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It is estimated that 40.3 million people were victims of modern slavery globally in 2016. Up to two-thirds of victims are believed to be in the Asia-Pacific region, where many Australian companies’ supply chain extends[1].

The construction sector, which employs approximately 7% of the global workforce, is highly vulnerable to modern slavery risks.[1] While it provides employment to many of the world’s poorest and vulnerable people, the sector also captures 18.2% of the 16 million people exploited in the private sector globally.

Businesses are faced with the sobering reality that it is not IF they find modern slavery in their supply chain, it is WHEN.

Modern slavery risks in the construction sector lie mostly within labour and materials procurement. Construction companies also face inherent risks when doing business, for example:

Geography
  • Weak or no enforcement of laws prohibiting forced labour
  • Weak and/or inconsistent labour inspection framework
  • Partnership with government with a history of recruiting compulsory labour
  • Public Corruption
Industry practices
  • Intense competition between suppliers (pressure on time and costs)
  • Decentralised operations
  • widespread use of third party recruiters and subcontractors
  • Short-term nature of construction projects
Labour
  • Sourcing from country with high level of unemployment and poverty – labour force is vulnerable to exploitative practices
  • Migrant labour represents a large part of the workforce
  • Low-skilled work and minimum wage

The report by The Chartered Institute of Building on tackling modern slavery in the UK construction sector provides some good insights on the sector’s response to the UK legislation.[3] Interestingly, when asked how certain that there is no modern slavery occurring within a company’s supply chain, 58% of construction procurement managers in the UK responded that they were very or fairly confident that they did not have this issue.

Deloitte’s 2018 State of CSR report provides similar findings, with 79% of senior CSR managers believing that it is unlikely there is any slavery in their supply chains.[4]

These numbers point to a lack of awareness and understanding of the issue and that there is a presumption existing management system already capture instances of modern slavery. Unfortunately, as University of Bath’s Professor Andrew Crane said:

“If you think you have a system in place that guarantees you haven’t got modern slavery, you’re in cloud cuckoo land”.[5]

We have passed the stage of questioning whether modern slavery is really an issue. Overseas construction companies are moving fast in this space and leaders are emerging, responding to increasing public and stakeholders’ scrutiny.

Australia is in the list of countries taking most action on modern slavery, along with the Netherlands, USA, UK, Sweden, Portugal, Croatia, Spain, Belgium and Norway.[6] Australian businesses can lead in the fight against modern slavery, not simply because of compliance but because it is the humane thing to do. Commit to not tolerate exploitative labour practices and click here for Deloitte’s 5 steps approach to prepare for the Australia modern slavery legislation.

For more information, contact Deloitte Sustainability Services:
Partner Paul Dobson
Principal Dr Leeora Black

Supporting footnotes

  • [1]https://www.globalslaveryindex.org/findings/

  • [2]https://bis.lexisnexis.co.uk/pdf/whitepapers/Modern_Slavery_in_Construction_Full.pdf

  • [3]http://www.ciob.org/sites/default/files/Construction%20and%20the%20Modern%20Slavery%20Act.pdf

  • [4]https://www2.deloitte.com/au/en/pages/risk/articles/social-licence-key-australian-business-survival-2018-state-of-csr.html?utm_source=wp&utm_medium=blog&utm_campaign=exc-blog-2018&utm_content=web

  • [5]http://www.ciob.org/sites/default/files/Construction%20and%20the%20Modern%20Slavery%20Act.pdf

  • [6]https://www.globalslaveryindex.org/findings/

The post It is not if you will find modern slavery in your supply chain, it’s a matter of when appeared first on Blog | Deloitte Australia.

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Climate change is not a new concept. In fact, it has been nearly thirty years since the Intergovernmental Panel on Climate Change published its first report (1990) with predictions of a 20cm rise in global mean sea levels by 2030 and a one degree celsius temperature increase by 2025[1].

Despite this, and the many subsequent years of research and climate science reports that have followed, there is still much uncertainty regarding the timing, magnitude and to a lesser extent the nature of impacts from climate change on organisations. The Task Force on Climate-related Financial Disclosures (TCFD)[2] now asks organisations to assess and report on their material climate change risks and opportunities – but this is easier said than done.

It may then seem daunting for organisations, who have historically only reported on events that have occurred, or are deemed reasonably certain, to take a forward looking lens and attempt to assess the impact of climate related risks on their business. However, there are many organisations in both the private and public sectors who are successfully taking steps to anticipate and mitigate these risks, and capture the flow of opportunities that arise.

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity.”
― John F. Kennedy

As put forward by the G20’s Financial Stability Board: Taskforce for Climate-Related Financial Disclosure recommendations, scenario analysis is a prudential and effective tool to predict and stress-test strategy in times of uncertainty. However, understanding where to stress test and which environmental, social or other forces may impact your business model is very challenging and will not be as effective if the organisation is not clear on its strategy and the interdependencies it has with the environment in which it operates.

This is where integrated thinking is of most benefit. Integrated thinking, the pivotal tool as organisations who are embarking on the Integrated Reporting journey knows, promotes the whole organisation to broaden its consideration, to understand the value creation journey, and to take in the forces that will impact this value-creation over the long-term, and climate change is certainly something that requires an integrated thinking approach.

The TCFD asks companies to consider the impacts of climate change on its governance, strategy, risk management and metrics and targets. Climate change by its very nature is complex and requires strategic long term thinking and taking an integrated thinking approach as you consider climate change will assist you to understand the impacts and develop your strategic responses. Once an entity is able to conceptualise this journey, it can more readily and accurately overlay the market trends, and environmental impacts occurring as a result of climate change, and visualise clearly the road-blocks and gateways that will have the most significant impact on the organisation.

In this light it is clear that adopting the TCFD recommendations and preparing an Integrated Report is not just a compliance or reporting exercise to satisfy investors. The benefits of integrating your sustainability and risk management practices to a whole-of-organisation level are evident, in a world where the only certainty is uncertainty.

“The Only Thing I Know For Sure Is That I Know Nothing At All, For Sure” ― Socrates

[1]Climate Change: The IPCC 1990 and 1992 Assessments

[1]https://www.fsb-tcfd.org/

The post Integrated Reporting and climate-related disclosures: using integrated thinking to plan for the future appeared first on Blog | Deloitte Australia.

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The Australian Government is likely to introduce a Modern Slavery Act in 2018, following two inquiries in 2017. The proposed Act will require organisations with more than $50 – $100 million revenues to provide a public report on their actions to discover and fix any modern slavery problems in their operations or supply chains.

Deloitte’s 2018 Annual Review of the State of CSR in Australia and New Zealand  highlights that organisations are poorly prepared for the Modern Slavery Act. Low awareness among business is one problem. The likelihood of under-estimating the extent of the problem is another.

Many business leaders may be surprised or shocked to think there may be modern slavery in their businesses, but there are an estimated 40 million victims[1]. Up to two thirds are in the Asia Pacific region, where many Australian supply chains extend[2].

Exploitative labour practices in Australia have been associated with the construction, agriculture, manufacturing, hospitality, cleaning and domestic work sectors, as well as third-party labour suppliers[3].

By requiring organisations to be transparent about the extent to which they rely on vulnerable and exploited workers, the Government hopes to drive improvements to human rights practices in Australian supply chains. As the UK Independent Anti-Slavery Commissioner, Kevin Hyland OBE, points out:
“The trafficking of people and the exploitation of workers is only profitable insofar as somebody is willing to buy the goods that slave labour has produced.”

Businesses will need to get to grips with the requirements of the new Modern Slavery Act. The United Nations Guiding Principles on Business and Human Rights are a good starting point as the new Act draws on these principles. They spell out that businesses are expected to take adequate measures for the prevention, mitigation and, where appropriate, remediation of slavery.

Here’s five key steps to get your organisation ready for the Modern Slavery Act

  1. Map your supply chain.
    • Analyse spend, categories and location to potential modern slavery risks and identify efficiencies.
  2. Review or develop your policy commitment and management processes to meet the corporate responsibility with respect to human rights, including modern slavery.
    • For example, a Supplier Code of Conduct could encompass the following:
      • Respect for human rights.
      • Voluntary employment (no modern slavery).
      • Working conditions.
      • Wages and benefits.
      • Right to collective bargaining.
      • Appropriate training.
      • Health and safety.
      • Humane treatment.
      • Non-discrimination.
  3. Conduct a human rights risk assessment of your operations and suppliers.
    • Use data analytics to screen for hot spots, focus attention where it matters and increase the manageability of a response strategy.
  4. Assess suppliers’ current abilities to deal with human rights risks.
  5. Take steps to prevent, mitigate or remedy any potential or actual modern slavery from occurring including developing supplier engagement programs.

The Act could require companies to report publicly as soon as 2020, and many of our clients have started to act now to prepare themselves.

Download the State of CSR report here.

Contact Deloitte Sustainability Services:
Partner Paul Dobson
Principal Dr Leeora Black

Footnotes

[1]http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_574717/lang–en/index.htm

[2]https://www.globalslaveryindex.org/findings/

[3]Trading Lives Report, JFADT House Committee, http://www.aphref.aph.gov.au-house-committee-jfadt-slavery_people_trafficking-report-full.pdf

The post Five steps to prepare for the Modern Slavery Act appeared first on Blog | Deloitte Australia.

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We are seeing a revolution in energy. Australia’s energy industry is certainly undergoing significant disruption and transformation as it transitions from a heavy reliance on traditional fossil fuel sources to a new energy environment. It’s critical to plan ahead and we were recently fortunate to sit down with Ramez Naam on his visit to Australia.

Ramez is a computer scientist, futurist, angel investor and award winning author with a stellar career that includes working for 13 years at Microsoft on versions of Microsoft Outlook, Explorer and Bing search engine. Ramez is also the founder of Apex Nano Technologies and lecturer at Singularity University on Energy, Environment and Innovation. From challenges to impacts, emerging technologies to trends – Ramez put a spotlight on the latest energy themes to understand, right now.

1.What current challenges are impacting the energy sector?

Populations are no longer tolerant of what they perceive as polluting energy. So social permission to burn coal is being removed in large parts of the world. On the other side of things, you have these disruptive technologies coming into play that are really changing the cost structure, where we see the cost of solar, the cost of wind and the cost even of energy storage plummeting and that looks quite disruptive to old generation assets.

2.Where are we headed with cheaper energy?

In the US now, UBS put out a report saying that renewables are now deflationary to energy prices. We have, without subsidies, deals at the four and a half cent level for solar and four cent a kilowatt hour level for wind. That compares to spot prices in Australia of maybe nine Australian cents a kilowatt hour right now. Or new build prices for coal plants of maybe seven or eight cents a kilowatt hour. In sunny parts of the world, solar is just the cheapest electricity you can buy. In windy parts of the world, wind is just the cheapest electricity you can buy. And that’s a massive change from where we were just three, four or five years ago.

3. You’ve previously mentioned the Kodak moment. What does that mean for energy?

There was a day that we talked about the Kodak moment as a fun thing. The moment that you wanted to capture and now we talk about it as the moment of disruption. And so, we see that traditional generation methods are being disrupted. Certainly we’ve seen it with plans for new coal fired capacity being cancelled all around the world. China last year cancelled I think 151 coal power plants that were planned to be built. Forty of them were already under construction. Eighty billion US dollars not spent.

We’re hitting an even more disruptive point. The point where the cost of building new solar or new wind is cheaper than the cost to operate an existing coal plant. Imagine that. You’ve built a coal plant and very soon it will be cheaper to build a new solar plant than it is to keep fuelling and running the old coal plant. And that point is right upon us. In the US, it looks like 2021 or 2022. In India, the cheapest solar projects signed last year are probably cheaper than the operating cost of about a quarter of India’s coal fleet.

4. What can leaders do to plan ahead?

The first thing that any executive, regulator or government has to do is just accept reality. Understand that these trends have been ongoing for 20 or 30 years. You can plot the cost of solar or wind or batteries coming down since at least 1980. And number two is realise that you can’t stop the inevitable. If this is a global, industry-wide trend, your firm, or your government, or your regulatory body is not going to be able to stop the trend. You have to embrace the trend and say okay, given that this is going to happen, how do we embrace this in a way that returns a profit for us, that provides a good service for our customers, keeps the grid stable and our country flourishing and so on.

5. Industry 4.0 is evolving rapidly. What exponential technology trends are you seeing?

Within energy itself, solar modules and panels per watt have dropped from $100 a watt in 1973 to 30 cents a watt now, so that’s an exponential change. Wind turbines we’ve seen a massive drop but capacity factors have gone from 15, 20 percent to a 40, 50, 60 percent in some cases. That’s actually been driven in part by big data and Internet of Things. We’ve seen the ability of utilities in some parts of the world to integrate more renewables onto the grid, more wind especially, by taking sensor readings off of every individual turbine, every individual solar panel, and using that to predict better what the generation is going to look like in timeframes such as the next 15 minutes.

Lithium ion batteries have been heroically expensive, but you see now with the South Australian battery bank being built that they’re just dropping into the zone of being economically viable in a certain, specific situation. They’ve dropped by a factor of five since 2010 in price. And they’re going to drop another factor of three to five in the next 10 to 15 years. So materials science, AI, Internet of Things, sensors, big data, and the learning curve of renewables themselves, are all coming together to disrupt this industry.

6. Where are we headed with electric vehicles?

Electric vehicles are the biggest opportunity for utilities and distribution that we’ve seen in a generation. In the US, where the numbers are quite well quantified, if we took every light passenger vehicle, every family car and switched it from gasoline to electricity, Americans would spend up to $400 billion on gas. But they’d spend a $100 billion a year more on electricity. So if we’re looking for opportunities to increase electricity sales, I think that’s one of the biggest.

And electric vehicles are also an exponential technology. We went from a $250,000 Tesla Roadster to an $80,000 Model S to a $35,000 Model 3 to a $30,000 new Nissan LEAF. And so we’re headed for electric vehicles that are as cheap as gasoline or cheaper and that have a lower cost of operation. A lower lifetime cost, and lower per kilometre cost. So these are going to take off and the utilities that manage to find a way to leverage them or be the providers that sell them, have a big opportunity there.

7. What are the advantages for Australia?

Well Australia can be an energy superpower. You have one of the sunniest continents on earth, if not the sunniest. And you have in the southeast some of the class seven winds, the best winds offshore in the world. So that should enable Australia to actually have one of the lowest energy prices around the world. That’s not the case today. Australian wholesale energy prices are quite high and retail energy prices are quite high. But if you can get to that low cost energy, that gives you a competitive advantage in manufacturing, in running data centres, in providing services domestically, and for export. So that’s what I see as an opportunity for the nation.

8. What skills and capabilities are required for this new energy world?

There’s an opportunity here for high skilled labour, even when you look at technicians or installers for those solar panels and wind farms. There’s an opportunity to leverage people whose industry is being disrupted – so for example, coal demand globally peaked in 2013 and it’s not going back. Those jobs are going to be under pressure and maybe there’s an opportunity to upskill them for a job that has better working conditions and higher pay. And in addition to that, I think there’s a vital role for people that are skilled with software and data. We’re moving away from a day that we had base load and now we have a whole variety of variable assets that are using big data to help balance load against each other. And that’s a different skill set, and that’s also a skill set and technology Australia could export.

You can learn more about Ramez on the SingularityU website.

The post Eight energy insights: energised for the future? appeared first on Blog | Deloitte Australia.

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National productivity has steadily declined since the late 1990s, and at its peak, productivity growth has averaged at 2.5 per cent. However, in the past decade this growth has decelerated to an average of just 1.25 per cent, even dipping into negative growth during the mid-2000s – to what has been described as “the nothing era”.

As the Productivity Commission highlights, there is other compelling evidence that Australian productivity is hindered by poor management practices. Australian businesses in particular, lag significantly behind the global frontiers of good management. More recently, the Treasury’s Economic Roundup identified an optimistic growth in productivity over the last year. Though, authors Simon Campbell and Harry Withers warn that “there would need to be a sustained lift in average annual productivity growth…to allow living standards to continue to improve at the long-run historical rate.”

What if that silver bullet everyone seeks to lift productivity and performance is through leaders actively leading wellbeing in their organisation with connection and care, rather than flu shots and fruit bowls for individuals?

Peggy O Neill, president at Richmond Football Club, was recently presenting at a business breakfast I attended. When I asked what underpinning factor contributed to the success of the club, one powerful word resonated with me – “connection”.

Peggy described the multiple ways they focused on connection as building connectivity between coaches and players, players with players and having the right people on the bus just to name a few.

They built a focussed strategy together and executed it. Peggy described the strategy as being built on “what we did have” and not on “what we didn’t have”. Game time was about focusing on unselfish play, and about rewarding and recognising those players.

A powerful way of connecting as described in the new book Yellow and Black: A season with Richmond by Konrad Marshall, was through authentic leadership shown by the players. Brandon Ellis was the first player to open up and share a personal story with his team mates about his hero, a hardship and a highlight in his life. Ellis described the challenge of baring his soul, the reward through the personal connection he built with his team members and the care that they shared between each other. Known as the “Triple H” method, authentic leadership was a part of how they related to each other by getting to know each other as people. This created the possibility of relating to each other differently and brought out the best in what they had together. Quoted in The Age Sunday 28 October Ellis said, “We don’t want to be fake. We want you to know who… I am. We’ve taken a massive step forward this year in how much we care. We’re connected now. I feel like we are forming a brotherhood”.

Richmond Football Club brought out the best in their people and won the Premiership of 2017. Productivity was a part of their DNA.

Interestingly, when thinking turns to organisations and productivity, productivity and wellbeing of people are often thought of as two separate entities. Wellbeing is about individuals, and productivity is about organisations and GDP.

So what can organisations learn from the Richmond Football Club taking better care of their people?

What if it was about leaders actively caring for their people and working together on creating a workplace where people are connected together?

What might building a culture of care and connection do to enable workplaces to boost productivity?

Leaders can create well workplaces by creating opportunities for people to connect – connect with the purpose of their organisation and their own, with each other, between leaders themselves and also with their teams as people.

Five simple ways for leaders to boost productivity and create a well workplace are:

  1. Find ways to connect your senior leadership and your people, and get to know each other as people. Try the “Triple H” culture technique in a supportive environment – share a story about a hardship, hero and highlight.
  2. Build trust by working on a challenge together that everyone cares about, like safety or wellbeing.
  3. Ask for and really listen to your people’s ideas and views – innovation can happen organically if you let it.
  4. Build a strategy that is focused on what you want to achieve and then have the discipline to execute it.
  5. Reward unselfish team play to drive genuine collaboration. Set KPIs that reward this rather than individual achievement, and celebrate success.

We can help you move from information about building cultures of care to targeted practical action. Learn more about our services.

The post The anatomy of productive organisations appeared first on Blog | Deloitte Australia.

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Have you heard about the pioneering media giant who left her hugely successful news website to focus on sleep? No? Well – it’s not actually as strange as it sounds.

Ariana Huffington’s decision last week to step down from the Huffington Post, a media empire that she has grown from her basement to being one of the most visited news sites in the world with a presence in 16 countries, came as a surprise. Especially because Huffington had just recently signed a new contract to remain with the company til 2019.

She has explained that her decision is down to her desire to focus 100% of her time on her new start up – Thrive Global.

Thrive Global will be a non-profit group focused on health and wellness that will work with organisations to help them improve staff wellbeing. Elaborating on the mission of the company, Huffington stated ‘As all of you know, since publishing Thrive, I’ve become more and more passionate – okay, obsessed – with burnout and stress and how we can reduce their impact on our lives. Thrive Global’s mission is to change the way we work and live by ending the collective delusion that burnout is a necessary price for success.’

Australia’s safety journey

Huffington started to explore the concept of wellbeing after a collapse eight years ago brought about by exhaustion and sleep deprivation. It’s inspiring and exciting to hear one of the most influential women in the world talk openly about what is an increasingly serious problem in workplaces – locally and globally.

In Australia, we have been on an evolving journey with safety in our workplaces. It’s not that long ago since workplace accidents, particularly on challenging locations like mines, oil platforms and building sites were not only frequent, but were accepted by employees and leaders as an unavoidable consequence of working in these roles.

We have worked hard to change culture, practices and attitudes to safety in workplaces, to get to a point where people have the expectation that they can come to work, regardless of the type of work they do, and know that there are procedures in place to guarantee their safety and wellbeing. For anyone to have a workplace accident is considered unacceptable, and serious injuries and deaths are thankfully a much rarer occurrence.

Mental health in the workplace

As what we produce in Australia changes from the outputs of physical work – manufacturing, mining, agriculture, to outputs from mental work – our thoughts and ideas, we need to change how we think about what it means to make the workplaces of today safe, productive and supportive.  We need to safeguard the psychological wellbeing of our employees as well as the physical.

For anyone in doubt that mental wellbeing of employees is an issue that needs to be addressed, take a look at some statistics: three million working Australians are affected by mental health issues; 20% of the working age population suffer from mental health problems; 16% of mental stress claims result in the employee being absent for one year or more. Loss of productivity due to mental health issues is an $11bn cost to Australian businesses every year.

Culture is key

Having successfully achieved this change in mindset around physical safety, leaders should focus their attention on bringing the same culture to bear around our mental safety and wellbeing. We need to embed a culture where it is as unacceptable that a worker would suffer any mental ill effects from the requirements of their role as it is that they would be injured physically. Good organisations and leaders have the opportunity to move beyond the mindset that stops at simply preventing safety incidents in the workplace and look at how to create a workplace where their employees can be healthy, be productive, and thrive.

Our aim in helping organisations to develop mentally healthy workplaces is to assist them to create a positive working environment that builds individual skills and resilience, reduces workplace risks to mental health challenges and supports staff with mental health conditions.

Ariana is right, the culture and conversation around success and what you need to sacrifice to achieve our traditional definition of it needs to change. It will be interesting to see what she can do with Thrive Global with her full focus devoted to it. My hope is that her profile will draw much needed attention to creating better working conditions for all employees.

The post The workplace safety journey – moving from surviving to thriving appeared first on Blog | Deloitte Australia.

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Having worked in the climate change, energy and reporting space for many, many years we have seen the evolution from ad-hoc and inconsistent focus and reporting to a more nuanced appreciation of the complexity and impact of climate change issues.
Some organisations are further ahead than others and the leaders are integrating their climate change response through the alignment of their sustainability strategy with their business strategy and looking at current decisions based on the future. However not everyone is on the same page.

The increased appreciation of the complexity of climate change issues, coupled with the lack of consistent reporting and global transparency led the Financial Stability Board to establish the Taskforce on Climate-related Financial Disclosures (TCFD)[1] in November 2015 to look at the risks, opportunities and financial impacts of climate change and establish a disclosure framework to assist organisations better understand the issues and report them to their stakeholders, particularly investors.

The Final TCFD Recommendation Report [2] released on 29 June 2017 is recognition of the multi-faceted and pervasive impact of climate change on all organisations. It reflects the fact that climate change presents risks and opportunities for companies and that these can (and most likely will) have financial impacts.

Risks AND Opportunities

The TCFD Report defines climate-related risks as Physical Risks and Transition Risks. Physical Risks include both short-term and longer impacts such as increased incidence of adverse weather as well as impacts from sustained increases in temperatures; and Transition Risks relate to the policy & legal framework, technology impacts; market and reputation issues. For example, transition risks may manifest themselves through stranded assets or impact the ability to go-ahead with planned projects, thereby jeopardising growth plans. The risks can be significant for organisations and will impact different sectors and organisations differently depending on the location of your assets and business strategy.

While much of the external commentary and focus has been on dealing with the risks of climate change, the TCFD importantly highlights the opportunities that can present themselves from responding to climate change. This can include development of new products or services; adopting new technologies or business practices to save energy (and costs) as well as opportunities in new markets or in ways to improve resilience.

It is therefore vitally important that organisations view climate change through a risk and opportunity lens in order assess the true financial and non-financial impacts.

The bottom line: stakeholders are expecting it

Assessing the impact of climate change risks and opportunities is becoming non-negotiable as investors and other stakeholders expect Boards and Executives to actively assess and respond. Back in February 2017, Geoff Summerhayes of APRA stated that climate risks need to be considered as part of prudential risk management in the financial sector[3] and calls like this from regulators are expected to continue. And in May 2017, a shareholder resolution at Exxon Mobil calling on management to produce a report detailing the implications of a 2 degree scenario received 62% support.[4]  The TCFD recommendations are clearly aligned to the increased expectations of stakeholders and provide the framework for organisations to get on the front foot and explain how they are assessing and managing climate-change risks and opportunities.

The key objective of the TCFD is to bring consistency and transparency to the disclosure of climate-related impacts. The principal recommendations of the Taskforce provide a disclosure framework that covers:

  • Governance 
    Disclosure of the governance framework around climate-related risks and opportunities
  • Strategy
    Disclosure of actual and potential material risks and opportunities on the organisation’s business, strategy and financial plans
  • Risk Management
    Disclosure of how the organisation identifies, assesses and manages climate related risks
  • Metrics & targets
    Disclosure of the metrics and targets are used to manage the material climate-related risks and opportunities

Source: TCFD final report

Within the report, companies are strongly encouraged to take into account different climate-related scenarios including a 2 degree or lower scenario as part of assessing the resilience of the organisation’s strategy to climate related risks and opportunities.

Importantly, the focus on governance indicates that responsibility for TCFD disclosure rests with the Board and Executive, particularly the CFO and Audit Committee given the finance-related aspects of the disclosures and the continuous disclosure obligations that listed companies operate under.

So what now?

The TCFD has been developed as a multi-stakeholder taskforce and it is expected that adoption of the recommendations will be market-led and major companies are already leading the charge with over 100 CEO’s signing a public commitment of support for the voluntary recommendations[5]. Adoption is expected to grow such that climate-related financial disclosures become normal business practice. As adoption grows and companies become more sophisticated there is the opportunity to leverage big data in this area to identify new opportunities and responses.

Following the release of the recommendations companies should:

  • Review the Final TCFD Report recommendations against your current practice and disclosure to identify gaps
  • Review your governance, strategy and risk management processes to assess how well climate-related risks and opportunities are considered
  • Develop and assess (to the extent not already done so) the impact of a 2 degree scenario on your organisation
  • Engage with your key stakeholders including investors to understand their perspectives
  • Determine your external reporting strategy and the potential linkage or integration with the Annual Report, Sustainability Reports or alignment of the TCFD disclosures with Integrated Reporting
  • As you develop your disclosures consider an independent assessment of assurance of the information
  • Consider the application of big data and data science as part of your response to unlock opportunities (see here for some global ideas)

For a detailed review of the TCFD recommendations please also see the Deloitte global publication here.

[1] www.fsb-tcfd.org/

[2] https://www.fsb-tcfd.org/publications/final-recommendations-report/

[3] http://www.apra.gov.au/Speeches/Pages/Australias-new-horizon.aspx

[4] 2 degrees of separation: Transition risk for oil & gas in a low carbon world – Carbon Tracker; UN PRI page 11

[5] https://www.fsb-tcfd.org/wp-content/uploads/2017/06/TCFD-Supporting-Companies-28-June-2017-FINAL.pdf

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Stakeholder expectations are increasing and the challenges are more complex – but in an increasingly polarised world, there seems to be less focus on what we all know to be true – that no one can get all their expectations met and trade-offs and compromise are necessary.

To be successful and sustainable in the long run, all organisations be they private sector or government, need to take a balanced perspective and that is what sustainability is all about: taking a balanced and longer-term perspective in order succeed.

Issues and expectations are converging

Take climate change and energy. A few years ago the focus was on reducing emissions and moving from coal to gas as an intermediate solution on the path to a renewable future. Now in 2017, climate change policy and energy policy are twinned and the challenges of energy security coupled with affordability are front and centre. Renewables and new technologies are coming to the forefront and gas is being seen as a way to support energy security and not necessarily an intermediate solution. Organisations are having to re-think and will need to be agile as they transition to a low carbon future with a diversified energy portfolio. The transition needs to be considered from the corporate and asset level with different challenges arising on this journey.

Multi-faceted social dimensions

The affordability challenges highlighted through the energy debate are extremely important but there are also a myriad of other social challenges (and opportunities) that organisations need to manage. These include engaging with local communities impacted through economic or technological changes; ensuring the continued safety and mental health and wellbeing of your workforce as disruption occurs in certain industries and standing up for human rights.

As we have seen through recent high-profile cases, human rights challenges are not someone else’s problem. They can occur here at home in Australia as well as in any organisational supply chain. Increased expectations by consumers, investors and activists of transparency in supply chains means business can take a leading role in responding. Possible legislative responses in the areas of modern slavery mean that these issues need to be integrated into everyone’s procurement processes.

Telling your story, transparently

Organisations need to tell their story – how they create value and what the challenges are in doing so. To do that, organisations need to have robust processes in place to understand their key stakeholder issues and then ensure their actions are aligned. Through transparent and meaningful reporting, organisations can help stakeholders better understand the organisation and its impacts. International reporting frameworks can be used to demonstrate integration of actions and strategy and the UN Sustainable Development Goals can be leveraged to demonstrate that the actions of organisations support the achievement of global priorities. But for it to be effective, it has to be driven from the top – an organisation has to want to engage with its diverse stakeholders on the issues that really matter to them in a transparent way.

Anticipating the future

Issues are constantly evolving and things don’t stand still and therefore you need to anticipate things in order to plan your next moves. But let’s not forget that all sustainability challenges involve people so the human analysis, nuance and understanding is essential to navigating these challenges now and into the future. Through harnessing technology, advanced analytics and human insight together, opportunities and risks can be identified, analysed and responded to in a more agile manner than ever before.

Things to consider

Organisations need to focus more on managing competing challenges and taking a longer-term view through a multi-stakeholder lens. This can be done through connecting the issues across stakeholder groups and leverage a shared perspective so the benefits can be gained and any costs shared together to move forward.

Specifically organisations should:

  • Identify the most material issues for your stakeholders and integrate them with your business strategy;
  • Start the planning now to navigate the complex challenges in energy and climate change strategy and response while linking in the social dimensions;
  • Better demonstrate and maximise your social impact and return on investment through measurement and monitoring techniques;
  • Communicate better with your stakeholders through better reporting that focuses on what really matters, tells how you create value and how you are really performing and;
  • Anticipate future sustainability challenges through leveraging technology and human analysis to give you the insights you need to respond in this agile world.

We are here to help you manage those great expectations of your stakeholders and succeed into the future. See our page for how we can assist.

The post Great (and Greater) Expectations – balancing competing challenges and opportunities appeared first on Blog | Deloitte Australia.

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Have you heard Prince Harry’s recent admissions on the effect losing his mum has had on his mental health? His decision to publicly share the challenges he has experienced is helping to lift the lid on stigma about mental health issues.  

Prince Harry said in his recent interview with the Daily Telegraph “I can safely say that losing my mum at the age of 12, and therefore shutting down all of my emotions for the last 20 years has had a quite serious effect on not only my personal life but my work as well.” Prince Harry’s decision to open up and also show his public support for the mental health charity Heads Together, along with his brother Prince William and Duchess Catherine, is leading the way for change. He is laying the foundation for making it ok to talk about mental health problems that will affect one in four of us during a lifetime. This is good news for those who suffer from mental health issues, and also for business.

Australia’s workplace health and safety journey

In Australian workplaces, it is not ok to physically injure people at work and organisations have actively worked to reduce physical harm to their workers. It is now a business imperative to put the health focus back in to health and safety and target mental health. A recent report by Beyond Blue on the State of Workplace Mental Health in Australia indicates that mentally healthy workplaces are as important to Australian employees as physically safe workplaces, however workplaces are not meeting their expectations. 91% believe mental health in the workplace is important (88% believe physical safety is important). Despite this, only 52% of employees believe their workplace is mentally healthy compared to 76% for physical safety. Particularly concerning is that only half (56%) believe their most senior leader values mental health.

Mental health in the workplace – actively tackling stigma

We know that loss of productivity due to mental health issues results in 12 million days of reduced productivity in Australian businesses each year according to a return on investment analysis commissioned by the  Mentally Healthy Workplace Alliance  and at the same time mental illness continues to be one of the most stigmatised groups of disorders experienced by people at work.

One study (Manning C, 1995) reported 50% of people would ‘never’ or ‘rarely’ employ someone if they knew they had a psychiatric disorder.   Stigma surrounding mental illness may also affect colleagues’ impressions of person’s capability to be effective at work (Stuart., 2006). Australian businesses are investing in mental health services in the workplace, but employees are underutilising these resources. A primary reason employees aren’t accessing mental health resources may be due to the significant stigma which surrounds mental illness.

Culture is key

It is the mindsets, beliefs and attitudes that underpin how we behave that create a culture that actively works to prevent the harmful aspects of work, protect and promotes mental health and at the same time supports those who need help. Like with safety, while supporting mental health at work is everyone’s responsibility, it begins with leaders.  If as leaders we believe that it is not ok to admit to experiencing challenges that impact our mental health then we will continue to propagate a business world that drives this underground.

We need to build cultures at work that genuinely care for people.  We need to generate mindsets in senior leadership that profoundly value their people and build business communities that expand to include people who are experiencing mental health challenges. Stigma around mental health needs to stop.

Leaders need to step up to the challenge and create workplaces that foster “good work”.  This begins by examining our own mindset about mental health at work and asking ourselves “what environment am I creating through my beliefs, attitudes and behaviours?” Three ways leaders can begin today in reducing stigma about mental health is by:

  1. Beginning to have unvarnished conversations about depression, anxiety and mental health.
  2. Increasing the help seeking options for people and effectively communicating these.
  3. Supporting people and caregivers facing mental health challenges by actively building communities at work that support people.

It is only through a critical mass of people actively showing they care about this that change will begin. Prince Harry is leading change by breaking through the traditional ranks of royal conservatism and has begun to make it ok through his admissions. As leaders, we can continue to open up the conversation in organisations.

Most work places do not understand their mental health and wellbeing risks nor what to do about it. We can help you move from information to targeted practical action. Learn more about our services.

The post Minding minds at work – three ways leaders can reduce mental health stigma appeared first on Blog | Deloitte Australia.

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What will Australia be like if global mean temperatures rise by 2˚C or more? Evidence suggests that there will be increases in extreme weather events, sea-level rises and more extreme bush-fire seasons to name just a few increased challenges.

There may also be opportunities from changes in weather and rainfall patterns for some areas. Ultimately all organisations will need to assess the impacts of these changes on their business or operations. What impact will it have on your customers? What will they need and want, and how will you respond? Where and how will you generate sales and deliver service? What does it mean for your assets now and in the future? Your costs, your profitability and returns to shareholders? And will your need for capital increase?

This all means that organisations will need to view the world through this 2˚C lens. The Paris COP21 Agreement is ratified and countries are starting to implement irrespective of any changes in the US stance. The agreement focuses signatories on keeping the global mean temperature rise below 2˚C, and that includes Australia – and doing this will be a challenge

Global and local disclosure requirements
The global Financial Stability Board’s Taskforce on Climate-related Financial Disclosure (TCFD) recently published recommendations for the disclosure of this information. Companies will need to think through and disclose the systemic effects of climate change on their finances and operations so that they can answer the question of what their business will look like financially under a 2˚C world or other scenarios.

In February 2017, APRA announced that it too will be asking questions of insurers and banks on what these temperature rises will mean.

The two main risks are physical and transitional which APRA describes thus:

  • Physical risks stem from the direct impact of climate change on our physical environment – through, for example, resource availability, supply chain disruptions, or damage to assets from severe weather.
  • Transition risks stem from the much wider set of changes in policy, law, markets, technology and prices that are part of the now agreed transition to a low-carbon economy.

At Deloitte we assist clients assess these impacts including modelling and developing scenarios to consider impacts on their organisations of 2˚C world taking into account exposure to both physical and transition risks.

For physical risk we can assess companies’ exposure to weather related events, such as coastal erosion or flood, on property portfolios – both those owned directly and indirectly, e.g. by a bank through its home loan portfolios. There are of course a number of challenges, including access to the right data and models of climate change and physical damage.

For the first time significant improvements in geospatial modelling using cloud computing, improved climate data, and property data have made these types of stress tests feasible.

While insurers have been looking at this issue for many years, their models only extend to the next 12 months. We have had to go back to the drawing board to redesign models from the ground-up to look at longer time horizons like 10 years and more.

While that may seem a long time out, banks have already written home loans up to 30 years so are exposed to potential climate related losses. Banks will also need to think through how this new information impacts responsible lending, and how best to engage with their customers over this.

For transition risks, companies need to drill down into their investment portfolios to assess their exposure to investments in high carbon intensity industries. Widespread adoption of the Financial Stability Board’s TCFD recommendations, will make this process a lot easier for investors. But in the early stages understanding the supply chain and the exposure to climate risk is a complex challenge, as well as how to communicate the results to all stakeholders.

As the regulator APRA begins to look through this 2˚C lens, the world changes in sometimes unexpected ways, bringing new challenges for banks and insurers.

The post Seeing through the 2 degree C lens appeared first on Blog | Deloitte Australia.

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