How can governments effectively assess and manage climate risk to ensure a sustainable future?

Advice on the development and implementation of a Climate Risk Framework for Western Australia

Like many jurisdictions around the world, Western Australia is experiencing the impacts of climate change, including more frequent and severe droughts, heatwaves, high-risk bushfire weather, extreme rainfall events and rising sea levels.

As part of responding to this challenge, the WA Government has committed to introducing a Climate Risk Framework (CRF) to guide state agencies on the assessment, management and disclosure of climate risk. The CRF is intended to strengthen government consideration of climate change and enable reporting on the implications for the state’s finances, physical assets and service delivery.[1]

In 2022, Sapere was engaged to provide advice on the design and implementation of the CRF including potential options for a staged, tiered or scalable approach, transitioning from agency to state level risk assessment and climate risk disclosure requirements. Our engagement followed the release of an interim WA Government Climate Change Risk Management Guide which provides practical guidance for state agencies to assess and manage physical climate change risks.[2] Our work also coincided with the development of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, which seek to support internationally consistent disclosures of climate risk.[3]

To inform our advice, we adopted a first-principles approach that involved:

• undertaking comparative research and analysis of the climate risk frameworks (legislation, guidelines and governance arrangements) used by the governments of Australia, NSW, Victoria, Queensland, New Zealand and the United Kingdom.  We also examined the resources of international, Australian and New Zealand standard setting bodies, and regulators such as the Australian Prudential Regulation Authority (APRA) and Australian Securities and Insurance Commission (ASIC).
• consultation with Treasury officials in NSW, Victoria, Queensland and WA governments, as well as stakeholders in key WA Government agencies, including water and power utility providers.  In addition, we attended public meetings of the International Sustainability Standards Board (ISSB) and the Australian Accounting Standards Board (AASB) to incorporate evolving developments in sustainability reporting.

We worked closely with the WA Department of Treasury and in consultation with the WA Department of Water and Environmental Regulation to prepare an evidence-based final report with 11 detailed recommendations clarifying the:

• proposed objectives, key principles and expected benefits of the CRF.
• practical steps for implementing the CRF including proposed approaches for:
  • integrating the CRF into existing risk management and financial monitoring and reporting arrangements, including the government’s budget, actuals and ESG reporting.
  • the development and improvement of guidance materials and resources, including the interim Climate Change Risk Management Guide, to build agency capabilities in the identification, assessment, mitigation and management of climate change risks.
  • the staged introduction of publicly reported climate disclosures, in alignment with emerging developments in the international and Australian sustainability reporting standards and the national policy landscape.
  • cross-government governance and oversight arrangements.

The CRF is expected to be implemented by 2026 and a pilot program is currently underway:

Progress continues on development of the Western Australian Government’s Climate Risk Framework, to develop State agencies’ capacity to assess, manage and report on the implications of climate change on the State’s finances, infrastructure, physical assets and service delivery.

A two year pilot program to evolve and apply the Framework will commence on 1 July 2023 with participation from eight agencies with material climate risk exposures. Learnings from the pilot will be used to develop public disclosure at a whole-of-government level.[4]

Photo courtesy of Tom Rodgers

References

Our team included

• Dr Vijaya Ramamurthy
• John Wallace
• Toby Stevenson