Vector : Full year financial result - 2021 TCFD

TCFD REPORT 2021

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

September 2021

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VECTOR TCFD REPORT 2021 /

Task Force on

Climate-related Financial Disclosures

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 today, our integrated Group strategy we call Symphony is preparing us for 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 up future possibilities, delivering decarbonisation consistent with reliable and affordable energy solutions for customers.

Vector Lights on Auckland Harbour Bridge, Lighting up the city with solar-battery technology

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Vector acknowledges the climate change science underpinning this need to act and welcomes the large role we can play in this transition. Vector is a founding member of the Climate Leaders Coalition1, a partner of the Sustainable Finance Forum2, and member of the Sustainable Business Council3, which has underpinned our support for the Paris Agreement and the establishment of the Climate Change Commission. Our participation in these coalitions also signals our commitment to reducing our own carbon emissions to help with New Zealand's transition to a low carbon economy.

Decarbonisation brings both risks and opportunities

Vector is leading the transformation of the energy sector to create a new energy future, identifying and developing options that will provide value, choice and service for our customers while delivering sustainable shareholder returns. The primary challenge in leading this transformation, however, is that

we cannot make or alter energy policy unilaterally.

The impacts of climate change, and more broadly, of global responses to climate change, represent material risks and opportunities for our business. We are closely monitoring developments in New Zealand and our other key markets around climate action. For instance,

in January 2021, the Climate Change Commission released its draft advice for the New Zealand Government4, framing the nation's energy transition. We engaged in the public consultation5 that fed into the Commission's final advice, released in May 20216. This process, even ahead of the Government's response later in 2021, has already presented both opportunities and challenges for our business, as covered in this disclosure.

Why the Task Force on Climate- related Financial Disclosure (TCFD) matters to us

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 companies' and investors' understanding of the financial implications associated with climate change grows, 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. New Zealand is the first country to enshrine a TCFD reporting obligation on major private sector entities. While that reporting will not become mandatory until 2023, we are nonetheless embarking on this journey in advance of that deadline. Our reasoning is simple: it is in our interest as a company to lead the transformation of the energy sector and to provide our stakeholders with the information that serves their long-term interests.

Vector is leading the transformation of the energy sector to create a new energy future.

1. https://www.climateleaderscoalition.org.nz/who
2. https://www.theaotearoacircle.nz/partner
3. https://www.sbc.org.nz/about/our-members/sbc-members
4. https://haveyoursay.climatecommission.govt.nz/our-advice-and-evidence/
5. https://blob-static.vector.co.nz/blob/vector/media/vector2021/vector_ submission_ccc_draft_advice.pdf
6. https://www.climatecommission.govt.nz/our-work/advice-to-government-topic/inaia-tonu-nei-a-low-emissions-future-for-aotearoa/

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VECTOR TCFD REPORT 2021 /

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.

VECTOR'S

DIVERSE BUSINESSES

Electricity network

Metering

Solar photovoltaic

Home

air quality

Fibre communications

Gas

Digital services

Efficient

Cost-effective decarbonisation

Inefficient

Costly decarbonisation

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Climate-related Opportunities

TIME FRAME (YEARS)

Data-driven energy

Enabler of electrification

Distributed renewables

Advanced metering

Biomethane/ Green hydrogen

A decarbonised energy sector requires a redesign of how energy is invested in, managed, delivered, and consumed. Vector is an important enabler of a data-driven transition through the development of new digitised platforms, products, and services.

As an electricity network manager, an opportunity for the utilisation of distributed energy resource management systems to enable the electrification of transportation, and low temperature heat, in line with governmental ambitions and the variable nature of renewable electricity generation.

Distributed energy resources, such as photovoltaic solar, can provide renewable energy resilience, especially during dry years.

Increase in advanced metering infrastructure and services as the electricity sector scales.

The New Zealand gas industry has set a decarbonisation plan that focuses on green hydrogen and biomethane. Vector is working with the gas industry to understand options for our existing gas customers to access low carbon gas technologies.

SHORT TERM 0 3

SHORT TERM 0 3

SHORT TERM 0 3

MEDIUM TERM

3 10

MEDIUM TERM

3 10

Climate-related Risks

Weather disruption

Regulatory misalignment

Peak load impact

Limitations on gas

Energy unaffordability

Hours per year of wind speeds above 70km/h are projected to increase significantly which may increase outages from vegetation and tree fall due to severe storms. Damage to the network also imposes a health and safety risk. Increase in extreme rainfall events and number of dry days.

Regulatory misalignment with government policy limits Vector's ability to drive its decarbonisation strategy. Investment in demand-side management and optimised utilisation must occur now to reduce future customer costs.

Home charging of electric vehicles, distributed generation, and transition from gas to electricity will have a large impact on the peak loads of our network. Unmanaged transitions will result in significant physical asset installation that will incur large costs to our customers.

Potential policy and legislative changes to limit gas and gas metering growth, changes in customer preferences, increasing taxes or carbon costs.

The combination of misaligned regulatory and policy frameworks with unmanaged electricity growth risks increasing electricity costs for customers. This not only restrains decarbonisation strategies

but also exaggerates social inequities - both heightening the prospect of significant government intervention across the energy sector.

SHORT TERM 0 3

SHORT TERM

0 3

SHORT TERM 0 3

MEDIUM TERM

3 10

MEDIUM TERM

3 10

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