Vector : 2022 TCFD

TCFD REPORT 2022

Vector's journey to a new energy future

Our climate risks and opportunities based on the recommendations of the Task Force on Climate-related Financial Disclosures

August 2022

Purpose of this report and limitations

This report is a summary of Vector's assessment of future climate risks and opportunities and its resulting strategy. It is intended to inform readers about Vector's business strategy with respect to climate risk and opportunity but it is not earnings guidance nor financial advice for investors, and it is unaudited.

Given its focus on future risks and opportunities, this report contains estimates, projections and assumptions about future socio-economic, policy and regulatory, technological, physical climate and other conditions, as at 26th August 2022. Although the use of scenario analysis is rapidly developing to support this future focus, there are limitations to the modelling methodology and available data, and therefore scenario analysis. These limitations are identified throughout this report and in particular are outlined in Sections 2 and 3.

While Vector has taken efforts to ensure that such assumptions have a reasonable basis and are coherent and plausible (including basing them on modelling, public scientific information, market knowledge and projections, government policy proposals, and reasonable/expert opinions), assessments of the future are challenging and inherently uncertain. The assumptions, estimates, projections and modelling relied on in this report may not be realised at the scale and pace anticipated and/or the future may involve circumstances that are different to that anticipated in this report.

In light of the above, while Vector has taken all due care in preparing this report, including its scenarios and assumptions, Vector makes no representation as to the report's accuracy, completeness or reliability, in particular in relation to Vector's assumptions regarding future events.

To the greatest extent possible under New Zealand law Vector expressly disclaims all liability for any direct, indirect or consequential loss or damage occasioned from the use or inability to use this report, whether directly or indirectly resulting from inaccuracies, defects, errors, omissions, out of date information or otherwise.

Vector makes no representation as to the accuracy of any information in this report. We recommend you seek independent advice before acting or relying on any information in this report. Vector reserves the right to revise statements made in, or its strategy or business activities described in, this report, without notice.

Our position on climate change

Vector is well-positioned to enable decarbonisation within New Zealand, the Asia- Pacific region, and globally. We are guided by our vision, which is to create a new energy future. Despite the challenges of climate change today, our integrated Group strategy we call Symphony is preparing us to seize the opportunities of

a decarbonised future. Symphony aims to transform the traditional one-way energy chain into an intelligent, multi-directional energy system that gives the customer more choice and control. Fundamentally, it is about creating a decentralised energy system that opens future possibilities, delivering decarbonisation consistent with safe, reliable and affordable energy solutions for customers.

2 Vector TCFD 2022

OUR

KEY

GOVERNANCE RISK AND

STRATEGY RISK 1: INABILITY

RISK 2:

RISK 3:

OPPORTUNITIES METRICS

POSITION

INSIGHTS

OPPORTUNITY

TO EFFICIENTLY

UNMANAGED

INCREASE

AND

MANAGEMENT

MANAGE

TRANSITION

IN EXTREME

TARGETS

PEAK LOAD

FROM GAS

WEATHER EVENTS

Vector acknowledges the climate change science underpinning this need to act. We welcome the pivotal role we can play in this decarbonisation transition, and we recognise climate risk as a material risk with Board oversight. Vector is a founding member of the Climate Leaders Coalition, a partner of the Sustainable Finance Forum, and member of the Sustainable Business Council. Our participation

in these coalitions also includes our commitment to reducing our own carbon emissions to help with New Zealand's transition to a low carbon economy, and is consistent with our support for the Paris Agreement and the establishment of the Climate Change Commission.

Decarbonisation brings both risks and opportunities

Electrification of the energy economy is a key part of global decarbonisation efforts. Vector is one of the leading players in the transformation of the energy sector, identifying, developing, and enabling options that will provide value, choice and service for our customers while delivering sustainable shareholder returns. The impacts of climate change, and more broadly, of global responses to climate change, represent material risks and opportunities for our business, as covered in this disclosure. We are working with policymakers and regulatory bodies and closely monitoring developments in New Zealand and our other key markets around climate action and just transitions [1].

Why the Task Force on Climate- related Financial Disclosures (TCFD) matters to us and our primary users

The TCFD framework provides a way for companies to produce consistent climate- related disclosures, demonstrating how climate-related risks and opportunities are incorporated into their risk management and strategic planning processes. Why

is this so important? As customers, regulators, policymakers, existing and potential investors, lenders, and other creditors further their understanding of the financial implications associated with climate change, markets will be empowered to channel investment to the solutions, opportunities, and business models needed for a new energy future.

When it launched in 2017, the TCFD recommended that companies make 11 disclosures to identify the possible climate impacts on their business. In October 2021 New Zealand was the first country to pass law to create a mandatory TCFD reporting obligation on major private sector entities. While the External Reporting Board's Climate-related Disclosure Standard remains under development, and those mandatory reporting obligations will only commence from 2023, Vector has nonetheless embarked on this journey in advance. Our reasoning is simple: it is in our interest as a company to lead the transformation of the energy sector and to ensure that the management and maintenance of our physical assets and business strategy takes into account, anticipates, and proactively responds to climate-related risks and opportunities. Vector also sees a clear role for businesses like ours to provide our stakeholders with transparent information that supports robust, long-term business strategy and investment decisions.

Electrification of the energy economy is a key part of global decarbonisation efforts

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Vector's climate-related opportunities and risks

Climate change brings both risks and opportunities for Vector, as detailed in this report. With a diverse business portfolio of energy solutions, Vector is well-positioned to lead the energy transition to our customers' advantage. Many of our climate-related opportunities correspond with the role we can play in creating new solutions and driving efficient, sector-wide decarbonisation. Many of our risks emerge from the possibility that decarbonisation occurs in a way that is inefficient and costly, impacting Vector and our customers. In identifying these risks and opportunities, our intentions are more firmly resolved than ever. We are working to be a first-class energy company globally, playing a leading role in enabling a bright future for our customers.

Scenarios

Orderly

Decarbonisation

Risks/ Opportunities

Page 10	Mitigating			Energy
	consumer			Platforms
	burden through			Page 25
	a managed
	transition	Warming
		up to		Advanced
		1.8°C		Metering
		by 2100		Page 26
		(RCP 4.5)
				Distributed
				Energy
				Resources
				Page 27

Mitigating

Hothouse climate change through decarbonisation

Disorderly Decarbonisation

Energy

Efficiency

Page 28

Inability to
Efficiently
Manage
Peak Load	Page 18

Scenarios represent plausible, challenging descriptions of how the future may develop based on a set of assumptions about key driving forces and relationshipsincluding physical and transitional climate risks. Scenarios are used to test Vector's business strategy but are not intended to be probabilistic or predictive or to identify the 'most likely' outcomes.

Extreme	Unmanaged
Warming	Transition
up to	from Gas
3.7°C	Page 20
by 2100
(RCP 8.5)	Increase in Extreme
	Weather Events
	Page 22

4	Vector TCFD 2022

OUR

KEY

GOVERNANCE RISK AND

STRATEGY RISK 1: INABILITY

RISK 2:

RISK 3:

OPPORTUNITIES METRICS

POSITION

INSIGHTS

OPPORTUNITY

TO EFFICIENTLY

UNMANAGED

INCREASE

AND

MANAGEMENT

MANAGE

TRANSITION

IN EXTREME

TARGETS

PEAK LOAD

FROM GAS

WEATHER EVENTS

Time Period

Strategy

Strategic

SHORT TERM

MEDIUM TERM

Partnerships

0 - 3 years

3 - 10 years

Developing data-driven products and services with leading technology partners to enable a greater uptake of renewable electricity supply, and electrify energy demand.

SHORT TERM

Working with governments, and regulators to drive the importance

Unlocking

of unlocking data from advanced meter uptake in New Zealand and

Data

Australia. Vector also partners with distributors, retailers, and global

0

-

3

years

technology platforms to drive energy management innovation.

											MEDIUM TERM			LONG TERM
											3	-	10		years			10	-	30 years
	SHORT TERM				MEDIUM TERM			LONG TERM
	0	-	3	years			3 - 10 years			10	-	30 years
																					LONG TERM
																					10	-	30 years
											MEDIUM TERM			LONG TERM
										3 - 10 years			10	-	30 years
	SHORT TERM				MEDIUM TERM			LONG TERM
	0	-	3	years			3 - 10 years			10	-	30 years

Network	Developing network virtualisation software that uses dynamic
simulations to manage the complexities of bi-directional power and
Virtualisation
therefore enables a greater uptake of distributed energy resources.
Technology	Ongoing product innovation in building efficiency systems
Management	keeps Vector at the forefront of new technology, and new
and Innovation	channels to market.
Enabling and	Working on the alignment of regulatory, and policy settings,
Advocating for	together with energy industry solutions that leverage digitalisation
Demand Flexibility	of the energy sector, to realise energy flexibility.
Managed	Working with government, and the wider industry on the Gas
Gas	Transition Plan, to establish realistic transition pathways for the
Transition	fossil-gas sector to decarbonise.
Network	Addressing actual and potential physical risks through a framework
Resilience	that breaks physical resilience into three categories: robustness,
Plan	resourcefulness, and recovery.

Governance Page 6

							Board of Directors
						Board Audit Committee			Board Risk and Assurance Committee
						Executive Management
						Climate Change Steering Committee			Chief Public Policy and Regulatory Officer
						Group Sustainability			Group Risk and Resilience
						Group Finance			Group Insights
						Business Level Senior Management
						Business Level Risk Partners			Business Level Insights

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