Vector : 2023 TCFD

Taskforce for Climate-related Financial Disclosures Report

AUGUST 2023

Disclaimer

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 25 August 2023. 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 the Strategy Section.

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inability to use this report, whether directly or indirectly resulting from inaccuracies, defects, errors, omissions, out of date information or otherwise.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.

2023 Reporting Suite

This TCFD Report is published as part of a reporting suite, which also includes our Green House Gas Emissions Inventory Report, and Annual Report. All three reports are available on vector.co.nz.

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OUR

CHAIRMAN'S

KEY

GOVERNANCE RISK AND

STRATEGY RISKS OPPORTUNITIES METRICS REFERENCES

POSITION

STATEMENT

INSIGHTS

OPPORTUNITY

AND

MANAGEMENT

TARGETS

The enabling decade to mitigate climate change

The transformation to an efficient renewable energy system underpins decarbonisation efforts, and offers a foundation for success in building a livable and sustainable future for all.

Vector plays an enabling role in this transformation so that it is ready to support the demands of a decarbonised future. In our view the energy sector must be decarbonised, digitised, democratised, and decentralised. It is not just the increase in large renewable generation, but the development of digital platforms to manage the intermittent nature of renewables. It is not just the electrification of transport, but the orchestration of smart charging to optimally utilise the network. It is a future where electricity distribution networks transform from a traditional one-way chain into an intelligent, multi-directional energy system where customers have more choice and control.

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New Zealand's high renewable electricity penetration, combined with the urgent need to decarbonise transportation and industrial emissions lays a platform for Vector to drive this transformation. From smart electric bus charging to smart meter data platforms, these digital solutions have the potential to be scaled globally, and we leverage that potential through global alliances such as that with Amazon Web Services.

These fundamental changes in the energy system are not just technical, but also require an overhaul of policy and regulatory frameworks that are inadequate at overseeing and supporting such critical transformations. Vector consults actively on policy and regulatory reform to help better govern this transformation in a co-ordinated and strategic manner.

Vector also acknowledges its fossil fuel assets, such as the natural gas network in Auckland. Managing the transition from fossil gas requires regulatory and policy reform that decouples the de-growth of fossil gas use from capital recovery risk. This can be achieved through mechanisms such as accelerated depreciation, asset securitisation, and managed electrification.

Finally, the impacts of climate change are already here in New Zealand. The New Zealand Treasury estimated that total damage from the Auckland Anniversary Floods and Cyclone Gabrielle caused between $9 - 14.5 billion dollars of asset damage to the country [1] . Vector is rapidly advancing its climate change modelling analytics and deepening its approach to resilience to cater to this new normal.

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The unknown unknowns

Predicting the future is often challenging as our assumptions are based on "known knowns". For example, we know that there is accelerated electric vehicle uptake in New Zealand, along with policy directions, and this allows us to forecast impacts to the electricity system. We also know that climate change is happening and can use scientific climate change predictions to understand corresponding physical impacts.

There are also "known unknowns". For example, we don't know the status of geopolitical stability in supply chains, or whether a catastrophic climate change feedback loop, such as the release of arctic methane, will materialise. In some cases, these known unknowns can be factored into our scenario models to show the divergence, but in other cases the breadth of the unknown is so significant that it isn't realistic to do so.

"Any further delay in concerted anticipatory global action on adaptation and mitigation will miss a brief and rapidly closing window of opportunity to secure a livable and sustainable future for all"

IPCC AR6 Summary for Policy makers D.5.3

Finally, there are the "unknown unknowns". Previously unheard-of step changes in technology, international wars, economic crashes, mass social uprisings due to inequality are examples. Elements that we don't know about and cannot predict could have significant impacts that alter or void any prediction or forecast presented in this disclosure.

It is therefore important as a reader, to understand that this disclosure is an estimate, based on our known knowns, and some known unknowns. See the Disclaimer on the opening page for further details regarding our assessments and variables.

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OUR

CHAIRMAN'S

KEY

GOVERNANCE RISK AND

STRATEGY RISKS OPPORTUNITIES METRICS REFERENCES

POSITION

STATEMENT

INSIGHTS

OPPORTUNITY

AND

MANAGEMENT

TARGETS

Chair's

Statement

I'm proud of the progress shown by Vector in developing a highly sophisticated analysis and understanding of decarbonisation pathways. Vector will continue to hold a key position within New Zealand's transformation to move passenger transport from fossil fuels to electric power. I can assure shareholders and other stakeholders that the Vector board, management, and employees hold a genuine and deep commitment to decarbonisation and enabling customers to use energy on their terms in a low carbon world. There is significant innovation and action taking place

to continue contributing to the critical energy transition that is underway.

Jonathan Mason

Chair

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