韦莱韬悦：2022年电力市场回顾报告（英文版）（87页）.pdf

《韦莱韬悦：2022年电力市场回顾报告（英文版）（87页）.pdf》由会员分享，可在线阅读，更多相关《韦莱韬悦：2022年电力市场回顾报告（英文版）（87页）.pdf（87页珍藏版）》请在三个皮匠报告上搜索。

1、Meeting the challenges of the new risk landscapePower Market ReviewSeptember 2022TABLE OF CONTENTSIntroduction 01Part One:meeting the challenges of the new risk landscape 02Four global challenges:risk implications for the power sector 03Risk modelling:how to embrace these disorderly transitions 18Ph

2、ysical and transition risk:the holy grail of investing in the future 26Investing policies and sustainability success:the role of investors in the energy transition 30Climate change:potential liabilities for directors 36Geopolitical crises:their impact and management 40Property valuations:time for a

3、reset?44Gas turbine power plants:hydrogen ready?48Part Two:the Power insurance markets in 2022 52CV Starrs James Johnson:underwriting a balanced Power portfolio 53International Property:uncertainty continues as insurers hold firm on pricing 60International Liabilities:competing pressures sustaining

4、market momentum 68International Construction:hardening market dynamic continues 72Regional market round-up:uncertainties remain 75Market capacity figures The figures quoted in this Review are obtained from individual insurers as part of an annual review conducted in January each year.They are solici

5、ted from the insurance markets on the basis of securing their maximum theoretical capacity in US$for any one risk.Although of course this capacity is offered to all buyers and their brokers,the individual capacity figures for each insurer provided to us are confidential and remain the intellectual p

6、roperty of WTW.WTW Energy Loss DatabaseLoss figures quoted in Part Two of the Review are from our WTW Energy Loss Database as well as additional market sources.We obtain loss figures for this database from a variety of market sources(including a range of loss adjusters),but we are unable to obtain f

7、inal adjusted claims figures due to client confidentiality.The figures we therefore receive from our sources include both insured and uninsured losses.Style Our Review uses a mixture of American and English spelling,depending on the nationality of the author concerned.We have used capital letters to

8、 describe various classes of insurance products,and insurance markets,but otherwise we have used lower case to describe various parts of the power industry itself.AbbreviationsThe following abbreviations are used throughout this Review:BI Business InterruptionCCGT Combined Cycle Gas TurbineCCUS Carb

9、on,Capture,Utilisation and StorageESG Environmental Social GovernanceMWh Megawatt hourO&M Operations and MaintenanceOEM Original Equipment ManufacturerPD Physical DamagePPA Power Purchase AgreementPower Market ReviewSeptember 2022Power Market Review September 2022 Power Market Review September 2022/

10、1do please get in touch with your primary point of contact within WTW so we can discuss how best to address the issue of your valuations together.In the meantime,the Power insurance markets continue to harden still further despite the significant increases in rating levels and tightening of terms an

11、d conditions that we have seen during the last three years or so.We think there are two fundamental reasons for the continuation of this hardening dynamic.Firstly,the sector continues to suffer from a disappointing loss record,with 12 losses over US$20 million reported already this year.It appears f

12、rom our conversations in the market that because of the losses sustained over the last two years or so most insurers are still running their Power portfolios at an underwriting loss,which of course provides little incentive for them to compete more vigorously for business.Secondly,the pool of leadin

13、g insurers that brokers can access to provide terms remains relatively limited compared to previous underwriting eras;although there are signs that the following market is generally more willing to follow these leaders terms than last year,this in itself provides insufficient momentum to reverse the

14、 overall upwards market trend.However,what this increased following market appetite has at least done is to flatten the upward curve in rating levels;we are at least pleased to report that percentages rating increases are well down on what we were reporting last year,even if an actual softening of c

15、onditions is still some way off.Our colleagues around the world also report from regional markets in Beijing,Dubai,North and Latin America and Singapore,where market conditions also continue to be generally challenging.Having read the Review,I hope you will agree with me that there are a myriad of c

16、hallenges and complexities for power sector risk managers to negotiate during the course of the next few years.As ever,communication is of the essence and we do encourage you to meet with us as soon as possible so together we can determine the right strategy to absorb,mitigate and transfer your risk

17、 in a way that minimises the threats to your organisation.Welcome to this years WTW Power Market Review.The impact of COVID-19 may have finally begun to recede,but I trust readers would agree that we are now living in a more uncertain world than ever,given the current geopolitical atmosphere,energy

18、prices,supply chain disruptions and,of course,climate change.As the power industry faces up to these uncertainties,there are really no easy ways to navigate the transformed risk landscape confronting the industry.But one thing seems very clear to us at WTW-the role of the risk manager in todays turb

19、ulent economic and political climate has never been more critical.Not all the risks facing the industry can be fully mitigated,absorbed or transferred,but it will be those companies who do so to the optimum extent that will be best positioned to survive the challenges ahead.So our theme this year is

20、“meeting the challenges of the new risk landscape”.Our leading article this year comes from our GB Head of Power&Utilities,Carlos Wilkinson.Carlos has identified the Russia-Ukraine conflict,global inflation,the energy transition and climate change as the four biggest challenges that the power indust

21、ry faces today.Carlos then goes on to describe the impact of these challenges on the Power insurance market and what risk managers can do to enhance their risk management strategies by taking these challenges into account.However,there is of course much more to risk management than the risk transfer

22、 solutions provided by the insurance market.So in Part One of our Review we also include articles which highlight other ways in which risk managers can assist in helping their companies manage these challenges.These include articles on climate risk modelling(with particular reference to physical and

23、 transition risk),managing geopolitical risks and potential new exposures for directors and investors.But perhaps there is one issue above all that is of immediate concern to our clients and that is the issue of determining correct asset and Business Interruption values.In the Review we highlight th

24、is issue in the article written by Alan McShane,our Global Head of Risk Engineering,in the interview with CV Starrs James Johnson and in our review of the International Property market.Our message to the power industry on this topic is really quite simple:it is vital that a more transparent understa

25、nding of how insured values are calculated is communicated from buyer to broker to insurer.When this is achieved,buyers will see greater price stability,which will in turn reduce the likelihood of large swings experienced between hard and soft market conditions,as we have seen so often in the past.F

26、urthermore,insurers will increase their confidence level in received insured values and the premiums they are requesting.So IntroductionGraham Knight is Head of Global Natural Resources,WTWPart One:meeting the challenges of the new risk landscape Power Market Review September 2022/3New technologiesI

27、t is becoming increasingly clear,both in terms of energy security for Europe and clean energy globally,that new technologies such as CCUS and hydrogen that have been talked about for a number of years(and that may have had some false dawns in the past)are now becoming key pillars in global energy an

28、d power strategies.However,this new world order for power will require a huge investment in infrastructure to enable it to happen,including smarter,more interconnected grids.Effect on the insurance marketAll of these risks require the support of the insurance market to enable them.However,the market

29、 does face an unprecedented range of new risks to consider and insurers will have to invest both time and resources to ensure that they are able to manage these new risks,not only in terms of understanding of risk and innovation of coverage,but also in terms of the volume of projects to be considere

30、d.IntroductionWhen we prepared the 2021 Power Market Review,our focus was firmly on the energy transition and there seemed little that could derail it,not even COVID-19;in fact,the pandemic had reminded us of the need to protect ourselves and our planet against humanitys impact on the world.Over a y

31、ear later,while the energy transition remains our most significant challenge,we are facing a very different,much more immediate catastrophe in terms of the Ukraine-Russia conflict and its impact on overall global stability.While the energy transition and the achievement of Net Zero targets by 2050 r

32、emains the most substantial challenge that we face,we now need to achieve this in a very different and more complex environment to the one we envisaged 12 months ago.The circumstances now also apply for the global community as a whole and to all sectors of the global economy.However,there are issues

33、 that arise from the recent events,that very specifically impact not only the power sector globally but also the Power insurance market on which our sector depends.Four global challenges:risk implications for the power sectorFigure 1:Gross available energy in the EU and its sources (%,2020)Domestic

34、productionImports from RussiaOther tradeStock changes41.7%24.4%33.1%0.8%Source:https:/ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_energy_mix_and_import_dependency#Energy_mix_and_import_dependencyTotal 57,742 petajoules4/Power Market Review September 2022These risks are wide ranging

35、 in terms of significance and our ability to understand and control them-at global community,government,corporate and individual levels.It is therefore essential at this time to take a step back and consider these factors so the sector can fully appreciate them,consider what options are available to

36、 better understand them and what measures are available to mitigate their impact on power companies businesses.In this article we focus on four key challenges:The Russian-Ukraine conflict Global inflation The energy transition Climate changeChallenge one:the Russian-Ukraine conflictGeopolitics has n

37、ever been such a major factor for the power sector and the insurance market.Of course we have felt its impact in the past,typically in more localised forms,but we are currently in the midst of a truly global energy crisis,the likes of which we have not experienced before.10 months ago,global leaders

38、 were gathered in Glasgow for COP26,deciding the way forward through a challenging route to Net Zero by 2050.The energy crisis was already imminent but it was hardly referred to at all at the conference,as leaders tried to avoid any challenges that could distract the world from the commitment to the

39、 energy transition needed to achieve emissions targets.The energy crisis at that time was primarily driven by a combination of the economic bounce back from COVID-19 stimulating demand,a downturn in energy investment and production during the preceding years,together with a shift from coal to gas.Fa

40、st forward a year,and what was already a tight energy market is under significantly more pressure following the Russia-Ukraine conflict and the application of sanctions at a time when the energy transition continues to gather momentum.The current situation is considered the first true global energy

41、crisis.There have been previous crises but they have typically been limited to oil,such as the crisis of the mid-1970s.However this event is not only truly global but affects all energy sources,including oil,gas and coal,as well as electricity.The other differentiator is that this is likely to last

42、some years,rather than just being a temporary blip that can be remedied through the implementation of short-term strategies.Will the impact be temporary?1 In short,no.In a recent statement Markus Krebber,CEO of Germanys largest power producer RWE(RWEG.DE),stated that power prices could take three to

43、 five years to fall back to lower levels and there are many that would consider this to be optimistic.2 However,it is widely accepted that the situation is going to get worse before it gets better,due to Russias strength in the global and European energy markets.Furthermore,it is not expected that R

44、ussia will stand down from its position on Ukraine anytime soon and the lead times required to put alternative arrangements in place that will neutralise the impact of lost Russian energy are considerable.The depth of the challenge lies in the extent of the reliance on Russian energy and the infrast

45、ructure around which the movement of large volumes of gas is based.The EU depends on Russia for 24.4%of all its energy needs.The energy dependency on a specific country is dictated by the weight of the fuels in the energy mix and the extent of the reliance on imports of those fuels from a specific o

46、rigin.1 All diagrams and statistics in this section are taken from https:/ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_energy_mix_and_import_dependency#Energy_mix_and_import_dependency 2 https:/ has never been such a major factor for the power sector and the insurance market.We are

47、currently in the midst of a truly global energy crisis,the likes of which we have not experienced before.Figure 2:Imports from Russia in gross available energy,EU,2020Source:https:/ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_energy_mix_and_import_dependency#Energy_mix_and_import_de

48、pendencyEULithuaniaSlovakiaHungaryNetherlands*Estimates for none reported dataGreeceFinland*PolandGermanyLatviaCroatia*BelgiumItalyCzechiaEstonia*Denmark*Slovenia*Romania*Austria*BulgariaSwedenFranceSpainMaltaPortugalLuxembourgIrelandCyprus0102030405060708090100 Power Market Review September 2022/5T

49、he main origins of EU energy imports have changed in recent years,yet Russia has maintained its position as the leading supplier to the EU of all the main primary energy commodities:natural gas,crude oil and hard coal.EU countries different energy mixes and import dependencies create vastly differen

50、t country-specific energy dependencies on Russia.Natural gas,a major fuel for electricity production and heating in the EU,represented 23.7%of the EUs gross available energy and had an import dependency rate of 83.6%in 2020,with imports of 400.6 billion cubic meters(bcm).The reliance of the European

51、 Union on Russian natural gas has increased over the last decade,reaching 41.1%of gross available energy derived from natural gas in 2020,making it the fuel with the highest exposure to Russian imports.Natural gas consumption in the EU has remained broadly flat over the last ten years,reaching 399.6

52、 bcm in 2020,but EU production fell to almost a third and the gap has been filled by increased imports.The EU received 46.1%of its natural gas imports from Russia,with other important providers including Norway,Algeria,Qatar,the USA,the United Kingdom,Nigeria and Libya,countries that make up collect

53、ively with Russia 90%of the EUs total natural gas imports.These nations will become the replacement providers of gas when the infrastructure is in place.What are the alternatives?3The European Commission has issued its REPowerEU plan,which provides details on how it plans to end Europes dependence o

54、n Russian fossil fuels.This includes a longer term strategic plan that considers the various different elements that will need to be implemented to enable Europe to fully wean itself off Russian energy by 2030.However,it does contemplate being able to reduce Russian gas imports by as much as two thi

55、rds during 2022,although the landscape is constantly changing.At the end of July,as Nord Stream 1 continued to experience substantial supply restrictions due to an extended outage period of its compressors,EU states committed to restricting use of gas to 15%of the usual volumes,to give the EU the op

56、portunity to build up its stored gas ahead of the higher-demand winter months.Successfully managing such seismic shifts in supply and usage will be major achievements,considering Russia supplies 40%of the EUs natural gas and 27%of its imported oil and has the largest gas reserves in the world;togeth

57、er,they earn it roughly 400 billion 3 All sources in this section are from https:/ec.europa.eu/commission/presscorner/detail/en/IP_22_3131 and https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2022%3A230%3AFIN&qid=16530337424836/Power Market Review September 2022a year.To assist,the EU plans

58、to speed up its shift to green energy and to bring energy supplies in from other countries,but it will of course need the infrastructure to deliver on this.As we know from major inter-country electrical interconnectors and pipeline projects such as Baltic Pipe(as well as LNG and renewable new-builds

59、)these are projects that take many years to plan and construct.There is a strong focus on easing the legal and planning regimes that typically contribute to these delays,but this is work in progress and so regardless,there is no“quick fix”.But speed is of the essence,with rising energy costs as Euro

60、pe draws on gas from other sources around the world.This puts major financial pressure on economies-not only in Europe but globally-as they already begin to struggle with rising energy prices.The REPowerEU strategy focuses on three key topic areas:improving energy efficiency,expanding the use of ren

61、ewable energy and securing non-Russian suppliers of oil and gas.Energy saving:The Commission report highlights energy saving as the“cheapest,safest and cleanest”way to reduce dependence on Russian fuel.The aim is to further reduce energy consumption in the EU from the original plan of a 9%cut to a 1

62、3%cut by 2030.More green energy:The EU has earmarked 113 billion for a“massive scale up in renewables”and new hydrogen infrastructure,together with plans for new EU legislation to make it easier to build solar and wind farms.The EU target for renewable energy has also been raised;the goal is for gre

63、en energy to provide 45%of energy needs by 2030,up from 40%.More gas and oil infrastructure4:To quickly diversify from Russian fossil fuels,the EU is investing up to 12 billion in pipelines and Liquified Natural Gas(LNG)terminals to improve access to gas and oil from other countries including Egypt,

64、Israel and Nigeria.Is turning to coal the answer?5European leaders clearly believe they have little choice but to turn to coal.Europes biggest Russian gas buyers have raced to find alternative fuel supplies and burning more coal is clearly an option that is being planned for,particularly when the al

65、ternatives are considered,such as heating and lighting cuts in winter.Germany,Italy,Austria and the Netherlands have all signalled that coal-fired power plants could help see the continent through a crisis that has sent gas prices surging and added to the challenge facing policymakers battling infla

66、tion.Netherlands:The Dutch government has activated the“early warning”phase of a three-part energy crisis plan that seeks to preserve gas stocks by removing caps on production levels at coal-fired energy plants.Austria:In the event of emergency,the government has reached an agreement with Verbund fo

67、r it to convert one of its gas-fired power plants to enable it to burn coal.Germany:The German government has plans to reduce pressure on its gas storage levels and to boost power generation levels by up to 10 GW by keeping coal-fired power plants scheduled for closure on-line.Italy:The Italian gove

68、rnment has said it could declare a heightened state of alert on gas if Russia continues to curb supplies.Italy has stated that reductions in Russian gas levels could result in a package of responses,including a request for increased imports from current suppliers,the rationing of gas for industrial

69、users and the need for increased output at coal power plants.4 https:/ 5 All statistics for this section taken from https:/ Market Review September 2022/7Figure 3:European gas prices and Nord Steam flow correlations,2022Source:https:/ MayTTF day-ahead price(EUR/MWh)Nord Stream flow(million cu m/d)19

70、 May02 June16 June14 June050100150200Increasing energy costsSo what impact is all of this having on electricity costs?Pricing increases and volatility have,unavoidably and unsurprisingly,been increasing in evidence during this period,creating huge pressure on electricity retailers,governments and,ul

71、timately,households.The rapid increase in gas costs has driven electricity price rises across Europe as the impact on thermal power generation costs is felt.Increased grid interconnection between countries has also driven costs higher,even in countries with significant renewables resources.For examp

72、le,Norway has recently benefitted from the ability to export excess clean energy but in turn their domestic power market(that has historically been sheltered from the impacts of the energy market fluctuations)has found itself under pressure from its output being available on the wider European marke

73、t.Despite increased reliance on renewables,thermal power generators still provide an essential role in plugging gaps that arise during days of low Renewables output or following unplanned outages around networks.The opportunity cost of these rapid response and grid-support services is high-the plant

74、s in questions have historically been the more efficient gas-fired CCGTs.They will have higher costs arising from cost of gas,but the higher efficiency will work to even greater effect for them at this time.As we have seen though for those countries that are being forced to burn less gas in their po

75、wer stations,coal can be the only viable alternative in the short term.8/Power Market Review September 2022Figure 4:Fuel costs of coal and gas-fired power plants including emissions costs,2018-2023Source:United States:based on EIA(2022),STEO July 2022.European Union:natural gas prices TTF;coal price

76、s CIF ARA;emission costs EU ETS.Japan and Korea:natural gas prices are oil-indexed LNG prices;coal prices are Japan marker prices.latest update:12 July 20226 https:/ range relects 33-45%efficiency;gas range reflects 43-55%efficiency.Due to large geographic areas covered in each region,costs can diff

77、er between and even within countries and should therefore be interpreted as general trends.In the United States,natural gas prices increased significantly(exceeding USD 15/MBtu)in February 2021 due to supply constraints.High Thermal generation costs expected to linger well into 2023Fuel costs of coa

78、l-and gas-fired power plants including emission costs,2018-2023If these pressures are combined with other factors such as climate change,fuel logistical challenges and unscheduled outages,it is not surprising that in Europe we are seeing price spikes,with German peak power prices for 2023 trading at

79、 over EUR500/MW/h during August and French Q4 peak power prices trading at over EUR1,000/MW/h.7However,for those countries that are heavily dependent on gas fired power this will still form a major part of the electricity mix while there is gas to burn,despite high prices.But this cost pressure,whic

80、h is expected to remain for the next year at least,will inevitably serve to increase the focus on,and accelerate the shift towards,renewable power.Challenge two:global inflationConsumer price indexes8Increased inflation is a factor across the globe,with rates increasing rapidly over the year since C

81、OVID-19 related lockdowns began to ease.The recovery in demand that followed,combined with supply chain and logistical constraints,has put significant upward pressure on pricing,with numerous and varied factors at play.These include the effects of lockdowns in China(the worlds largest supplier of go

82、ods),the devastation caused by the Russian-Ukraine conflict(Ukraine being a major food exporter to Europe,the Middle East and Africa)and the economic sanctions imposed on Russia(one of the worlds largest suppliers of oil and gas).6 https:/ 7 https:/ Comments and chart taken from https:/ 5:Inflation

83、around the world,May 2022RussiaIndiaSouth AfricaNetherlandsItalySwitzerlandChinaOther CountriesG7 CountriesNigeriaMexicoFranceUKPolandGermanySouth KoreaJapanSpainBrazilCandaIndonesiaSaudi ArabiaUSA0%5%10%15%20%17.8%7.8%5.9%4.8%4.8%9.6%6.0%2.5%2.1%16.8%7.7%9.0%12.4%7.4%2.4%8.3%12.1%6.8%3.5%2.3%8.3%Po

84、wer Market Review September 2022/9Source:https:/ May 2022.Chart by Martin Wheatcroft FCA.As can be seen from Figure 5 to the left,the rates of inflation can vary widely between various countries.However,for most countries the rate of inflation is now substantially higher than it has been for many ye

85、ars,reflecting the significance of the change in a global economy that has come to expect relatively stable prices.This is not the case for every country;for example three hyperinflationary countries,which had major problems with inflation even before the pandemic,have been omitted,including Venezue

86、la at 222.3%in April,Turkey at 70%,and Argentina at 58%.Commodity price inflation9National inflation rates and specialist commodity rates that heavily impact the power sector are actually different things,with the latter being more exposed to global demand and markets.If we take steel as a benchmark

87、 for the power sector,in June 2022 the World Steel Association(WSA)released its short range outlook for 2022 and 2023.WSA forecasts that demand will grow by 0.4 percent in 2022 to reach 1,840.2 Mt after increasing by 2.7 percent in 2021.In 2023,steel demand is expected to see further growth of 2.2 p

88、ercent to reach 1,881.4 Mt.Ongoing supply chain issues and COVID-19 waves aside,the economic recovery from the pandemic has come faster and stronger than anticipated.However,the outlook for the remainder of 2022 and 2023 remains uncertain against the backdrop of the RussiaUkraine conflict.For 2022,i

89、nflationary pressures will vary from region to region,depending on trade and financial exposure to Russia and Ukraine.However,it is clear that energy and commodity prices,including those related to steel production,are rising around the globe.Inflationary pressures will also continue to be impacted

90、by reduced investment resulting from financial market volatility,rising interest rates and the wider economic uncertainty.The forecast is based on the conflict being resolved during 2022 but with sanctions remaining in place during 2023 and beyond,which will continue to impact global trade flows and

91、 supply chains.9 https:/ Market Review September 2022Insurance values and claims cost inflation 10Inflation doesnt only hit the business or its clients;it also has the potential to significantly impact the insurance market.It is for this reason that insurers have been so focussed on ensuring that in

92、flationary provisions are adequately reflected at each renewal.It is difficult to fully assess the impact of higher inflation on claims at this stage,as the higher inflation environment has not been present for a sufficient amount of time to accurately measure this.However,this will inevitably feed

93、through to higher claims costs.In his companys Global Claims Review 2022 issued on the 19th July 2022,AGCS Chief Claims Officer and Board Member Thomas Sepp summarised the position as follows:“Insurance claims from companies have become more severe over the past five years due to factors such as hig

94、her property and asset values,more complex supply chains and the growing concentration of exposures in one location,such as in natural catastrophe-prone areas.“The future does not look brighter anytime soon.Companies and their insurers have shown resilience to weather the loss impact of the pandemic

95、,but the ongoing war in Ukraine,a spike in the cost and frequency of business interruption losses and the sustained elevated level of cyber claims are creating new challenges.At the same time,the top two causes of claims,fires and natural hazards,remain significant loss drivers for companies.Last bu

96、t not least,the impact of soaring inflation around the world will bring further pressure on claims costs.”This concern is being felt by many insurers who are also looking more closely at property declared values.This includes business interruption,the impact of more volatile power markets and whethe

97、r the positive impact of this on generators profits is being fully reflected in values.10 All quotes from this section are taken from the AGCS Claims Review 2022:https:/ doesnt only hit the business or its clients;it also has the potential to significantly impact the insurance market.Power Market Re

98、view September 2022/11Figure 6:Imports from Russia in gross available energy,EU,2020Source:https:/www.iea.org/commentaries/carbon-capture-in-2021-off-and-running-or-another-false-start201020112012201320142015201620172018201920202021Number of facilities2550751001251501750200225Challenge three:the ene

99、rgy transitionThe energy transition is seeing a major shift in focus and investment,not only towards renewables and battery storage but also additional new technologies that will support ongoing thermal power generation.Key elements of this shift will be the development of CCUS and hydrogen.This yea

100、r has seen unprecedented advances for carbon capture,utilisation and storage(CCUS)technologies.In 2021,more than 100 new CCUS facilities were announced and the global project pipeline for CO2 capture capacity is on track to quadruple,a target that is essential to support the pathway to Net Zero by 2

101、05011.This is supported by CCUS being a key part of the IEAs strategy for the achievement of Net Zero in view of its unique ability to deliver carbon emissions abatement for heavy industry and existing energy sector activity,as well as commercial viability for the development of low-carbon hydrogen.

102、However,CCUS has suffered from previous false dawns as a result of unreliable government funding plans,such as the UKs high-profile CCUS competition,that the UK government unexpectedly withdrew support for in 201512.So why can we be so sure,with its previous track record,that this time the pipeline

103、will actually be delivered?While CCUS certainly still faces challenges,the combination of strengthened climate goals,an improved investment environment and new business models have set the stage for greater success in coming years.Indeed,2021 generated unprecedented momentum behind CCUS;the growth i

104、n the project pipeline in 2021 represented a major departure from the years 2010 to 2017,when plans for CCUS facilities were being cancelled and the pipeline of potential projects shrank.This trend only started to reverse in 2018,which saw a net increase of six planned projects.The Russian-Ukraine c

105、onflict and the focus this has brought on the need for a diversified energy base and options has continued to energise the CCUS sector.Hydrogen:an abundant fuel,with disruptive potentialLow-carbon hydrogen is poised to play a key role in industries that feature heavy emissions which are hard to abat

106、e,such as aluminium and steel.But for global hydrogen markets to emerge,massive scale-up is needed across production pathways using both renewable and fossil-based feedstocks,and transport costs need to come down.That being said,the viability of hydrogen production varies between types and regions.E

107、lectrolysis-based hydrogen costs are at least double those for OperatingUnder constructionAdvance developmentEarly and announced11 https:/www.iea.org/commentaries/carbon-capture-in-2021-off-and-running-or-another-false-start 12 https:/www.bbc.co.uk/news/uk-scotland-scotland-business-3435780412/Power

108、 Market Review September 2022conventional hydrogen in most regions,while gas-based hydrogen with CCS costs are closer to viability.But as renewable energy costs drop,electrolysis-based hydrogen has the potential over time to become the cheapest and dominant source.Indeed,it is already cheaper than g

109、as-based hydrogen with CCS in the Middle East and Western Australia.Production predominates around ports in Europe,the US Gulf Coast and East Asia,where Japan,South Korea and China have aggressive hydrogen strategies aimed at long-term decarbonization and energy security.China recently published its

110、 first ever national hydrogen strategy,with its state-backed think tank expecting hydrogen to contribute to 20%of final energy consumption by 2060.Its plan is focused on boosting the supply of renewables-based hydrogen and making it an economically viable option in the nations energy transition13.Cl

111、ean hydrogen project proposals have proliferated since 2020.European nations with strong gas industries and offshore carbon storage potential(e.g.Norway,the UK)are backing CCS technologies for production of natural gas-based hydrogen,while those with lower carbon power systems(e.g.Germany,Spain,Fran

112、ce)tend to favour electrolysis for renewable hydrogen.Electrolysis projects are also planned where renewables are abundant and export potential is enticing,such as in the Middle East,Australia and Chile.Over a third of funds under the EUs EUR750 billion NextGenerationEU recovery plan are to finance

113、goals set out in the European Green Deal,including those for clean hydrogen.Low and zero-carbon hydrogen projects across Europe have submitted requests for this EU-level funding.Meanwhile,UK projects await details of how a 5GW national target by 2030 will be subsidized.Challenge four:climate changeA

114、s stated earlier,climate change remains the worlds greatest challenge;the effects are already being felt in numerous ways that are having profound impacts on the power sector as well as society globally.This is not only in terms of operational impact and damage to assets but also in terms of output,

115、particularly in respect of hydro power.The lack of reliability in terms of hydro is only serving to exacerbate power market pricing tension created by the global energy crisis.Current examples also include high temperatures in Europe,causing stress with European power generators.In France,EDF have h

116、ad concerns over the need to reduce output at four nuclear plants due to cooling water restrictions due to low water levels impacting cooling water usage.In Germany,generators of coal-fired plants have bene struggling to get coal barges down the Rhine,due to low water levels at critical points in th

117、e river.Against this,as mentioned previously in the report,we are seeing significant price spikes,with French Q4 2022 and German 2023 wholesale prices trading at over EUR1,000/MWh and EUR500/MWh respectively.Q4 peak power prices have more than doubled to over EUR500/MWh between mid-June and mid-July

118、 2022 and French Q4 peak power prices are now trading at over EUR1,500/MW/h.14 Such pricing has been exacerbated by weather-impacted low hydro reserves around Europe that have led to a reduction in hydro plant output.Similar hydrology factors are also being felt elsewhere around the world.13 https:/

119、 14 https:/ renewable energy costs drop,electrolysis-based hydrogen has the potential over time to become the cheapest and dominant source.Power Market Review September 2022/13Impact of hotter temperatures on operations15 Changing weather patterns are creating challenges for power companies and have

120、 the potential to impact not only the businesses themselves but also the power markets in which they trade.PV panels:For PV,light,not heat,is the source of power and PV panels are at their most efficient when the ambient temperature is low.Equally,efficiency improves on the nameplate rating as the t

121、emperature drops below 25C.Wind farms:Like hydros and water,a network that is highly dependent on wind power is exposed to climate risk.Wind speeds were milder than usual in Europe this year,so windmills across the bloc generated less electricity which worsened a crunch that sent power prices to rec

122、ord highs as utilities had to buy more coal and scarce,costly,natural gas.Gas turbines:Gas turbine efficiency is also impacted by ambient temperature.Gas turbines rely on a temperature differential between the inlet and the exhaust,so the cooler the inlet temperature the more power a gas turbine can

123、 generate.Temperatures above 15%,such as have been experienced around Europe recently,will therefore reduce plant output with hot days in excess of mid 30C having the potential to reduce output to approximately 73%.Thermal plant:We have touched on this in the introduction to the section but all ther

124、mal plant has to be cooled,generally with abstracted river or seawater that is discharged back into the river or sea after use.River conditions can create major problems for generators,as dry conditions can mean the river is too low to abstract the necessary water.It may be because water temperature

125、 limits are breached at the discharge point,or because river water has already been warmed by the sun especially when river levels are low and the water is too warm to allow it to be abstracted for use in the power plant.Hydropower:Healthy water levels are essential for hydro stations so that enough

126、 water is available to drive its turbines and maintain river conditions.In the summer,rivers can run much lower.Hydro plants may operate under restrictions that stop them from using water to generate at times when river water levels are low.Network capacity:The actual amount of power that can be car

127、ried on transmission and distribution lines can vary according to the ambient temperature.It can also cause network cables to expand so transmission cables sag further between transmission towers.Limits are set for all of these physical parameters,and they determine how much power can be transmitted

128、.Nat Cat exposuresThere is no part of the globe that is not experiencing greater severity and frequency of natural catastrophe(Nat Cat)events.Other than the transmission and distribution sectors,which have long had exclusions against damage to overhead lines and cables for this reason,the hydro powe

129、r sector is also coming under particular pressure due to the exposure to both earthquakes and floods affecting its major structures.This sector is also one where a number of assets in operation are 50 to 100 years old and potentially designed with different environmental pressures in mind.Flood&drou

130、ght16In February 2022 the Journal Water issued findings of a study that showed the extent to which the environment and risks to which hydro assets globally are being exposed will change between now and 2050.The study used the WWF Water Risk Filter(WRF)and geospatial analysis to screen hydropower pro

131、jects,both existing(2488 dams)and projected(3700 dams),for a variety of risks at a global scale and with a key focus on biodiversity risks,hydrological risks(water scarcity and flooding),and how those hydrological risks may shift with climate change,based on three scenarios.In terms of water scarcit

132、y risk,the study found that approximately 26%of existing hydropower dams and 23%of projected dams are located within river basins that currently have medium to very high risk.However,those numbers are projected to increase by 32%and 20%respectively by 2050 due to climate change.This is expected to e

133、specially applicable for projects located in eastern China,the Middle East,Morocco,the southwestern USA and India.For flood risk,the study found that 75%of existing dams and 83%of projected dams are within river basins with medium to very high risk.However,the proportion of hydropower dams in basins

134、 with the highest levels of flood risk is projected to increase by nearly twenty times(i.e.from 2%to 36%of dams).In addition,a large proportion of existing(76%)and projected hydropower dams(93%)are located in river basins with high or very high freshwater biodiversity importance.This was a high-leve

135、l overview,intended to raise awareness of broad patterns of risk,highlight trends,and guide more detailed studies.15 https:/www.newpower.info/2022/07/from-the-new-power-archive-long-hot-summer-how-power-assets-are-affected-as-ambient-temperatures-rise/16 All statistics relating to this section can b

136、e found at https:/wwf.panda.org/wwf_news/?5168466/Hydropower-projects-threatened-by-increasing-floods-and-droughts-due-to-climate-change-warns-WWF-study14/Power Market Review September 2022The study also highlights the serious threat posed by planned hydropower to freshwater biodiversity.Fragmentati

137、on of rivers by dams is one of the leading causes of the 84%collapse in freshwater species populations on average since 1970.Yet the analysis found that up to 80%of all planned dams are in areas with high or very high risk to freshwater biodiversity,such as the Amazon,Irrawaddy,Mekong and river basi

138、ns across the Balkans.Windstorm17 IIn 2019,the east coast of Africa was hit by tropical cyclone Idai,one of the strongest southern tropical cyclones on record.Mozambique,Madagascar,Malawi and Zimbabwe experienced windstorm,heavy flooding and the loss of over 900 lives the heaviest loss of life from

139、such an event in 100 years.The conditions that led to and intensified the impact of Idai are considered by many climate experts to have been climate change-related.The dynamics of several factors coming together to increase the impact and losses(including secondary losses)arising from storms,are now

140、 well understood by experts,including those of the insurance sector.For Idai this included:increased energy and rainfall from warmer air sea-surface temperatures greater impact of storm-surge on coastal communities and lower-lying cities due to rising sea-levels greater risk of flash-floods,arising

141、from drought-related hard ground conditionsThe frequency of higher intensity tropical cyclones is expected to increase(2019 saw the record for South Indian Ocean basin cyclones reaching hurricane intensity equalled,with 13 out of 18 reaching hurricane levels)which will put mounting pressure on Afric

142、an countries to be prepared for future climate impacts on their electricity systems.17 https:/www.iea.org/reports/climate-impacts-on-african-hydropower/climate-impacts-on-african-hydropower Power Market Review September 2022/15Implications for the Power insurance marketWe have seen that the world ha

143、s become more complex,not only for the global community but also for the insurance sector and especially the Power insurance market.The challenges it has to face not only relate to those that have historically always been present,such as operational risk,an aging generation fleet,new technology vari

144、ants and natural catastrophes.There is now a whole new wave of challenges arising from the four key challenges outlined in this article.This impact is being felt in many ways but ultimately it will place new pressures on the insurance market to not only understand and develop solutions for the new o

145、r developing risks but also to ensure that it understands those risks enough to create a sustainable market for these emerging or growing sectors.Below we have outlined how each of our four challenges will impact the Power insurance market.Russian-Ukraine conflict The impact on supply chains from an

146、 industrial downturn that may arise following reductions in gas flows from Russia.A reduction in gas flows to 15%of the usual levels will inevitably impact Europes ability to generate from gas;this will be exacerbated on days of low renewables output.When demand exceeds available power,users will ha

147、ve to be cut off to ensure the grid remains balanced.Residential customers and essential services will be prioritised,meaning industrial users will be cut off in line with an order of importance.Supply chains will be affected and the impact of this on the Power sector remains to be seen.It will be i

148、mportant for this to be monitored so that contingency plans can be put in place for key parts/supplies.The increased investment in new assets and infrastructure that will facilitate reduced dependency on Russia.The increase in demand for an already resource-challenged contractor base has the potenti

149、al to impact timescales,quality and cost.Similar upscaling of demand and production has often resulted in pre-and post-handover losses to the market from poor workmanship and project management failures during the construction phase.Attention to contract risk management,contractor management and qua

150、lity assurance,will be needed to ensure risk is minimised.The need to ensure that power wholesale market volatility and the impact of this on Business Interruption values is understood.Wholesale electricity prices are multiples of prior year values.While higher gas and carbon credit costs(typically“

151、variable costs”for insurance purposes)account for a significant part of this rise,higher demand following the COVID-19 bounce-back,combined with lower Renewables output at times,is also enabling power generators to benefit from notably higher margins.This has been problematic for insurers,who have h

152、ad losses that are unexpectedly high compared to declared Gross Margin values.This is leading to insurers trying to apply$/MWh price caps,which can only be avoided by greater clarity of how the declared values have been arrived at.The changing electricity market conditions need to be reviewed regula

153、rly with the companys broker to ensure the basis of cover remains accurate.The increase in coal use to the market and how insurer ESG principles will adjust to reflect and provide for this.The ESG-based withdrawal from coal by insurers and financiers and its impact on available insurance coverage te

154、rms has been well documented.The current conditions in Europe,however,have created pressure on generators to bring back or increase coal-fired output in line with governments emergency energy strategies.This is unlikely to be short-lived and buyers and their brokers should be engaging with Insurers

155、who have ceased to write new Coal business,to acknowledge that for a number of countries of Europe,the“Social”element of ESG currently outweighs the“Environmental”considerations.We have seen that the world has become more complex,not only for the global community but also for the insurance sector an

156、d especially the Power insurance market.16/Power Market Review September 2022Global inflation The impact on property values.In much the same way as the difficulties faced by insurers with BI values,the market is becoming increasingly aware of the impact of inflation on its exposures.Values need to b

157、e reviewed and benchmarked with the companys broker to ensure that they are adequate.For those risks where insurers have under-valuation concerns,Average Clauses are increasingly being applied.Monitoring of inflation relevant to the applicable sector.As suggested earlier,there are various measures o

158、f inflation-over-estimating results in unnecessary costs,while under-estimating potentially results in inadequate limits and application of coverage restrictions such as Average.To avoid this,it is important for power companies to have a good understanding of the rate most applicable to their sector

159、 and location,and to be able to explain this to insurers,so they have greater confidence in the values declared.Ensuring EMLs(Estimated Maximum Loss)maintain pace with the changing world.For“First Loss Limit”based programmes,limits should be based on accurate EML studies.Those EMLs need to be regula

160、rly reviewed against expected loss levels,which will be impacted by inflation and supply chain issues.It is essential that buyers work with their brokers to ensure EMLs keep pace with the dynamics of the sector.The energy transition Understanding new risks arising from new technologies.Hydrogen,CCUS

161、 and Battery Storage will proliferate over the coming years,and yet at this stage the market has little true understanding of these risks.As much as they may want to support the energy transition,the market will not bear risks it is not able to fully assess.This education process will not be straigh

162、tforward;buyers that require bespoke,comprehensive cover,in good time to ensure projects are bankable,will need to start work now with their brokers and their engineers.This will enable them to provide valuable advise through the project design/decision making process,assess the risk and worst case

163、scenarios,commence programme design and facilitate the early engagement of potential markets.Developing a deep understanding of business models relating to new risks.With the energy transition comes not only new physical risks but also different business models-these will include varying revenue str

164、eams and regulatory regimes,which will depend on the technology and country in which the risk is located.The legal and regulatory structure that sits around some of these risks can provide protections and risk limitations,including the potential for government indemnities,which will have a material

165、impact on cover requirements and cost.The assessment of certain risks in different parts of the world(e.g.CCUS)will require the broker to have in-depth knowledge of the above,in each territory,to ensure that the risk is presented accurately and clearly to the market,delivering optimum cover and pric

166、ing.Climate change The monitoring of the climate change related exposures and understanding implications for the business and future investment in the business.It is becoming increasingly apparent that climate change is having a profound effect on companies risks,both short and long term.This can ra

167、nge from losses arising from physical damage,to reductions in asset yields or even the stranding of assets following regulatory and legal changes,for example emissions limitations.Some of the above will relate more to strategic decisions and some,such as the physical loss,to insurable risk programme

168、s-both are important.Later in the report we discuss the ways in which buyers can work with their brokers to identify,model and monitor climate risk.The identification of Nat Cat exposure.As mentioned above,some of the risks are more business strategy related,but Nat Cat-related physical loss is a cl

169、ass of cover for which capacity is being increasingly restricted as the market performance continues to deteriorate.The reinsurance market,on which many insurers rely to cover their own Nat Cat exposures,is not one that tends to fully reflect positive risk management features.If the cost becomes dif

170、ficult to accept,a thorough understanding of the true,reduced exposure that could help support reduction in limits becomes an essential part of a buyers armoury.Later in this Review,we discuss the tools available to support buyers through this challenge.Power Market Review September 2022/17Conclusio

171、n:next stepsIt is clear that the markets ability to respond positively to this complex and fast changing world will depend heavily on how strongly it engages with buyers and brokers.Understand the scale of the challengeWe address the issue of wider market conditions later in this Review,but strong u

172、nderwriting governance remains a feature of this market and this can only be expected to increase rather than to soften in the future.Therefore,the reality is that buyers and their brokers have an obligation to understand the scale of this challenge and to put in place robust risk management strateg

173、ies that will enable buyers to understand how all of these factors will play out for their respective organisations.A broader range of ESG strategiesHowever,although it is important to note that the Russia-Ukraine conflict has had a profound effect on the Power sector and is demanding new strategies

174、 to manage its fallout,it is only one factor that has served to refocus the attention on the need for self-sufficient,diversified,cleaner,more flexible and more resilient energy strategies.ESG and the energy transition continues to be at the heart of this and WTW regularly reports that this now requ

175、ires a broader range of strategies than historically we have worked with.Engineering and analytics will be keyEngineering risk management will always remain core to our business,as the new technology will demand greater understanding of the impact on risk of modifications(including retro-fitting of

176、hydrogen to gas fired plans),upgrades and prototypical designs and specifications.Analytics will also be key-indeed,the insight that well-designed risk models provide in a world of changing climates,higher frequency and severity natural catastrophe events,globalised distribution of higher value asse

177、ts and more complex supply chains and revenue streams,will become increasingly essential.Effective long term investment strategiesHowever,ESG demands more.The focus on ESG highlights the risk of ineffective long-term investment strategies that fail to keep pace with the energy transition and the inc

178、reasing demands of consumers,employees and investors.The impact of this will be catastrophic for those that underestimate its pace and impact-loss of market share,stranded assets,a lack of investment,an inability to secure support for insurance programmes,a miscommunication of progress to Net-Zero,r

179、eputational damage-all these factors ultimately lead to failure.There has therefore never been a more important time for buyers to engage fully with their risk intermediary across all of their organisations activities and levels,to fully understand the range of services,support and insights availabl

180、e to help buyers navigate the challenges of the coming years.Carlos Wilkinson is GB Head of Power&Utilities,Natural Resources,WTW L18/Power Market Review September 2022IntroductionLong before the Russia-Ukraine conflict,global markets had already started to change the power industry landscape over t

181、he past 12 months Europes“energy crunch”and creeping inflation were beginning to eat into household budgets and company balance sheets,while oil prices were already edging upwards.These impacts are now manifesting across commodity markets,including food.But even as they work out into the wider globa

182、l economy,our own modelling capacity at WTW already helps us understand at least aspects of the current situation this type of volatility is exactly what our methodology has been designed to account for.Global commodity markets are facing volatility not seen in a generation,perhaps even since the en

183、ergy crisis of the 1970s.What does this mean for transition risk for power and power-intensive companies and related service industries and how can we navigate the disorderly transition that we are already living through?The Climate Transition Analytics(CTA)team,part of the Climate&Resilience Hub at

184、 WTW,has been developing models to show the impact to businesses,investors and countries of market changes,policy and shifts in behaviour in response to action to mitigate climate change-also known as transition risk.In Matthew Footes article later in this Review,we explore in more detail the financ

185、ial impacts of the acute(shock events)and chronic(long term shifts)of the physical risks of climate change on power companies.And in this article,we explore how our transition risk modelling addresses volatility by design to account for“disorderly transitions”,and why counting molecules in“carbon fo

186、otprint”methodologies fall short of capturing the level of complexity required to understand the problem.Risk modelling:how to embrace these disorderly transitions Power Market Review September 2022/19Carbon price vs climate riskMost other“transition risk”modelling focuses on carbon footprints;howev

187、er,there are two main problems with this approach.First,carbon footprint valuation methods are based on historical emissions data(often multiple years out of date)and apply a price on carbon or assumed reduction in emissions(and therefore demand)to meet carbon budgets.Second,our analysis indicates a

188、n extremely low correlation between carbon emissions intensity and transition risk,using our Climate Transition Value at Risk(CTVaR)methodology which more accurately captures financial risk.Historical emissions data are not the ideal indicators of future risk and can introduce some perverse findings

189、,such as manufacturers of spark plugs and software suppliers to the oil and gas industry,both of which would see declining markets in a climate change shift to electric vehicles,showing low transition risk.By contrast,WTWs bottom-up methodology,which is based on future free cashflows of operating as

190、sets or the expectation of future cashflows from capital investments,provides an enriched view of transition risk as a forward-looking financial metric.When allocating capital to align with Net Zero targets,these forward-looking metrics are much more useful to investors and much more helpful in the

191、Net Zero challenge,as those companies with high transition risk in many cases can make a more significant contribution to the transition than companies with low transition risk.As our methodology assesses value at the level of the individual asset,such as a thermal power station,we can also help ali

192、gnment with global Net Zero targets,rather than simply aligning portfolios with Net Zero,for example by divesting assets that just shift the costs of carbon to another balance sheet.Our CTVaR methodology is also more responsive to market changes and can capture the effect of changes on cashflows tha

193、t we see in todays volatility,while also addressing the wide variety of possible pathways for the climate transition in the years ahead.Our analysis indicates an extremely low correlation between carbon emissions intensity and transition risk.Figure 1:Climate Transition Value at Risk(CTVaR)versus ca

194、rbon intensity of company markets value(tonnes/$)Source:MSCI World Index companies/WTW analysis20/Power Market Review September 2022Risk management tools Commitments to achieve Net Zero by 2050 might give the impression that there is one“climate transition”on a linear pathway to reduce emissions.But

195、 our theory of change has always understood that there will be many different transitions across sectors and geographies at the very least with the speed,depth and timing of decarbonisation adding further variations.Over the past few years,central banks have started framing some of these variations

196、in climate scenarios,i.e.modelled outcomes that vary depending on the speed and depth of action to mitigate climate change.The Network for Greening the Financial System(NGFS),a global group of central banks,has published six scenarios aimed at providing a common reference for understanding how clima

197、te change(physical risk)and climate policy and technology trends(transition risk)could evolve in different futures.The NGFS also provides macroeconomic scenarios including scenario variables such as interest rates,economic growth and commodity prices that financial institutions can use for stress te

198、sts and for evaluating financial risk.These scenarios reflect the transition path that is most likely given current conditions,absent some sort of organizing force.Even though these scenarios appear more likely,and thus more reflective of the real world,we do not yet have scenarios that adequately a

199、ddress the potential sources and magnitudes of risks that could affect financial systems.With respect to scenarios of disorganized transitions,we currently see at least four major issues that need to be addressed to evaluate adequately the potential for financial risk:1.Transition timing2.Mismatch b

200、etween changes in demand(policy,technology,behaviour)and supply(investment)3.Uneven transitions either geographically or sectoral4.Expected risk versus extreme/outlier riskFigure 2:Network for Greening the Financial Systems six scenariosSource:Network for Greening the Financial System https:/ Zero 2

201、050Net zero 2050 is an ambitious scenario that limits global war,ing to 1.5C through strigent climate policies and innovation,reaching net zero CO2 emissions around 2050.Some jurisdictions such as US,EU and Japan reach net zero for all greenhouse gases by this point.Below 2CBelow 2C gradually increa

202、ses the stringency of climate policies,giving a 67%change of limiting global warming to below 2C.Divergent Net ZeroDivergent Net Zero reaches Net Zero by 2050 but with higher costs due to divergent policies introduced across sectors and a quicker phase out of fossil fuels.Delayed TransitionDelayed T

203、ransition assumes global annual emissings do not decrease until 2030.Strong policies are then needed to limit warming to below 2C,Negative emissions are limited.Nationally Determined ContributionsNationally Determined Contributions(NDCs)includes all pledged policies even if not yet implimented.Curre

204、nt PoliciesCurrent Policies assumes that only current implemented policies are preserved,leading to high physical risks.Low physical risksTransition risksPhysical risksHigh physical risksNet Zero 2050Divergent Net ZeroDelayed TransitionBelow 2CNDCsCurrent policiesOrderlyHot house worldDisorderlyToo

205、little,too late Power Market Review September 2022/21Smoothing out the disorderly transitionHowever,the Climate Transition Analytics(CTA)team believes that there are not just six scenarios,or even a hundred there are actually thousands of different transitions,depending on geography,sector and macro

206、 changes such as interest rates,or indeed sanctions.Furthermore,the current macroeconomic variables incorporated in the NGFS scenarios can,at times,produce counterintuitive and counterproductive results.For example,the higher oil and commodity prices included in the disorganized scenarios can make h

207、igh emission sectors like oil,gas and coal look more attractive to investors,while higher interest rates discount future declines in value due to the climate transition,making all companies with future transition risks comparatively more attractive than they really are-sometimes even under the busin

208、ess-as-usual case.Delayed transitions or aggressive 1.5C scenarios(for instance the IEA 1.5C scenario)often appear unfeasible,or at least prohibitively expensive.Often these scenarios do not address capacity issues that are caused by accelerated or unaligned sectoral inputs.A transition that happens

209、 in five years,instead of twenty,is significantly more than four times as expensive because the facilities such as mines,factories and logistics chains themselves will need to be four times as large,meaning that the capital costs will be increased accordingly.Furthermore,if the entire world were to

210、convert to electric vehicles in five years rather than twenty,the large investment in these mines,factories and logistics chains would then be stranded after five years,as demand would fall to replacement levels,leaving these investments stranded.Our results suggest that organized sectoral transitio

211、ns taken in aggregate,could balance each other out in ways that would pose very modest macroeconomic risk to the global economy.However,the only certainty we have is that the transition will be disorganized in several directions.Some sectors will have relatively clear transitions,while others will d

212、elay and then be disrupted by technological innovation.Some regions may phase in or out individual sectors with well thought out and executed plans,but those plans are unlikely to be coordinated with all countries and regions in the world;there will be a mismatch in timing,with phasing in and phase

213、in out industries and technologies.Finally,it is extremely unlikely that every sector in every country will be coordinated in ways that balance capital requirements,labour and consumer demand.Crucially,our analysis to date suggests that the portfolio effects,driven by which sectors and geographies m

214、ove how far and when,may be more impactful and realistic than moving from basic transition scenarios in each sector to extreme transition scenarios in each sector.Therefore while basic and extreme versions of each sector/geography transition element will help quantify risk,the ability to mix and mat

215、ch different sector/geography combinations will be essential to identify and manage risks for both financial institutions and sovereign balance sheets.What do scenarios mean for businesses and investors?Scenarios can be effective in the policymaker advocacy arena,as they point out the feasibility of

216、 the transition and the sizable economic benefits of pursuing a well-organized transition.They also force the conversations about climate transition strategies at the corporate level,in great part due to the reporting requirements set upon institutional investors and asset managers that demand compa

217、nies think about and develop transition plans.22/Power Market Review September 2022Figure 3:The decline in oil demand due to a global climate transition would lead to significantly lower prices for crude oil in the long termFigure 4:Value of a companys assets versus the impact of a transition on the

218、 value of those assetsFigure 3 above shows how different demand scenarios change the price of commodities such as crude oil,which then feed into the value of oil production assets and related businesses such as power generation.These valuation inputs are critical components for developing corporate

219、and investment strategies to manage the transition and address the transition risk.With lower oil price expectations,for example,power companies should reduce new investment and devise investment and financial strategies to reflect the new reality.Using those scenarios can help a company think about

220、 their portfolio of assets and investment strategy.For example,in Figure 4 below the value of a portfolio of energy company assets based on the free cash flows that these assets would generate after capital investments,operating costs and taxes is compared against the contribution of that asset to t

221、ransition risk;that is,the proportion of a companys decline in value due to the transition scenario that that asset would be responsible for.Simply put,the higher up an asset is,the more it is worth to the company,and the further to the right,the greater the assets exposure to transition risk.In thi

222、s example,any asset below the dotted line generates more risk than value and should be cause for concern for the companys investment portfolio.2022 forecast in solid 2021 in dashes Source:IEA,WTW modellingSource:WTW analysis Power Market Review September 2022/23Altogether,these types of tools help m

223、anage the transition through:1.Corporate strategy.Encouraging companies and businesses particularly those that receive investment from financial institutions in the global financial system-to develop strategies that are aligned with a global,climate-related,economic transition,while managing physica

224、l risks associated with climate change.Implementation of these strategies would thereby reduce the financial risk associated with investment in these companies.2.Asset re-pricing and investment de-risking.Incorporating physical and transition risk into asset pricing and therefore investment decision

225、s and the relative cost of capital of risky versus less risky assets.Repricing would reallocate capital to companies and industries that required capital to make the transition happen and increase the cost of businesses with high transition or physical risk.The result would align investment and valu

226、ations with the transition and reduce global systemic financial risk.Stranded assets,policy and the graceful decline to Net ZeroImplicitly,there is a third objective.When the climate transition scenario concept first became an important tool of risk management,markets and financial regulators were m

227、ainly concerned about the impact that“stranded assets”might have on global financial markets.By this thinking,stranded assets would occur when companies invested perhaps trillions of dollars in infrastructure and fossil fuel production assets that would cease to be economic when fossil fuel demand c

228、ollapsed as a result of energy conservation and alternative energy supplies.The ensuing losses and write downs of these assets would reverberate through the financial system,causing higher interest rates,slower economic growth,job losses and significant financial instability.The goal of scenarios ha

229、s been to encourage companies to avoid overinvestment and thereby reduce the risk of financial instability.However,recent shifts in the investment landscape and the Net Zero investment trends could unintentionally have the opposite impact.What happens if investment falls,but the alternative energy s

230、ources and energy efficiency fail to materialize?The result could be energy shortages,leading to soaring energy prices.The response to high energy prices could be a recession and slower economic growth,combined with increased investment in alternative energy and energy efficiency,and even emergency(

231、but inefficient)increases to fossil fuel investment to increase short term supply.A couple of years later,when the recession-driven fall in demand was met with a wall of new supply,oil prices could plummet,triggering the very stranded assets and financial instability the world was seeking to avoid.P

232、otentially this cycle could repeat itself,as in Figure 5 above.Figure 5:Oil price volatility can be managed by strong policy signals over the long term2022 forecast in solid 2021 in dashes Source:IEA,WTW modelling24/Power Market Review September 2022Figure 6:Cost of capital has increased as projects

233、 were withdrawn during the pandemicSource:IEA,WTW modellingThe supply curve has shifted substantially in one year,with little forecast change in demandUncertainty about the transition and investor pressure raises the cost of capital and leads to project cancellationsDemand reductions are unpredictab

234、le and partially fail to materialize Power Market Review September 2022/25Conclusion:a self-reinforcing trend?For power markets and the economy,the trend could become self-reinforcing.The more that falls in supply are not balanced by increases in alternative supplies,the greater the risk of oil pric

235、e volatility and the greater the imperative for conventional power companies to produce shorter term,more expensive,solutions to provide energy.Combined,these effects steepen the curve further and add even more volatility.Only clear-cut policies to reduce fossil fuel demand can break this cycle and

236、allow power markets to decline gracefully.In the meantime,power companies will need better data,more flexible strategies,and careful monitoring of trends to manage the volatile market.For its part,the world will need to hope for both alternative supplies and independence from supply side shocks like

237、 that driven by the Russia-Ukraine conflict.David Nelson is Senior Director of Climate Transition Analytics-Climate and Resilience Hub,WTWPower companies will need better data,more flexible strategies,and careful monitoring of trends to manage the volatile market.26/Power Market Review September 202

238、2Figure 1:How transition risk articulates with the exposure of physical hazardsPhysical risks of climate change can have a dramatic impact on the balance sheet of companies at high risk of exposure to the loss events triggered by acute events such as storms and floods.Last year,global insured losses

239、 rose to an estimated US$112 billion the fourth highest on record1.It was also a pivotal year as climate changes came knocking on the door of Europes biggest economy,with floods in Germany that triggered the largest losses on record for its insurance industry,with the government on the hook for unin

240、sured damages.Meanwhile,hurricane Ida exposed a dramatic lack of resilience in the worlds largest economy.Such examples are likely to increase as we are already seeing the effects of carbon from fossil fuels that was burned decades ago.Physical and transition risk:the holy grail of investing in the

241、futureRisk=Hazard x Exposure x VulnerabilityTransition RiskHazardExposureVulnerabilityPhysical RiskChronic/acuteReal assets type and locationsDirect and indirect impacts1 https:/ Power Market Review September 2022/27Figure 2:Quantifying future climate risk over the lifetime of assets is WTWs natural

242、 domainAnalyse how the exposure to low probability losses will change in the future:Understand the impact of different climate scenarios on your future risk:Quantify how the risk to different perils will change:The management of physical climate risk has never been so urgent;fortunately,WTWs heritag

243、e and leadership in natural catastrophe modelling and actuarial science give us a head start in understanding the impact of both acute events and longer-term chronic changes.Natural catastrophe modelling developed within insurance indicates the value of the asset today,but we need new tools to under

244、stand overall climate risk over the long term.Within the Climate&Resilience Hub,we are building a platform that draws on this rich analytical expertise across WTW and integrates transition and physical risk analytics.Factors that determine transition and physical risks follow a similar pattern,but w

245、ith significant differences.Transition risks are largely influenced by global markets,such as commodities with variable impacts,depending on domestic policy,royalties or taxes.On the other hand,physical risks,such as acute flood or storm events,are determined by the climate as it is today and longer

246、-term,chronic changes such as rainfall or rises in sea level or temperatures.Forecasts of how the climate will change are by nature uncertain and can be further influenced by human interventions such as mitigation efforts,for example the decarbonisation of the energy system.The degree of exposure to

247、 these risks can also vary depending on human interventions such as adaptation,e.g.flood defences erected near critical infrastructure.“Climate conditioned”models,drawing from the Intergovernmental Panel on Climate Change scenarios that project what may happen if the world warms by 1.5C or 4C by 210

248、0,help us to understand how to allocate capital to align with the Net Zero targets.Source:WTW28/Power Market Review September 2022Figure 3:Exposure to climate change can be modelled according to different warming scenarioFigure 4:A portfolio adjusted for an energy transition can have a dramatic impa

249、ct on risk even when the physical hazard remains constantAlthough climate change is a global phenomenon,its impacts are always felt at the local,often very granular,level,i.e.a sea level rise might not affect inland agricultural activity but could hinder operations at an oil refinery,causing disrupt

250、ion to domestic fuel supply.Resilience measures are not just related to climate,of course,as we have seen in Taiwan where global semiconductor supply was disrupted by an earthquake in 2021 not just because of the seismic shock but because of the dust that settled in the processing rooms.When it come

251、s to identifying the potential for future risks,and the impact a transition might have on an energy companys portfolio,we see a change in exposure to assets(even if the hazards are the same)when investments in clean energy technologies increase.Understanding these risks enables investors to price th

252、e risk more accurately.Source:WTW and Intergovernmental Panel on Climate Change,AR6 paper:https:/www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_Full_Report.pdfSource:WTW Power Market Review September 2022/29Figure 5:Temperature rises can reduce the efficiency of different types of solar te

253、chnologues at different ratesThe application of new technologies,investment in renewable energy and power distribution,or carbon capture and storage,can all result in changes to a company risk profile,and in particular due to changes in type and magnitude of the physical risks that can be experience

254、d.When we drill down to specific clean technologies,we can model what the longer-term changes to solar radiation and air temperatures will have on solar PV.Understanding the difference in yield for better or worse can help manage risk and inform investment decisions,helping the selection of the corr

255、ect subtype of technology.We can run similar models for wind power.In particular,it is essential that the most appropriate sources of physical hazard data are used to represent the range of long and short term hazards which can affect a companys performance over defined timescales.Alongside this,the

256、 key vulnerabilities of assets,as well as supply chains,must be properly defined,or changes in customer demand due to long or short term physical impacts.Multiple shock events,whether from global geopolitical events,global pandemics or natural disasters,when added to expected changes to the frequenc

257、y and severity of natural hazards,can have the effect of compounding the impact on organisations,resulting in losses and impacts greater than those expected due to a single cause.Clearly some risks will be easier to identify than others,especially when there is no experience or the risks are rapidly

258、 evolving,and there is no crystal ball that will identify future risks accurately.As part of a well-developed enterprise risk management process,the use of analytical tools and data can provide a means to work through a range of potential scenarios and help determine the most appropriate set of mana

259、gement actions that can be put in place to mitigate the most plausible risks identified.Source:WTWMatthew Foote is Senior Director of Science&Analytics-Climate and Resilience Hub,WTWIntroduction:three drivers of changeWith the world transitioning to a low-carbon economy there is a society-wide chang

260、e taking place,while simultaneously adapting to other societal and environmental pressures.In this article,we consider what part institutional investors are playing,could be playing,and should be playing in this transition.In particular:1.Fiduciary duty:the ownership responsibility(and opportunity)t

261、hat is carried by asset owners and asset managers involves a fiduciary duty of loyalty both in the financial and ESG context and in a member/stakeholder context.We consider how the changing interpretation of fiduciary duty is affecting and will affect institutional investors.2.Asset ownership:this i

262、nvolves the exercise of rights and responsibilities in voting,engagement,and shareholder resolutions.We consider how effectively these functions are performed and ways for these functions to be improved.3.Modern investment models:we explore the mandates that asset owners and asset managers might des

263、ign and manage to produce positive impacts on the economy,the environment and society within the constraints of fiduciary duty and of maximising risk adjusted return.Investing policies and sustainability success:the role of investors in the energy transition these disorderly transitions30/Power Mark

264、et Review September 2022Figure 1:Investor high level principles and beliefsHigh-level principles and beliefs1Fiduciary model1.The fiduciary window is shifting in the direction of sustainable long-term value creation and wider stakeholder interest as a result of a combination of systemic forces-socia

265、l,cultural,institutional,regulatory.2.In developing sustainability principles there is a need to work within a beliefs framework in which systems-thinking,double materiality and the potential gaming of data are central.3.Paris-aligned transition pathway strategies need to be designed and validated t

266、o work within the fiduciary window.2Active ownership model4.The active ownership function is critical to sustainable investment practice and is both under-resourced and under-delivering,requiring major improvements in the people model and investment model.5.A number of practical considerations mostl

267、y related to incentives hold back active ownership from obtaining traction,in particular in passive and macro investing mandates.6.System stewardship-engagement and advocacy that work on reducing system risks,particularly financial stability,climate change and social stability-is a critical activity

268、 to support sustainable investment practice.3Asset owner(AO)investment model and 3D(three-dimensional)framework7.Sustainability factors(ESG)are material to financial factors(company performance and investment returns).8.Financial factors(those generated by company and investor actions)are material t

269、o sustainability factors(real-world impacts).9.There is a dynamic link over time between sustainability factors(real-world impacts)and financial factors(investment outcomes).10.3D AO investment framework can be created that balance the risk,return and impacts of strategies.These frameworks include 3

270、D goals,longer time horizons,total portfolio thinking,dynamic asset allocation,significant active ownership,and scorecard reporting.11.Long-horizon inesting is critical to effective sustainable practive.It requires skill and mindset changes,and mandate clarity involving commitment of time,mutuality

271、of trust and exchange of value.12.Framing and reporting the materiality and validity of the data employed in decisions and reporting are critical to limit the hazards of gaming and greenwashing.4Asset manager(AM)3D mandate13.The 3D AM mandate-calling out 3D goals,longer-term orientation,and scorecar

272、d reporting-has a significant future in both active and rules-based strategies.14.Paris-aligned Net Zero transition pathway frameworks and strategies involve integrating asset allocation and active ownership investment elements in a multi-stakeholder context with appropriate accountability,culture a

273、nd reporting.15.Transition pathway frameworks and strategies are laden with complex data issues and may require new standards to work within and third-party reporting assurance.5Challenges:reporting,data and the ecosystem gaps16.There are gaps in our eco system that are compromising the effectivenes

274、s of sustainable investment practice.These gaps comprise enablers like critical infrastructure and incentives.They are most evident in skills;reporting,data and technology;collaboration and culture.17.Scorecards are needed for AO and AM 3D mandates and should be designed to meet multiple stakeholder

275、 requirements.18.Elements of organisational culture,notably purpose,inclusion and diversity,innovation,collaboration,openness and respect,are critical factors in the coherence of sustainability principles and the success of sustainability practice.19.Legislation,regulation,and public-private engagem

276、ent are also a gap in the ecosystem,in that they could be shaped into a more effective enabler through increased inductry engagement.20.To address the limitation in the ecosystem,particularly skills,data and technology,collaboration,innovation and culture,we suggest will require the commitment of in

277、vestment organisations to transformational change processes.Power Market Review September 2022/31Source:Roger Urwin,“With great power comes great responsibility”Thinking Ahead Institute.https:/www.thinkingaheadinstitute.org/research-papers/with-great-power-comes-great-responsibility/Figure 2:Factors

278、 in the movement of the fiduciary windowDriver one:fiduciary dutyThe fiduciary window denotes the set of investment policies acceptable from a fiduciary duty perspective,given current interpretations.The fiduciary window is described by one spectrum,stretching from short-term finance to sustainable

279、long-term value creation,and by another from pure member financial interest to wider stakeholder interest.The window is shifting in the direction of sustainable long-term value creation and wider stakeholder interest because of a combination of systemic forces social,cultural,institutional,legal and

280、 regulatory.The fiduciary window concept is illustrated in Figure 2 above.The core issues of fiduciary duty are that those who manage investments on behalf of others are bound by a number of fiduciary obligations,notably:Loyalty-putting the interests of beneficiaries first when determining the inves

281、tment strategy Prudence and care-investing to the standard of care of a prudent expertThe importance of loyalty makes financial factors dominant,but not to the exclusion of other non-financial factors.The exact interpretation of these factors will not be black and white.Fiduciary duty naturally evol

282、ves as circumstances evolve.But while the window has been stretched by the influences of sustainability,there remains a preciousness to fiduciary practice to retain financial primacy.This means that funds in most jurisdictions and circumstances must adopt policies that maximise risk-adjusted return,

283、and not allow concessions from other motives that may diminish risk-adjusted returns.This becomes important when policies depart from previous norms,as is possible with climate risk management strategies and climate alignment strategies.In a later section,we explore how such ESG considerations can w

284、ork within the fiduciary window.The Paris-aligned or Net Zero strategies must reconcile several constraints,as well as the fiduciary standard which will mostly apply a high bar of needing to achieve at least the level of risk-adjusted returns that would have been achieved with strategies that omitte

285、d those impact elements.The fiduciary test is interpreted differently in different jurisdictions.The US is widely referenced as a country in which fiduciary interpretation has been conservative on finance-first principles,although in practice this has followed the political cycle and so may well cha

286、nge with the recent changes to the administration in power.The changes occurring in other parts of the world are substantially in the direction of more progressive practice,stretching the window in the direction of 32/Power Market Review September 2022Source:Roger Urwin,“With great power comes great

287、 responsibility”Thinking Ahead Institute.https:/www.thinkingaheadinstitute.org/research-papers/with-great-power-comes-great-responsibility/FromToSustainability financial materiality and motivationSustainability non-financial materiality and motivation The key test of the fiduciary window is whether

288、the trustee board can visualise that in future intermediate and end state results-given a plausible range of scenarios for performance and changing factors and circumstances-the board will be able to support the policies adopted.This will depend on following sound process and documentation.The multi

289、ple factors and circumstances arise from each stakeholder.The dynamic state of influences is demonstrated by increasing weights from several sources.ActorFactorWeighting in the pastWeighting in the futureInvestment industryIndustry theory and practice1st+Empirical evidence2ndoStateLegislation and re

290、gulation3rd+CorperationCorporate reporting and alignment4th+PeopleMember views5th+Activism6th+wider stakeholders.It appears that the legal framework could support clearer practice to support non-financial goals by reference to the wider economy,communities and the environment as informed by the view

291、s of the beneficiaries themselves.ShareActions Responsible Investment Bill1 is framed in this way.Legal interpretation could also potentially benefit from guardrails or safe harbour provisions that call out appropriate limits.One possible area to identify is prescribing asset owners to work within d

292、o no significant harm principles;one example of this is specified under the EU Sustainable Finance Disclosure Regulation(SFDR).Driver two:active ownership Active ownership is a combination of voting,engagement and shareholder resolutions-it uses rights and position of ownership to influence issuers

293、or companies activities or behaviours related to ESG matters and other business practices.Ownership rights are exercised differently,depending on the asset class.Most investors believe the benefits of successful active ownership exceed the costs,although this cannot be proved with existing hard data

294、.But the activities suffer from being tricky to measure;they are difficult for asset managers to monetise;and some investors may not participate but may still benefit from the active ownership of others.Both active and passive investors typically treat active ownership as a lower priority and manage

295、 it as a low-cost activity;this reflects the limited appreciation of the ability of this activity to deliver both private value and a public good that all investors can benefit from.This results in the limited resources applied to active ownership-estimated by WTW to be less than 1%of total front-li

296、ne investment expenses.The benefits of collaboration represent one source of opportunity where partners are,ideally,seen as extensions of the organisation.Collaboration partnerships with high levels of trust and mutual dependence give the opportunity for each partner to focus on what it does best.Th

297、e accountability of industry participants for their active ownership is weak,reflecting the inconsistencies and lack of focus in reporting,together with relatively high degrees of opaqueness.The delegation to asset managers,the use of engagement overlay approaches and proxy advisors,and improvements

298、 in the strength of these collaborative activities all represent methods that may help the effectiveness of the active ownership activity.Driver three:modern investor modelsDouble materialityThe development of the double materiality principle is a central consideration.First,ESG and other sustainabi

299、lity factors can be demonstrated to be material to financial outcomes.The materiality will vary by sector,but any fund considering long-term sustainable value should be interested in ESG as a financial factor with relevance to future outcomes(we can describe this as pre-financial or simply financial

300、).Second,investors actions and those of the companies they invest in can produce material real-world impacts(impacts on environmental or social factors).It therefore follows that reporting of ESG factors should reveal as much as possible about what these impacts are for the scrutiny of wider stakeho

301、lders.The third aspect of double materiality is that it can be dynamic;real-world impacts ripple through the economy to the financial outcome of the investor.Put in other words,issues that are material from a societal perspective(such as climate change)can become material from an enterprise perspect

302、ive,either slowly or rapidly.This is often denoted as triple materiality.The aim is to allow the companys shareholders and other stakeholders to make informed investment and engagement decisions.In recognising these issues,accounting standards must tread a pathway to balance what is material for dif

303、ferent audiences with“interoperability”structural connectivity between standards that companies use to report to different audiences.These issues are actively being progressed within accounting bodies.The TCFD reporting framework is being increasingly adopted and,in some jurisdictions,being made man

304、datory.Power Market Review September 2022/331 https:/shareaction.org/policies/responsible-investment-bill-the-change-we-needAny fund considering long-term sustainable value should be interested in ESG as a financial factor with relevance to future outcomes.Figure 3:3D framework a straw model3D inves

305、tingAsset owner policies are a parallel development here.The choices over managing ESG factors cover a spectrum from improving performance to,in some cases,creating impacts.For impact strategies,we call these three-dimensional approaches(3D for short)where the dimension of impact is put alongside ri

306、sk and return.Investors can in practice choose from one of two 3D approaches:Core sustainability strategies that exploit ESG issues through integrated ESG portfolio construction and active ownership;here the impact is lite in that it arises from collateral influences and is generally second order Un

307、iversal investor(UI)strategies that utilise additional strategies in systematic engagement and more significant ESG allocation strategies on top of ESG core strategies;here the sustainability impact is more full,being directly targeted and accounted for It is important to emphasise that a universal

308、investor seeks better long-term financial outcomes and real-world impacts by undertaking actions that produce impacts and improve performance.The summary of the 3D framework is outlined in Figure 3 above,drawing out the features of the lite and full versions.Currently,most strategies that asset owne

309、rs have committed to have fallen into the lite area as they have focused on allocations to companies that have in the past performed well on metrics of ESG performance.This is an approach focused on secondary market exposures which can produce only modest investor real-world impact.By contrast,the u

310、niversal investor strategy gives emphasis to achieving much more significant and intentional impacts,tapping substantially more into active ownership actions to manage sustainability change.34/Power Market Review September 2022Source:Roger Urwin,“With great power comes great responsibility”Thinking

311、Ahead Institute.https:/www.thinkingaheadinstitute.org/research-papers/with-great-power-comes-great-responsibility/3D goals The portfolio and strategy seeks to integrate risk,return and impact(=positive and measurable social and environmental impact)Total portfolio long-term thinking Strategy is focu

312、sed on producing long-term absolute returns contributing to the total portfolio risk and return consistent with goalsStrategic partnership Adding IP to the AO outside the mandate;providing stategic input-investment strategy ideas,and reverse enquiry new mandate ideasCore sustainability strategies In

313、tegrated ESG and active ownership adding insight and engagement to support value creation,short-term and long-termImpact strategies Targeting and achieving real-world impact using UI strategies-portfolio and stewardship positions-including carbon managementSystem-level agreement Addressing the syste

314、matic risk elements in their portfolios-climate change,financial stability,social stabilityScorecard monitoring Has a long-term orientation;fulfils the impact information needed;is integraed reporting;includes TCFD compliance;narrative and dataOther mandate details External managers governance and c

315、ulture Also termination terms,could involve closed-ended structures15263748LiteFullThe challenges:reporting,data and other ecosystem gapsData and information sit alongside people and process as the key resources used by investment organisations.They are enabled by culture and governance as reflected

316、 by values and incentives.We can characterise the technology and data challenge generally for investment firms as creating a technology system(data and knowledge management platform and infrastructure)that aims to process and channel relevant high-quality information adaptably,cheaply and efficientl

317、y into the investment process,with security and resilience.But data and information challenges are more than just technology problems;there is widespread industry pressure for improvement of ESG data reporting standards and metrics.Investors and corporations have been subject to evolving regulatory

318、requirements and proliferation of data sources/standards that have added an extra burden to the area.And its not only a technical problem there are culture,talent and governance problems mixed in.Success will certainly favour those organisations that manage to evolve the highly imperfect ESG data so

319、urces into decision-useful forms via effective data governance and culture.The“secret sauce”here is a lot about governance and culture rising to the challenge of over-abundance.There are mixed signs when it comes to progress on data standardisation and streamlining.We believe some aspects of the dat

320、a challenges will always remain;attributing cause and effect correctly in a complex system with multiple causes and multiple effects and two-way feedback will be difficult and inaccurate at best,and standardisation of data methods can progress only so far.A more realistic and effective strategy is t

321、o move away from the hunt for more and better data and towards the codifying of the existing data by reference to its inferential quality.Conclusion:achieving sustainability successThe power of asset owners and asset managers is clear from the size of the assets they manage,variously assessed as a f

322、igure close to US$100 trillion.We suggest that with great power comes great responsibility to make the changes necessary.We believe the future will favour organisations that are:collaborative,with research relationships across wider fields(like climate change)at home with 3D investing,coherently abl

323、e to balance risk,return and impact innovative in research,thought leadership and effective engagement on ESG and impact deeply endowed with talent,to connect and engage key stakeholders effective culturally,with emphasis on purpose and people as central pillarsThese hurdles are high,but over time w

324、e believe that a number of asset owners and asset managers will achieve some or all of this list.David Hoile is Global Head of Asset Research,WTW Power Market Review September 2022/35Introduction:Directors Liability Survey 2021-22The last couple of years have seen a real change in the amount of legi

325、slation and regulation imposing obligations on directors in connection with climate change.Before looking at some of those changes in more detail,it is worth considering whether these risks are ones being recognised by directors.Earlier this year,WTW published the results from our 9th Directors Liab

326、ility Survey(in partnership with law firm Clyde&Co LLP),having canvassed directors and risk managers in more than 40 countries around the world.Amongst other questions,we asked respondents to indicate the significance of 22 different risks for directors.Climate change is ranked as the number 5 risk

327、for GB,Asia and Australasia.By contrast,it doesnt even make it into the top 7 for Europe,North America or Latin America.When we consider the responses broken down by industry groups,we can see that climate change is ranked in the top 5 for Energy&Utilities as well as Finance and Insurance.This is pe

328、rhaps not surprising,given that Energy&Utilities have been aware of climate change as a risk for many years,while Finance and Insurance have been the subject of PRA stress tests looking at the financial risks from climate change1.Climate change:potential liabilities for directorsFigure 1:WTW 9th Dir

329、ectors Liability Survey results:top 7 risks by industryCyber-attack 65%Data loss 65%Data loss 74%Cyber-attack 73%Cyber-attack 76%Data loss 62%Cyber-attack 62%Cyber-attack 72%Data loss 73%Data loss 70%Cyber extortion 51%Cyber extortion 60%Cyber extortion 65%Cyber extortion 61%Cyber extortion 64%Regul

330、atory risk 49%Regulatory risk 55%Regulatory risk 43%Regulatory risk 59%Health and safety 58%Health and safety 46%Climate change 48%Economic crime 43%Health and safety 56%Climate change 55%Economic crime 43%Economic crime 45%Criminal penalties from breach of sanctions 39%Supplier business practices 4

331、9%Regulatory risk 48%Supplier business practices 43%Focus of a social media campaign 45%Social engineering crime 39%Criminal penalties from breach of sanctions 46%Bribery and corruption 48%Industrial#1#2#3#4#5#6#7Finance and InsuranceServiceTransportation&RetailEnergy&Utilities36/Power Market Review

332、 September 20221 https:/www.bankofengland.co.uk/stress-testing/2021/key-elements-2021-biennial-exploratory-scenario-financial-risks-climate-changeSource:https:/ respondents who indicated that climate change was at least a significant risk,we also asked them to comment on how they rank transition ris

333、k,climate change reporting requirements and physical risk.The interesting result here is how much more significant the respondents from the energy and utilities industries considered all of these risks to be and,in particular,that they ranked climate change reporting requirements as by far the highest risk for their directors.Existing laws in the UKThere are already duties imposed on directors in