Finding common ground between TCFD and industry practice for disclosing financial impacts of climate change

By: The GPT Group

As an owner and manager of Australian real estate assets, The GPT Group sought to reconcile existing asset valuation processes in the property industry, with the TCFD recommendation that organisations disclose the value at risk due to climate change. In our second TCFD-aligned Climate Disclosure Statement, which was released in February 2021, we sought to demonstrate how climate-risk related expenditure and forecasts are embedded within our application of the standard property valuations processes and in our existing financial reporting.


What was the initial approach used?

The GPT Group is a vertically integrated diversified property group that owns and actively manages a A$24 billion portfolio of high quality Australian office, logistics and retail assets. In our first TCFD-aligned Climate Disclosure Statement (released in February 2020), GPT disclosed that we followed the standard property industry practice and process regarding the regular independent valuation of our real estate assets and that relevant financial information was available in the Group’s 2019 Annual Report. We also disclosed that the operational and capital expenditure, and any income or impairment from the foreseen impacts of climate change, are already embedded in these reported numbers.

The Climate Disclosure Standards Board (CDSB) was then engaged to review the Climate Disclosure Statement against the TCFD recommendations. CDSB recommended that GPT disclose the financial impacts associated with climate-related risks and our responses to those risks. In particular, CDSB recommended that GPT provides examples of real operational and capital costs and benefits of projects that included climate responses.

We concurrently reviewed the work of the Climate Measurement Standards Initiative (CMSI), which states the importance of disclosing the relative costs (capital and other expenditure) associated with implementing resilience plans. We feel that our response to CDSB recommendations aligns with the approach that’s also recommended by the CMSI.

In our second Climate Disclosure Statement (released in February 2021), GPT has included new information to demonstrate how climate-risk related expenditure and forecasts are embedded within our application of the standard property valuations processes. Following CDSB and CMSI recommendations, we disclosed financial amounts on a number of projects and expense areas to demonstrate how climate impacts are embedded within our existing financial and valuations processes.

For example, in the case study of the climate resilience of our 32 Smith development, we note the capital expenditure incurred during the office building’s development, such as $50,000 invested to future proof the building to accommodate all electric heating and $450,000 to provide flexibility in the use of cark park space so that it can be converted to office space in the event that driving to work needs decline in the future. Disclosing these specific examples of expenditure informed by climate considerations demonstrates that GPT’s standard financial reporting and valuations processes already capture the financial impact of GPT’s climate response.

We also raised relative costs in our commentary regarding energy costs, exposure to which is an identified risk in the transition to a low carbon economy. The Group’s second Climate Disclosure Statement notes that energy is the second highest operational cost for property assets and that we are addressing this risk by implementing the GPT Energy Master Plan’s continued efficiency programs, which include on-site renewable electricity generation, strengthening energy market knowledge and procurement capabilities, and demand response programs to minimise electricity capacity charges. Through the GPT Energy Master Plan, GPT avoided operational costs of $35.8 million in 2020, and cumulatively avoided $249.5 million in energy costs when compared to 2005 operational efficiency.

What were the barriers, and how were they overcome?

Property companies have well known and accepted processes for valuing their investment properties and disclosing financial information. Therefore providing separate and additional financial disclosure, such as a single value at risk, under a different framework from the property industry standard approach, could potentially mislead users of this information. This is particularly the case for forward looking capital and operational costs relating to investment properties as anticipated future costs are used to determine investment property valuations. Where these anticipated costs are already taken into account in the cashflows used for the purposes of the valuation, the financial impact of these costs is already included in the organisations’ current financial report. Care must be taken to ensure that this is understood by those using this information, to ensure they do not double-count this impact.

In this year’s Climate Disclosure Statement, we explained our climate-related mitigation investments in more detail and provided examples through case studies, and metrics and targets to provide actual climate mitigation data for individual projects. We have also committed to include a measure for climate-related considerations and risk reviews in both Lifecycle Assessments and in major development projects.

Further insights

GPT will continue to seek feedback from stakeholders on our Climate Disclosure Statement and monitor the development of CMSI’s guidelines. We are working with our asset joint owners and industry bodies to determine and agree on key comparable climate-related risks and opportunities, and financial disclosures.