GOVERNANCE

TCFD recommendation: Disclose the organisation’s governance around climate-related risks and opportunities.

The risk management framework at Mercury supports a comprehensive approach to risk. It encompasses financial, strategic, environmental, operational, regulatory, reputational, social and governance risks. This includes identifying, assessing, and managing climate-related risks and opportunities. The governance structure for risk management at Mercury is captured in the diagram below. The responsibilities of the key elements of this structure are summarised in the following paragraphs, and more detail is available in the Corporate Governance Statement. Our GM Sustainability plays a key role in providing advice and coordinating Mercury’s cross-functional approach to identifying climate-related risks and opportunities.

a) Describe the Board’s oversight of climate-related risks and opportunities.

Our Board has responsibility for the strategic direction and operation of Mercury. Responsibilities are set out in the Board Charter, and in relation to climate change include: • establishing clear strategic goals with appropriate supporting business plans and resources • monitoring strategy implementation, financial performance and the integrity of reporting • ensuring that effective audit, risk management and compliance systems are in place and monitored Climate change risks and opportunities are currently managed, at a governance level, through the Risk Assurance and Audit Committee (RAAC) of the Board. The RAAC is responsible for overseeing, reviewing and advising the Board on our risk management policy and processes, including climate-related risks and opportunities. It is made up of five independent directors and meets at least four times per year. Our risk management framework meets New Zealand standard AS/NZS ISO 31000 Risk Management – Principles and guidelines. Our risk management framework helps us to identify different categories of risk – compliance risks, operational risks, reputational risks, financial risks and people risks. Climate-related risks show up across many of these categories and are treated in the same way as other risks across these categories. More information on our risk management framework can be found in the Governance Statement.

Oversees the framework

GOVERNANCE

Monitors implementation of framework and tests controls

Risk Assurance & Audit Committee

Risk Assurance Officer

Risk Management Committee

All Business Units

Establishes, communicates and implements risk management

BUSINESS FUNCTIONS

Manages day to day risks and controls

In FY20, the Board updated its skills matrix to specifically include climate change. The Board also reviewed whether our risk management framework supported our integrated business planning process and whether climate-related risks were adequately captured within this risk management framework. Given the potential impact of climate change across Mercury, the Board amplified climate-related risks within our consolidated risk register. In FY21, the Board held an externally facilitated deep dive into regulatory, economic and legal aspects of climate-related risks and opportunities. In May 2021, management presented its first climate change scenario analysis report and the outcome of its review of climate-related risks and opportunities to the RAAC. In FY22, a cross-functional team from across the business conducted more in-depth scenario analysis to highlight emerging risks and opportunities. The Board seeks internal and external expertise and advice relating to climate change as required to ensure that it has up to date information and can provide appropriate oversight of climate-related issues. As this area continues to evolve, the Board and management will seek access to the necessary expertise.

b) Describe management’s role in assessing and managing climate-related risks and opportunities.

One of the responsibilities of the Chief Executive and the EMT is to develop, and recommend to the Board, strategies to identify, assess and manage climate-related risks and opportunities and to foster improved reporting and disclosure of these risks and opportunities. This is done at least annually. Climate risks and opportunities are also considered in the development and review of our strategy. They form a key element of the market context when setting goals on a three-yearly basis, and reviewing these each quarter by management and the Board. The remuneration of the Chief Executive and the EMT is linked to Mercury’s strategic pillars. In FY22, 15% of their short-term performance incentive is tied to the threeyear objective to ‘play a leading role in New Zealand’s successful transition to a low carbon economy’, of which climate change is a key focus. More information on the responsibilities and remuneration of the Chief Executive and the Executive Management Team can be found in our Governance Statement and Remuneration Report. In FY22, the EMT delivered a revised and more detailed climate change scenario analysis, including the annual review of climate-related risks and opportunities. Our management operates a Risk Management Committee (RMC) whose mandate is (1) to promote risk awareness and appropriate risk management to all Mercury people; and (2) to monitor and review risk activities as required. Membership of the RMC is made up of representatives from the EMT and is chaired by the Chief Executive. The RMC meets at least quarterly, and reviews Mercury’s risks, including its approach to climate-related risks and opportunities, at least annually. The day-to-day management of climaterelated risks and opportunities occurs across multiple business functions, namely Sustainability, Regulatory Affairs, Environmental Resources, Finance, Legal, Communications, Risk Assurance, Generation, Portfolio and Customer. We sought external expertise to assist with our scenario analysis and development. We also sought external expertise to review our existing TCFD reporting processes and inform future improvements, as well as legal expertise to assist us with our submission on the development of the XRB climate-related disclosure standards.