectives, financial

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situation, or needs of any particular

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individual or business. Listeners

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should not rely upon the content in this podcast without

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first seeking advice from a professional.

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Well, hello and welcome to another episode

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of Energetics Exchange podcast series.

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I'm Steven Kapo , finance sector Leader

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Energetics, and today I'm joined by Dr.

0:40

Tanya Fiedler , accountant, senior

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lecturer at the University of Sydney. And

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from next year, CNTA fellow of the

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recently launched UNSW Institute

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for Climate Risk and Response, ICRR,

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and most importantly, energetics alumni. Together

0:54

we're going to discuss the wider ramifications

0:57

of the upcoming Mandatory Climate Disclosures,

1:00

the importance of building the right capabilities and

1:02

the role of ICRR in

1:05

business and government responses to climate risks.

1:08

Before we start today's podcast, I'd

1:10

like to acknowledge the traditional owners of country

1:12

throughout Australia and recognize

1:15

their continuing connection to lands, waters,

1:17

and communities. We pay our respects

1:19

to Aboriginal and Torres Strait Islander cultures

1:22

and to elders past and present. I'd

1:25

particularly like to acknowledge the ca people

1:27

of the EO nation as a country from

1:30

where I'm broadcasting today. Tanya

1:32

, thanks for taking the time to catch up about this

1:34

today. I'm just gonna dive right in. Climate

1:38

disclosure is set to evolve in 2024

1:41

from , for Australia and the world, the

1:43

Australian government's in the process of implementing

1:45

a globally aligned mandatory climate disclosure

1:47

framework that will be based upon the International

1:50

Sustainability Standard Board is

1:53

SBS Climate Standard f sst . It

1:56

has been positioned as the biggest change in accounting

1:58

standards since the tructure of the GST

2:00

, but I'm worried business's

2:03

biggest focus is gonna be on finding the right numbers.

2:06

I think businesses should be thinking about this more strategically

2:08

about how the world is changing and how their business

2:10

will have to change. Do you agree

2:13

with this? How do you , you think businesses

2:15

should be thinking about mandatory climate disclosures?

2:17

Okay, well, firstly , uh, thanks very much

2:20

Steven . And , um, I'd also like to acknowledge

2:22

the dal people of the URA

2:24

Nation , um, where I'm

2:27

currently speaking from. So thanks

2:29

for the invitation to come and join you

2:31

today. And yes, this

2:34

is a hot topic , uh, for

2:37

everyone at the moment. And

2:39

in terms of the focus,

2:41

there's a lot of talk around the

2:44

numbers and how the numbers are difficult

2:46

in this space. People are being

2:48

asked to collect forms of

2:50

data and to disclose information that they've

2:52

never had to disclose before. The

2:55

challenge is that for

2:57

us to really effectively

2:59

tackle this monumental

3:02

problem, we actually need to think much

3:04

more deeply about the numbers. That is, we

3:06

need to really think strategically and

3:09

you can't actually begin

3:11

to get the numbers right or think about the numbers

3:14

in a way that's going to lead you somewhere

3:17

that you don't regret if

3:19

you don't think strategically. So

3:22

yes, the focus initially might

3:24

be on the numbers, it might be this

3:26

is scary, but if you don't start thinking

3:29

more holistically about where this

3:31

is going, and the whole focus in this, in

3:33

this space is on the

3:35

value chain, the boundary doesn't begin

3:37

and end just simply with your financial

3:39

control boundary. It is the value chain.

3:42

So you need to start thinking to actually

3:44

get those numbers right. And I put

3:46

right in inverted commas here because these, a

3:49

lot of these numbers are very, very much

3:52

estimates, but to get them right in

3:54

the strategic sense, you do need to start thinking

3:56

much, much more holistically.

3:59

And can you help unpack that a

4:01

little bit more for us? There's, I

4:03

guess traditionally the numbers that

4:06

businesses have been reported have been things that they've

4:08

been very confident, they've been able to pull off a balance sheet

4:10

or internal systems. What

4:13

are the, the big challenges with

4:15

some of the numbers, like the scope three numbers, like

4:18

the forward looking climate risk numbers that

4:20

, uh, businesses will be reporting as under

4:22

these disclosures, and where do you see the challenges?

4:25

Okay, so scope three numbers. Um,

4:28

the challenge there is, and

4:30

that has been for a very long time,

4:33

is that people are largely recording

4:36

this sort of information and making calculations

4:38

and assumptions, or they're

4:40

making people have to make assumptions

4:43

to calculate scope three emissions , but

4:45

the calculations are being performed on spreadsheets,

4:48

<laugh> . So from , if you think about it

4:50

from an internal control perspective as well as

4:52

you know, how to , how you begin integrating

4:54

that information into your internal systems. There's

4:57

lots of room for error. And then there's just simply

4:59

the matter of understanding, well , which assumptions are I

5:01

going to use? And that requires a

5:03

degree of insight and an

5:05

understanding of the types of assumptions and data

5:08

that exist in the marketplace that can be

5:10

utilized in terms of forward-looking

5:14

estimates of both physical

5:16

and transition risk. There are deep

5:19

complexities. I'm probably

5:21

more familiar with the , uh, physical risks side

5:23

of things. I mean, I could speak for

5:25

the next hour about the complexities, but

5:28

they're also, I, I personally find 'em

5:30

really exciting 'cause they're really interesting. It's very

5:32

interdisciplinary, the space. Another

5:35

way of thinking about it is, well

5:37

, companies have always been asked to

5:39

provide forward estimates and they're

5:41

always uncertain. So in some respects,

5:44

climate information is no different to

5:46

other types of forward looking financial

5:49

information. The nature of the complexities

5:52

are the complexities that companies are not,

5:55

are less familiar with. Would you like me to

5:57

go into those at all?

5:58

That'd be great. I think our listeners would

6:00

really value that.

6:01

So, well, some of them had

6:04

to do with the data that we're relying

6:06

on. So for example, we're

6:08

relying on data that's derived

6:11

from climate model simulations, knowing

6:14

which of those models are

6:17

appropriate to be used, whether

6:20

other types of information need to be

6:22

brought in or not, what

6:24

the uncertainties are associated with

6:26

that information. Then there are, you know, all

6:29

of the complexities say within the climate system itself,

6:31

that need to be thought through the respect

6:34

to, you know, which uh , sources of

6:36

information am I going to use. Yeah, look,

6:38

I'm probably gonna stop at that point. So, but there's,

6:40

there's a lot of layers to it and

6:43

it's one of those spaces where you

6:46

really do need to invest in, in

6:48

expertise, both in-house

6:50

and , and externally to arrive at

6:53

these estimates. But again, that's why we

6:55

also, I I think businesses going

6:57

back to that idea really need to start thinking

6:59

much, much more strategically because it

7:02

is a whole of company approach.

7:05

How do you face the future in an uncertain

7:07

climate? The world is changing, it's

7:10

not going to look like what it did in the past. And

7:12

so businesses have to change as well.

7:14

And as we speak to clients, what's interesting

7:16

is that some of the ESG

7:18

professionals we speak to are struggling

7:21

to get the organization really mobilized

7:23

around this. I mean , really interested in your

7:25

thoughts on what more they can

7:27

be doing and, and what organizations can

7:29

be doing to really get some traction

7:31

around what is gonna be a , a really

7:34

quite fundamental change to the way a business

7:36

operates.

7:37

A lot of companies are still seeing climate

7:39

change as an environmental risk, and

7:41

I think that's, that's the fundamental shift.

7:44

So as , as an ESG professional,

7:46

if you're trying to get traction internally,

7:49

it's around helping the finance

7:51

part of the organization to understand

7:53

that actually this is a financial risk. It's just the same

7:56

as foreign exchange risk or credit

7:58

risk or, you know, it's, it's

8:00

no different.

8:01

So it's about pulling down that fence internally

8:03

that's sort of Yeah , kept it

8:05

off in one corner and bringing it front

8:07

and center is what you're saying?

8:09

Yeah , that's right. And then there's just purely the,

8:11

you know, the stick aspects of it, and

8:13

that's the, you know, the requirements that

8:16

are going to be coming forward now in

8:18

terms of the changes to the Corporations Act that

8:20

are going to be made, that will require companies

8:22

to produce or to present

8:24

climate related information in their annual reports.

8:27

And if that information,

8:30

if the financial effects of that are material

8:32

either quantitatively or qualitatively,

8:34

then they , then it should be presented in

8:37

the financial statements as well.

8:38

Yeah . And that's a massive shift from today.

8:41

Do you think there's a capability gap? And

8:43

if so, what do you think needs to

8:45

happen to close it?

8:46

I think there's an enormous capability gap.

8:48

I'm hearing that from everyone. So as

8:51

a researcher, I'm , I'm a qualitative researcher,

8:53

and so I interview people across

8:56

the marketplace. So I'm interviewing standard setters,

8:58

I'm interviewing auditors, I'm

9:01

interviewing regulators , uh,

9:03

preparers, investors everywhere.

9:06

Everywhere I look, there's a capability gap.

9:09

Everyone is, is concerned with

9:11

how they're going to go about preparing this

9:13

information, how they're going to go

9:16

about understanding and analyzing this

9:18

information, how it's going to be

9:20

regulated, how it's gonna be assured, how

9:22

are we gonna fix that for

9:24

companies. A large part of that is

9:26

just getting your hands dirty. I think because

9:29

it's a type of information that

9:32

people are so unfamiliar with. You

9:35

just have to dive in and start getting your

9:37

hands dirty. And you have

9:39

to involve external expertise because it's

9:41

highly unlikely that you're going to have internal

9:44

expertise, but you need to work together.

9:47

It's not something you can just hand over to experts

9:50

externally, either because the

9:52

information that you are going to disclose, it needs to

9:54

be co-produced because you

9:57

will have learnings internally about

9:59

your organization that will determine how

10:02

analysis is conducted so

10:04

that it provides you the

10:06

better strategic outcomes. It's

10:09

too complex. There's, there are too many uncertainties

10:11

and if you don't incorporate both

10:13

external expertise and internal

10:15

knowledge, local knowledge, you're going to

10:18

get it wrong.

10:18

Yeah, and that's something we've certainly noticed here in

10:20

Energetics is that partnership model and

10:22

that collaborative approach. Yeah

10:25

. To problem solving with the clients is the only

10:27

way to get there. Clients know their business

10:29

the best, but they just

10:31

can't be across everything that's happening in the world, and

10:33

they need someone who is to really

10:36

help them along that path. Yeah . Sort

10:38

of on that capability building , uh, a

10:40

couple of months ago I was at the launch of the UNSW

10:43

Institute for Climate Risk and Response,

10:45

which you are going to be part of. Um,

10:47

can you tell our listeners a little bit about the ICRR

10:50

and the research areas you'll be working in and

10:53

how that lines up with some of the challenges we've

10:55

talked about today?

10:56

Yeah, sure. So the ICRR

10:58

is a new interdisciplinary institute

11:01

at the University of New South Wales. It's

11:04

a collaboration between a number of faculties

11:07

, so faculty of science and the

11:09

Climate Change Research Center there at UNSW,

11:11

as well as , uh, the faculty of business

11:14

law . Um, so psychology from

11:16

science, they're also heavily involved. And

11:19

my own position is, is a sort

11:21

of a joint position between the , uh, school

11:24

accounting there as well

11:26

as , um, with, with the institute.

11:29

So there'll be a variety of

11:31

different types of research that are being conducted

11:33

there. So in terms of the work that I'm

11:35

interested in, as I mentioned, I , I've got quite

11:38

a strong interest in the physical risk aspects,

11:40

so I'm already working with

11:42

some of the climate scientists there to understand

11:45

how information is translated from

11:48

climate models into financial

11:50

figures. So ultimately into the financial statements

11:53

as well as from a sort of managerial

11:56

accounting perspective, you know, how, what

11:58

sort of systems companies do you need

12:00

to develop internally to manage

12:03

these new data flows? How

12:05

they internally come

12:08

to terms with the levels of uncertainty

12:10

that we're facing, which was very,

12:12

very different in nature. So yeah,

12:14

what, how their internal systems can, I

12:16

suppose, handle those levels of

12:19

uncertainty. So that's also been

12:21

crossing a little bit into psychology.

12:23

Yeah, I think it's really exciting the way that it's bringing

12:25

together all these different elements from across the

12:27

university in this really Yeah

12:30

. Uh , interdisciplinary way. And

12:32

I think coming back to the earlier point around within

12:34

organizations that need to break down the silos,

12:36

I think that's so exciting the way that the

12:39

ICRR is doing the same thing across

12:41

the university. Yeah. And hopefully sort

12:43

of tackling some of these challenges that we've got.

12:45

It's the only way that we can do this.

12:48

You know, it's just, it's just the same as climate change itself.

12:50

It's a whole of society response. It has

12:52

to be a whole of society response. And so

12:55

within organizations as well

12:57

as within universities, which

12:59

is can be quite challenging because universities can

13:01

be quite siloed places. There has

13:03

to be this really deep

13:06

interdisciplinary engagement or

13:08

cross disciplinary , uh, engagement.

13:11

Um, because we need to build new

13:13

forms of knowledge is , and these new

13:15

forms of knowledge aren't disciplinary in

13:17

nature. So it's what other people might

13:19

call transdisciplinary knowledge. Um, because,

13:21

because we are building a new knowledge

13:24

system from scratch and we have to do it

13:26

very rapidly, so everyone has to

13:28

come together.

13:28

Yeah. I think that's a massive challenge

13:31

and a massive opportunity.

13:33

Absolutely.

13:33

It's really exciting to see it happening. Yeah . And

13:35

, uh, it's great. Yeah , totally chatting with

13:37

you and hearing about, you know, how it's at the forefront.

13:40

So is there any final

13:42

words you'd like to leave our listeners with today?

13:45

Um, don't be scared <laugh>. Um,

13:48

just because it's, yeah, I, I

13:51

do think if we get this right, climate

13:53

change actually presents an enormous opportunity

13:55

for us all. It presents an opportunity for

13:58

us to live differently and for

14:00

many businesses there can

14:02

be great opportunity in the transition.

14:05

Well , that's a pretty inspiring note to end

14:07

on. And so with that,

14:09

I'd like to thank you, Tanya , for taking the

14:11

time to talk with us today. I've taken away

14:14

some , uh, insights and I hope our listeners do

14:16

too . You know , go forward. Don't be scared.