Our approach to managing climate change

Vicinity's best practice approach to managing climate change risk uses the framework set out by the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) Recommendations. 

Our program is focused on understanding, assessing and addressing the material transition and physical risks (both acute and chronic) associated with climate change for our business. We have also identified a number of opportunities to increase the resilience of our business and assets and minimise our vulnerabilities to climate change risks.

For a detailed disclosure on our approach to climate change management please refer to our latest CDP submission.

Governance and strategy

Climate change has been identified as a material issue for our business, including both physical and transitional risks, and is formally acknowledged and included in Vicinity’s enterprise risk register. Climate risk is governed and managed as part of our broader sustainability governance framework and is regularly reported to our executive management through our sustainability committee, and to Vicinity’s Board and Board sub-committees. More information on this is available here.

Climate resilience and transitioning to low carbon smart assets are both key focus areas of Vicinity’s Sustainability strategy, which was approved by our Board of Directors in 2016.  We have also made public our intention to address climate change from both an adaptation and mitigation perspective via our Climate Policy.

Risk Identification and assessment

Climate change was identified as a material risk for Vicinity through our materiality assessments conducted in 2016 and 2018 and is included in our enterprise risk register, which is regularly reviewed by our Executive Committee and the Board.

Our enterprise, corporate and asset level risks are assessed, prioritised and managed using Vicinity’s Enterprise Risk Management Framework, which considers strategic, operational, reputational, compliance and financial risks for our business. It uses a consequence/likelihood assessment matrix to assess and prioritise business risks, including climate change.

The following table provides a summary of Vicinity’s climate risks and opportunities as identified through our work to date, including their expected effect on our business in terms of time horizon and level of risk to Vicinity. Climate change risks are reviewed quarterly, and are formally re-evaluated annually as part of the Enterprise Risk Management process. 

Climate change risks and opportunities

Risks and opportunities

Potential financial impacts

Time horizon1

Magnitude of impact

Risks

 

 

 

Physical risks

 

 

 

Acute: Increased severity of extreme weather events such as cyclones and floods Increased operating and capital costs to respond to and recover from physical damage to buildings, and disruptions to centre and retailer operations Short-term Medium
Chronic: Rising mean temperatures Increased operating costs to meet additional air-conditioning demand and back up generation during potential power failures, and increased capital costs to replace HVAC equipment earlier and out of lifecycle Medium-term Medium

Transition risks

 

 

 

Policy and legal: Increased pricing of carbon emissions The absence of a robust carbon policy for Australia’s energy sector to achieve the Paris Agreement goals creates uncertainty in regard to future electricity pricing. Medium-term Low
Policy and legal: Mandates on and regulation of existing products and services Increased stringency of the National Construction Code (NCC) energy efficiency standards (Section J) for new buildings is expected to result in higher development project costs in order to meet the new standards. Short-term Medium

Opportunities

 

 

 

Resource efficiency: Move to more energy efficient buildings Reduction in operating costs through efficiency gains, increased value of assets resulting from high energy/sustainability ratings, and increased productivity through improved employee and tenant satisfaction Medium-term Low
Energy source: Use of lower-emission sources of energy Returns on solar investment, reduction in operational costs through decreased exposure to wholesale electricity price fluctuations, and reputational benefits resulting in more demand from retail tenants and increased consumer foot traffic and dwell time Short-term Medium
Resilience: Opportunities related to increasing our resilience and response to acute and chronic climate impacts Increased ability to operate under various conditions, and avoided operating and capital costs associated with responding to and recovering from extreme weather events, including avoided costs associated with disruptions to operations. Medium-term Medium

1. We define short-term as 1-3 years, medium-term as 3-10 years and long-term as 10+ years.

For further details of our risks and opportunities, including estimated financial implications and our management methods, please refer to our 2019 CDP report, accessible through here.

Managing climate risk

Vicinity addresses climate change via two streamlined programs focused on managing physical and transitional risks, which is aligned with the Climate Resilience and Low Carbon Smart Assets pillars of our Sustainability strategy.

 

Climate Resilience Program

Since FY17, Vicinity has been implementing a Climate Resilience Program focused on mitigating the risks from climate-related physical impacts by enhancing the resilience of our centres and our business. Refer to here: Climate Resilience

 

Net Zero Carbon Strategy (Low carbon smart assets)

In July 2019, Vicinity announced our commitment to achieve Net Zero carbon emissions by 2030 for our wholly owned retail assets, demonstrating our long-term approach to decarbonising our business and reducing our exposure to the risks associated with transitioning to a low carbon economy. Refer to here: Low Carbon, Smart Assets

Integration into Business Strategy

Vicinity’s business strategy is focused on unlocking the potential of our business through three key group strategic focus areas: Market leading destinations; Funds management platform; and, Mixed use developments.

Vicinity’s Sustainability Strategy is integrated into the Group strategy and contributes to delivering on the business’ strategic objectives. Managing the physical and transition risks associated with climate change is a central part of Vicinity’s Sustainability strategy.

 

Scenario Analysis

Vicinity uses different climate change and decarbonisation scenarios to better understand the potential long-term financial implications of climate change to inform our long-term business and asset strategies.

 

Physical risk Scenario Modelling

Vicinity has conducted scenario analysis to quantify the potential climate-related physical impacts of climate change on our portfolio of assets.  To learn more click here.

 

Transition risks Scenario Modelling - understanding our decarbonisation pathways

As part of our program to understand transition risks, in 2016 we completed modelling to identify various decarbonisation pathway options for our asset portfolio and better understand the external forces likely to influence the uptake of carbon reduction actions within both the government and private sector. The modelling considered a variety of risks including current and potential future legislation, market forces and the introduction of new energy efficiency/renewable energy technologies.

As a result, we have set a Net Zero carbon emissions target by 2030 for our wholly owned retail assets and a related emissions reduction trajectory and roadmap for our managed asset portfolio over the short-, medium- and long-term against which to track our annual performance.

Vicinity’s Net Zero carbon target* and Integrated Energy Strategy map out a long-term program for managing energy use and reducing carbon emissions across our portfolio, including rapid roll out of onsite solar and a scaled up energy efficiency program.

 

*By 2030 for Vicinity’s wholly-owned retail assets

Objectives and targets

Vicinity has set long-term goals to demonstrate our commitment to mitigating climate change risks for our business. We also establish short-term objectives to ensure we are continually making progress to achieving our long-term goals.

 

Climate risks and opportunities for Vicinity

Long-term objective

FY19 objective

FY19 progress

FY20 objective

Low carbon smart assets

 

 

 

Net zero carbon emissions by 2030 for our wholly owned retail assets Meet annual portfolio energy/carbon intensity reduction target of 3% (against FY18) Reduced our energy/carbon emissions intensity by 6%* Meet annual portfolio energy/carbon intensity reduction target of 3% (against FY19 baseline) by end FY20
  Install 11 MW of solar on our asset portfolio 13MW of solar has been installed as at June 2019 Install at least 30MW of solar on our managed portfolio (20 MW on our 100% owned assets) by end FY20

Climate resilience

 

 

 

Increase the resilience of our business and support our retailers and local communities by protecting and preparing our centres for the impacts of climate change 100% of ‘high’ risk rated centres assessed, including all developments, with the Climate Resilience Centre Checklist Physical climate risks assessed for all centres and incorporated into asset level risk registers, including mitigation measures to increase resilience. Asset level risk registers are reviewed annually Develop a framework for measuring resilience and establish a baseline for climate resilience for each centre by end FY20
      Prioritise climate resilience measures for implementation through cost benefit analysis of various initiatives by end FY20

*On comparable portfolio