Climate resilience

At Vicinity, we understand the role we play in supporting more resilient cities and communities.

A changing climate presents both direct and indirect risks for Vicinity now and increasingly over the long term.  As important community hubs, we strive to create resilient centres that are prepared for, and can recover quickly from extreme weather events such as cyclones, flooding and heatwaves, which can result in increased costs associated with maintenance and repairs and disruptions to operations.  By adequately preparing for such events and building our physical resilience, we can avoid such costs, remain open for trade for our retailers and consumers and offer support to local communities during times of need.

Vicinity's approach, strategic management and disclosure of climate related risks and opportunities is informed by the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD). For Vicinity’s full disclosure in accordance with the TCFD framework, refer to our 2018 CDP report.

 

Vicinity's approach to climate change management

Governance and strategy

Climate change has been identified as a material issue for our business (from both a physical and transition risk perspective) and is formally acknowledged and included in Vicinity’s enterprise risk register.

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.  More on our approach to climate change mitigation can be found in the Low carbon smart assets section.

Climate resilience is governed and managed as part of our broader sustainability governance framework. More information on this is available here.  

Risk management approach

Climate change was identified as a material risk for Vicinity through our materiality assessment conducted in 2016, and was later 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 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 financial impact. 

 

Climate risks and opportunities for Vicinity

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-low

Chronic: Rising mean temperatures

Increased operating costs to meet excess 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: Enhanced carbon-reporting obligations

Increased operating costs to comply with both mandatory and voluntary climate change and carbon emission reporting obligations

Current

Low

Policy and legal: Increased mandates on and regulation of energy efficiency and related requirements in new and existing buildings

Increased capital costs to implement design and technology requirements that meet enhanced building energy efficiency requirements for new development projects and existing buildings

Short-term

Low

Market: Uncertainty in market signals, for example relating to energy pricing

Increased operating costs related to increase in wholesale electricity prices, flowing on to energy costs to operate our centres

Short-term

Low

Market: Changing customer behaviour

Reduction in rental income resulting from reduced demand for goods and/or services of our retail tenants due to shift in consumer preferences

Medium-term

Medium-low

Reputation: Increased stakeholder concern or negative stakeholder feedback

Reduction in capital availability due to reputational damage relating to management of climate change impacts

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

Short-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

Low

Resilience: Opportunities related to  increasing our ability to withstand and respond to extreme weather events (acute)

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-low

Resilience: Opportunities related to increasing our ability to withstand and respond to rising average temperatures (chronic)

Ability to operate under various conditions, and avoided operating and capital costs associated with meeting increased air-conditioning requirements during extreme hot/cold days, including avoided costs associated with disruptions to operations

Medium-term

Medium

Resilience: Increased revenue opportunities related to increasing our ability to withstand extreme weather events and remain open for trade for our retailers and consumers

Increased revenues through greater customer visitation and retail sales resulting from ability to operate under various weather conditions

Medium-term

Low

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 2018 CDP report, accessible through here.

How we identify and assess risks and opportunities

Since 2015 a program of work has been underway to improve our understanding of the potential risks and opportunities for our business, including at a corporate and asset level, relating to climate change.

 

Physical risks

Portfolio-wide high level risk assessment

In FY16, we conducted an initial high level assessment of the climate risks for each of our assets against projected long term Australian climate variables under certain climate change scenarios (See table below). The physical risk to each of our centres was assessed against seven key climate variables, including flooding, heatwave, utility loss, bushfire, hail, cyclonic damage and strong winds to develop a risk rating for each centre, using Vicinity’s enterprise risk management framework. We also considered other characteristics, such as valuation and age of the centre when finalising the risk rating and prioritisation.

 

Detailed resilience assessments

To get a more detailed understanding of the climate risk exposure of our centres and resilience measures already in place, during FY17 we conducted deeper dive assessments at our highest risk rated centres through our climate resilience checklist.  The checklist was developed using the learnings gained from completion of a deep dive assessment on Whitsunday Plaza, which was significantly impacted by Cyclone Debbie in March 2017.  The newly created checklist was then used to roll out further deep dive assessments across other priority centres to identify location and asset specific risks, resilience measures already in place and opportunities to further strengthen our approach through additional initiatives, including capital, operational and procedural related considerations. During FY18, we completed detailed resilience assessments using the checklist at 15 of our highest risk rated centres, with a plan to continue rolling these out to more centres by June 2019, and having the entire portfolio assessed by 2020.

 

Review of business decision making processes

In FY17 we completed a review of our major business decision-making processes to understand how climate risk is currently considered, and identify how it might be further embedded into the business moving forward. Extensive internal stakeholder engagement was undertaken to review existing processes, including across group strategy, risk and emergency management, investment management, capital transactions, shopping centre operations, and developments and capital upgrades.  The review identified a number of initiatives to improve the integration of climate related risks and opportunities in a consistent manner across the organisation and further strengthen our business processes, which have been prioritised in a workplan that is currently being implemented.

 

Financial impact assessment

In FY18 we undertook an assessment specifically focused on investigating at a high level the possible financial impacts and sensitivities associated with climate-related physical risks on our business and asset portfolio under two climate scenarios (RCP 4.5 and RCP 8.5).  The work identified those aspects most likely to have the greatest impact (from both a negative and positive cost perspective) across our managed portfolio, building on earlier risk assessments and using historical data relating to expenses associated with past climate events as well as future cashflow forecasts to model the potential financial impact to our portfolio over the next ten years.  The results of this assessment are being used to further enhance and strengthen our decision making across the business, and will be built on as part of further investigations planned to better understand the potential financial impacts of climate change on our business.

 

Climate change scenarios we consider in our risk assessments

As part of our ongoing program of work to improve our understanding of the potential climate-related risks and opportunities for Vicinity, we have considered two climate change scenarios that reflect a range of potential temperature increases, their effect on climate variables, and resulting impact on our portfolio. 

IPCC1 climate

change scenario

Projected temperature rise

by 2100

Rationale

RCP2 4.5

2oC

Low emissions scenario - temperature levels that current global policy and targets (such as the Paris Agreement) would achieve

RCP2 8.5

5oC

High emissions scenario - Temperature levels that no real action towards mitigating climate change would achieve

  1. Intergovernmental Panel on Climate Change.
  2. Representative Concentration Pathway.

 

Transition risks

Modelling to understand 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 an emissions reduction trajectory and roadmap for Vicinity over the short, medium and long term against which to track our annual performance. 

Vicinity’s Integrated Energy Strategy maps out a long-term program for managing energy use and carbon emissions across our portfolio, including rapid roll out of onsite renewable energy and an energy efficiency program.

Managing our risks and opportunities

We have implemented climate change considerations, including those focused on building resilience and adapting to a changing climate as well as reducing our own carbon footprint, into the following key business processes:

  1. Strategic Asset Plans, which set a range of short and medium-term objectives for each asset and provide direction for long term success in line with Vicinity’s Group strategy;
  2. Sustainable design brief, which is formally integrated into the Development process and outlines sustainability requirements and implementation guidance for our development projects and capital upgrades;
  3. Investment management process which informs investment planning, development and divestment decisions for each asset;
  4. Integrated energy strategy, which provides a long-term plan for energy management at Vicinity, including implementation of onsite renewable energy such as solar and an energy efficiency program to secure a more resilient energy supply and achieve operational efficiency and long-term carbon reductions;
  5. Climate resilience and adaptation plans have been developed for all our highest risk rated centres (total of 15 assets);
  6. Enterprise and asset level risk registers, which assess and document mitigation measures for all corporate and centre level risks; and,
  7. Crisis and emergency management plans and incident response procedures, which inform our response to anticipated natural disasters and climate related events.

Objectives and targets