The department has not delivered on the NSW Government commitment for a state-wide adaptation action plan, limiting a coordinated approach to supporting agencies to manage climate risks

The department did not deliver a state-wide adaptation action plan, which was a commitment in the 2016 NSW Climate Change Policy Framework to be completed in 2017.

All other Australian states and territories have released an adaptation strategy or similar to coordinate efforts across government, industry and the community. Such strategies generally incorporate actions to support agencies manage the physical risk of climate change to assets and services. The proposed NSW adaptation action plan was to support adaptation efforts across community, industry and government, and to include actions specific to supporting agencies. Its absence has limited the department's implementation of a coordinated, well-communicated program of support to agencies for their climate risk management.

Priority investment areas related to minimising climate change impacts were flagged in the Draft Climate Change Fund Strategic Plan 2017–22. This document was published by the NSW Government in 2016, but never released as final.

With the establishment of the Climate Risk Steering Group in mid-2019, administered by the department and chaired by NSW Treasury, more coordinated forms of support for agencies are in development and early implementation.

The department can demonstrate a robust approach to developing climate projections

Climate projections are a key means of understanding the potential impacts of climate change, which is an important step in the climate risk assessment process. The NSW and ACT Regional Climate Modelling (NARCliM) is a NSW Government-led partnership that provides climate projections across the state. The first full version of NARCliM (v1.0) was released by the department on the AdaptNSW website in 2014.

The department's approach to generate the projections has been tested and supported by an expert evaluation. The department undertook a range of other quality assurance activities, including engaging with experts and stakeholders. It has also been collaborating in research partnerships with universities and other jurisdictions since 2012.

The department released an interim version of NARCliM (v1.5) to users of its climate data portal in early 2021. This version is based on the most recent global climate models available at the time of development. It includes enhancements such as two future emission scenarios and many additional variables. It is working on the next version that will use the latest (2020) global climate models. NARCliM (v2.0) should be available in 2022. Updating NARCliM requires significant resourcing, including substantial computational power and time.

The department's approach to communicating its climate information, including educating agencies about the climate projections, has been insufficient

The NARCliM projections are included in the NSW Government's Common Planning Assumptions, making them the source of climate information that state agencies should use to prepare proposals, plans or strategies. The department is yet to provide clear guidance to agencies on what NARCliM emission scenarios should be used in different decision-making contexts.

The department's communication plans on climate projections have been insufficient as they have not clearly documented how it will educate agencies in the use of NARCliM since its first release in 2014. Of the 13 government entities examined as part of the audit¹, only four were using NARCliM. NARCliM (v1.0) is based on 2007 global climate models and still relevant for agencies to use, but this timeframe has limited its perceived utility and uptake among some staff.

In mid-2020, the department commissioned an overall strategy for its climate change information, including for the AdaptNSW website. These strategies are focused on community, researchers, local government and business, and do not clarify the department's approach to educating and upskilling agency staff. There is also no detail on implementation responsibilities and timeframes.

Agencies with significant assets and services have not conducted climate risk assessments and the support for this has been insufficient

The department’s support to agencies to use its climate projections to identify climate risks to assets and services has been limited. The department has delivered forums, workshops, and advice to agencies, in addition to the AdaptNSW website, but has not applied dedicated resourcing to a structured mechanism for guiding agencies in developing climate risk assessments. NSW Treasury has a stewardship role in public sector risk management, but it had not defined or resourced its role in supporting agencies to manage climate risks until late-2019.

Nine of 13 government entities that we examined as part of the audit had not completed climate risk assessments for their assets and services. A lack of technical capacity to use climate projections to develop risk assessments was raised as a key issue. The value of physical assets held by these nine entities was around $120 billion, as at June 2020.

These results are consistent with surveys of agencies that the department conducted in 2015 and the department and NSW Treasury conducted in 2018, which showed low levels of climate risk management maturity across agencies and highlighted limited progress in managing climate risks.

Within the Planning, Industry and Environment cluster, the approach to considering climate risk in risk registers was not as comprehensive as expected. Climate risk was identified in two of nine risk registers (from 2020) in which we expected to see a consideration of the physical impacts of a changing climate on the relevant assets or services.

Most agencies do not have plans to adapt to climate risks and the department's support for this has been insufficient

According to the department and NSW Treasury, and in line with international standards, effective climate risk management includes adaptation planning. But the department has delivered limited support to other agencies to use climate information to develop appropriate responses.

To date, consistent with the 2015 and 2018 survey findings, most agencies have not developed adaptation plans to respond to climate risks to their assets and services. Of the 13 government entities that we examined only three had developed adaptation plans. A factor described as limiting their progress was not being able to effectively communicate climate risk information, and the need for adaptation planning, to senior leaders in their agency.

Within the Planning, Industry and Environment cluster, the Crown Land division and the Land and Housing Corporation (LAHC) have significant assets that are exposed to climate risks. Crown land covers about 42 per cent of the state land area, including significant coastal land and infrastructure.² The LAHC, which owns most of the social housing portfolio, needs to maintain the thermal comfort of its properties to limit the risk of heat stroke and other poor health outcomes for residents. These entities do not have adaptation plans to manage climate risks to their assets and services.

By way of contrast, and following a request by the NSW Minister for the Environment in 2014, the National Parks and Wildlife Service (NPWS), which is part of the department, developed the NSW National Parks Climate Change Strategy in 2018. This adaptation strategy identifies priorities and proactive management actions for NPWS assets and operations. The department advises that significant resourcing and support from internal experts were deployed to develop this strategy.

The department could do more to leverage its land use planning role to ensure agencies and communities are resilient to climate change

The 2016 NSW Climate Change Policy Framework set directions for embedding climate change consideration in government decision-making. The department's role in land-use planning, guiding development controls, and building regulations, can affect a wide range of decisions by state agencies, and local government. The department has not taken adequate steps, resulting in weaknesses in the planning system that create a risk that climate change will not be adequately considered by agencies.

• The department's regional planning documents, including District Plans of Greater Sydney, reference climate change, but this information is yet to be consistently translated into guidance for local councils. This is critical to ensure development is more resilient to climate change.
• The department's Guide for Council's Local Strategic Planning Statements (LSPS), which set out the 20-year vision for land-use in a local area, does not refer to 'climate change' and how it should be considered.
• The department's guidance on preparing Local Environmental Plans (LEPs) for councils does not mention climate change and the Standard Instrument for preparing LEPs only briefly mentions climate change in relation to flooding. All 143 council LEPs mention climate change but this is just in relation to flood planning. This means that councils’ Development Control Plans are at risk of not considering climate change.

The department also administers the Building Sustainability Index (BASIX), which is a sustainable planning measure to drive reductions in residential water and energy use. The department is not considering the future impacts of climate change in updates to the BASIX targets for energy and thermal comfort, which we are advised are under review in 2021.

The department and NSW Treasury produced the Climate Risk Ready NSW Guide and Course in 2021 to improve support for agencies' climate risk management

To improve support to agencies, the department in partnership with NSW Treasury published a Climate Risk Ready NSW Guide (CRR Guide) in March 2021. They also developed an accredited Course that commenced in February 2021 with funded places for 100 agency staff.

The Guide and Course aim to help agency staff to, 'lead, influence and enable' climate risk assessment and adaptation planning, with a focus assessing and responding to physical climate risks. The CRR Guide maps out a process for climate risk assessment and adaptation planning for agencies to follow. It includes practical resources such as a Climate Risk Maturity Health Check Tool and a Climate Risk Assessment Tool.

The Guide is referenced in the NSW Treasury Policy Paper on Internal Audit and Risk Management (TPP 20-08) and in guidance on how to reflect the effects of climate-related matters in financial statements. The Guide also states that it is aligned to relevant NSW Treasury policy papers on risk and asset management.

The Guide and Course were released in early 2021, four years after the 2016 NSW Climate Change Policy Framework. Staff from 17 agencies have enrolled in the course, and it is too soon to comment on the impacts of this work.

NSW Treasury has updated some relevant policies and guidance with climate-related considerations, but key gaps remain

NSW Treasury produced the 2021 Intergenerational Report technical paper on physical climate risks, which should be useful information for supporting agencies' climate risk management. It indicates that the fiscal and economic costs per year associated with natural disasters will more than triple by 2061.

According to NSW Treasury, its approach to updating guidance and policy papers ('TPP') with climate considerations has been driven by the potential financial exposure these risks present to the state. NSW Treasury's Internal Audit and Risk Management Policy (TPP20-08), Asset Management Policy (TPP19-07), Risk Management Toolkit (TPP12-03), and the Cost Benefit Analysis guidelines (TPP17-03), all refer to a need for agencies to consider climate risk, but key gaps remain.

• There is a risk that climate change will not be effectively considered in agencies' asset management plans, given it is unclear this will be part of the assurance process for these plans under TPP19-07.
• Guidance to State Owned Corporations, which are major infrastructure holders and service providers, does not mention climate change, and these agencies are not covered by the TPP20-08 or TPP19-07.
• NSW Treasury’s Annual Reporting and Compliance Checklist for agencies does not mention climate change, although there is scope to do this.
• Steps for finalising draft guidance on resilience in infrastructure planning, developed by NSW Treasury and Infrastructure NSW in 2019, are unclear. This is a potentially key source of guidance to agencies when considering climate risk.

In March 2021, NSW Treasury produced guidance to agencies about reflecting the effects of climate-related matters in financial statements which links to the CRR Guide. This NSW Treasury guidance is not binding but is intended to support agencies to comply with mandatory obligations under existing accounting standards. As a general guidance document, it may not provide sufficiently specific guidance to help agencies identify material climate-related risks and determine the appropriate disclosures in their financial statements.

There has been some oversight of the department and NSW Treasury’s support for agencies but no confirmed approach to monitoring progress or reporting on outcomes

The department and NSW Treasury's progress in delivering support to agencies for climate risk management has been overseen by the interagency Climate Risk Steering Group. The group is administered by the department and chaired by NSW Treasury.

The department and NSW Treasury have provided updates to the Asset and Liability Committee (ALCO) on climate risk since April 2018. The ALCO is chaired by NSW Treasury and provides advice on State Significant Financial Risks and Other Significant Risks.

In June 2019, extreme weather was listed by the ALCO as a State Significant Financial Risk (SSFR). In December 2019, extreme weather risk was renamed as climate risk by the ALCO and listed as a SSFR, which required the department and NSW Treasury to report annually on its management. These agencies provided updates to ALCO in December 2019 and in June and August 2020. Subsequently, climate risk was categorised as an Other Significant Financial Risk in April 2021, which requires 'periodic' reporting. It is unclear under what conditions this periodic reporting will be activated. There is a risk that climate-related matters receive less specific attention and will not be subject to reporting at the ALCO at least once a year.

In April 2021, the Secretaries Board endorsed the department and NSW Treasury to develop a roadmap to coordinate responses to climate risks to government operations and services. This endorsement provides for executive oversight of the roadmap, and the department and NSW Treasury plan to report annually to the Secretaries Board on their support to agencies for climate risk management.

There is limited information on how the department and NSW Treasury intend to routinely monitor the progress of agencies with implementing the CRR Guide or developing climate risk 'maturity' more broadly. The department has advised that it plans to survey agencies’ take-up of climate risk assessment planning in 2021 and every three years thereafter. The department and NSW Treasury are also revising the terms of reference of the Climate Risk Steering Group to clarify its role, including in relation to monitoring and reporting.

No plans are in place to report progress to stakeholders or the public on how effectively state agencies are managing climate risks to their assets and services. The effectiveness of the department and NSW Treasury's supports, and implementation of a coordinated approach, involves proactive and sustained take-up of climate risk management by state agencies.

By December 2021, the department and NSW Treasury should, in partnership:

1. Enhance the coordination of climate risk management for state agencies’ assets and services by:

a) developing the proposed roadmap to improve agencies’ capability to manage climate risks, including an agreed program of actions that are relevant and proportionate to identified risks, with delivery targets and reporting

b) implementing a clearly resourced plan to expand the reach of the Climate Risk Ready NSW Guide and Course across agencies, and periodically improve its content

c) ensuring agencies have access to relevant, robust information on the physical climate risks, and associated costs.

By December 2022, the department should:

2. Strengthen supports that improve agencies’ management of physical climate risks to their assets and services by:

a) ensuring regional climate modelling (NARCliM v2.0) is released, and that climate projection information is updated on the climate data portal and Adapt NSW website

b) implementing a targeted education strategy on using climate projections and a feedback mechanism for agencies' climate risk assessments and adaptation plans.

3. Monitor the progress of agencies in managing physical climate risks to their assets and services, especially the use of NARCliM and take-up of the Climate Risk Ready NSW Guide and Course. This should include three-yearly surveys and reporting on progress.

4. Comprehensively review its land-use planning and development guidance, and the Building Sustainability Index (BASIX) requirements, and identify opportunities to promote climate risk management.

By December 2022, NSW Treasury should:

5. Strengthen its guidance to agencies on climate risk-related matters, including by updating the Risk Management Toolkit (TPP12-03), clarifying requirements for State Owned Corporations, and adding a climate risk management attestation requirement in the Annual Reporting and Compliance Checklist.

6. Coordinate the finalisation of guidance on resilience in infrastructure planning related to natural hazards, maintaining its alignment with NSW Treasury’s business case guidelines, in conjunction with relevant agencies.

7. Review how effectively climate risks have been considered in the assurance of agencies’ asset management plans (according to the Asset Management Policy, TPP19-07), and take steps to address gaps in conjunction with relevant agencies.

8. Monitor how effectively agencies are reflecting the effects of climate-related matters in their financial statements, and determine whether the existing NSW Treasury guidance is sufficiently clear, and if agencies require further support.

By June 2023, the department should:

9. Deliver a climate change adaptation action plan for the state, which includes actions that support agencies to manage the physical climate risks to their assets and services, reflecting commitments in the 2016 NSW Climate Change Policy Framework.

By June 2023, the department and NSW Treasury should:

10. Implement climate risk management across their respective clusters, in line with the Climate Risk Ready NSW Guide. This should include adopting an enterprise-wide climate risk statement; allocating oversight to a central role (such as a climate risk officer); and integrating climate risk assessment into risk management, monitoring and reporting systems.

‘Climate change’ is defined by the Australian Academy of Science as is a change in the pattern of weather, and related changes in oceans, land surfaces and ice sheets, occurring over time scales of decades or longer.

According to the US National Aeronautics and Space Administration (NASA), 2016 and 2020 were the warmest years on Earth since records began in 1880, continuing a long-term trend of rising global temperatures. The ten warmest years on this record have occurred since 2005, with the seven most recent years being the warmest.

Surface temperature is projected to rise over the 21st century under all assessed emission scenarios, according to the Intergovernmental Panel on Climate Change (IPCC). The IPCC states that, ‘the continued emission of greenhouse gases will cause further warming and long-lasting changes in the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems.’ According to IPCC, it is also very likely that heatwaves will occur more often and last longer, and that extreme precipitation will become more intense and frequent in many regions. The ocean will continue to warm and acidify, and the sea level will rise.

Climate change in Australia

According to the Bureau of Meteorology, Australia’s climate has warmed on average by 1.44°Celcius (± 0.24 °C) since national records began in 1910. There has been an increase in the frequency of extreme heat events and, in southeast Australia, a decline in rainfall since the late 1990s. There has also been an increase in extreme fire weather, and in the length of the fire season, across large parts of the country since the 1950s, especially in southern Australia.

Looking ahead, the Commonwealth Scientific and Industrial Research Institute (CSIRO) projects that Australia will continue to see increases in air temperatures, more heat extremes, and fewer cold extremes. It also predicts that a continued decrease in cool season rainfall across southern and eastern Australia is likely to lead to more time in drought, yet more short and intense heavy rainfall. As a result, the CSIRO predicts an increase in the number of dangerous fire weather days and a longer fire season for southern and eastern Australia. Further sea level rise and continued warming and acidification of the oceans will also occur around Australia.

Climate change in New South Wales

Consistent with these trends, the climate in New South Wales (NSW) is already changing. Extreme weather events are becoming more frequent and intense, and long-term changes to weather patterns are observed. For example, the Bureau of Meteorology found that 2019 was the driest and warmest year on record for NSW. Most of the state received much less rainfall than usual, with the northeast and far-west particularly dry. The Bureau also noted that heatwaves in January 2019 brought very high temperatures, and large fires from September onward caused extensive damage and persistent smoke.

According to the department, maximum and minimum air temperatures are also predicted to increase in NSW. Based on the department's climate projections, there will be more hot days and fewer cold nights. The number of severe fire danger days is also projected to increase in summer and spring across the state, while changes in rainfall will vary across regions.

Defining climate risks

International standards define risk as the effect, positive or negative, of uncertainty on objectives. In the context of climate, as illustrated in Exhibit 1, risks result from the interaction of vulnerabilities, hazards and exposures to changes in climate variables, which gives rise to impacts.

The NSW 2040 Economic Blueprint, produced by NSW Treasury in 2019, recognises climate change as a challenge to the economic success of the state, along with issues such as ageing population, high energy costs, disruptive technology, tax inefficiencies, trade tensions, and biodiversity threats.

Notwithstanding the uncertainty of climate change impacts that may be felt differently across regions, populations and economic sectors in NSW, managing risks according to international standards means managing the effect of uncertainty. This is to provide reasonable assurance that objectives will be met, and includes addressing threats and opportunities.

Consistent with international standards, the risk management process set out in NSW Treasury policy (TPP12-03) requires that agencies establish the risk context, identify, analyse and evaluate the risk, and treating the risk. As shown in Exhibit 4, this also involves communicating, and monitoring and reviewing the risk assessment and treatment actions.

The NSW Government is a provider of essential services that also owns and manages around $365 billion in physical assets (as at June 2020). More than $180 billion of its assets are in major infrastructure such as roads and railway lines. Climate risks that could directly impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. As these risks eventuate, they could damage and disrupt assets and service provision.

State agencies are responsible for managing their own risks, including climate risks, under NSW Treasury policies in line with the Government Sector Finance Act 2018. At the same time, the department and NSW Treasury have specific responsibilities for delivering on 'state outcomes' (listed below). Climate change risk needs to be effectively managed if the department and NSW Treasury are to deliver on their state outcomes, respectively.

The NSW 2021 State Plan, released in 2011, identified actions to ‘minimise the impact of climate change’ including through developing climate projections and improving community resilience. In 2016, the then Office of Environment and Heritage⁵ released the NSW Climate Change Policy Framework in 2016. The aim of the framework is stated as follows.

‘Maximise the economic, social and environmental wellbeing of NSW in the context of a changing climate and current and emerging international and national policy settings and actions to address climate change.’

The NSW Climate Change Policy Framework outlines the commitments to act on climate change and guides policy and programs by setting out long-term objectives, state government roles, policy directions and implementation steps. In relation to climate risk management and adaptation, the framework identified NSW Government’s operational role is to ‘assess and effectively manage climate change risk to government assets and services’. The framework also included:

• as a policy direction, ‘the government will manage the impact of climate change on its assets and services by embedding climate change considerations into asset and risk management’
• as an implementation step, the government will, ‘investigate how to embed consideration of climate change mitigation and adaptation across government operations including service delivery, infrastructure, purchasing decisions and regulatory frameworks’.

The NSW Climate Change Policy Framework committed to developing climate change action plans to implement the policy directions in the framework and give effect to 'potential actions’ in the Draft Climate Change Fund Strategic Plan 2017–22.

One of these plans, to be developed by 2017, was an 'adaptation action plan', that would focus on climate change adaptation to reduce costs to public and private assets and private assets, reduce impacts on health and wellbeing, manage impacts on natural resources, ecosystems and communities, and take advantage of opportunities to grow adaptation services.

Role of the NSW Department of Planning, Industry and Environment

The department, along with Planning, Industry and Environment cluster entities, manage significant public assets and services including Crown lands, social housing and National Parks. The department and its cluster entities are also responsible for delivering on identified state outcomes. Specifically:

• a strong and liveable NSW
• maximum community benefit from government land and property
• resilient and sustainable environment and energy
• sustainable and productive regional industries and communities
• sustainable and secure water resources.

The department is responsible for the governance and administration of the Climate Change Fund and administers some climate change resilience programs under the fund.⁶

The department has the lead role in establishing and disseminating climate projections to inform state agencies and communities. Since 2011 it has led a climate modelling project called NARCliM (NSW and ACT Regional Climate Modelling). The project now involves a partnership with the Australian Capital Territory and South Australian Governments, and the Climate Change Research Centre at the University of New South Wales.

The department also has responsibilities for land use planning policies and guidance. It is involved in assessing and determining development proposals including for state significant projects, regional strategic planning, and guiding local government. It sets sustainability targets for new residential dwellings. State government assets and services may be more or less exposed to climate risks depending on these land use policy settings and guidance.

Role of the NSW Treasury

NSW Treasury is responsible for the management of the state’s finances, guiding public sector performance and good practice, and providing direction on accounting policy, risk management and legislative issues. It also monitors significant financial risks to the state's balance sheet via the Asset and Liability Committee (ALCO).

The state outcomes for the NSW Treasury cluster are:

• Economic performance: A strong, resilient and diverse economy
• Fiscal performance: A sustainable fiscal environment to enable delivery of outcomes
• Public sector performance: Stewardship of the public sector performance and financial management system to enable delivery of outcomes.

NSW Treasury develops policies and guidelines that are relevant to the process of ‘embedding climate change consideration in government decision-making’. This includes on topics such as financial reporting and implementing accounting standards; internal audit and risk management; asset management; business cases and cost benefit analyses; outcomes budgeting and performance monitoring; and evaluation. Since 2012, NSW Treasury guidance to agencies on risk management has noted that climate change is part of the context in which they operate, and which should be considered in the risk management process.

The Sustainable Finance Steering Committee (SFSC), established in 2020, has a role of helping NSW Treasury identify, monitor and manage the state’s climate-related risks. It is also intended to engage with government entities and key stakeholders on sustainable finance issues, such as entities’ ability to manage the potential impacts of climate change on their assets and liabilities. The SFSC consists of senior members from the department, Treasury, iCare and NSW Treasury Corporation.

Like the department, NSW Treasury is represented on the Climate Change Fund Program Implementation Steering Committee. This committee provides input on the strategic direction and prioritisation of fund activities, and the development of action plans.

NSW Treasury also produces the NSW Intergenerational Report every five years. This identifies long-term economic and social trends, opportunities and risks to enable ‘the government of the day to take the necessary action to provide the highest possible standard of living for all our citizens into the future.’ The most recent report was released by the Treasurer in June 2021.

This audit assessed whether the department and NSW Treasury are effectively supporting agencies to manage climate risks to their assets and services.

It addressed the following:

• Has the department effectively developed climate projections and supported agencies to use these projections?
• Are the department and NSW Treasury supporting agencies to identify climate risks to their assets and services, and develop appropriate responses?

This audit is focused on risk management and adaptation planning related to the physical risks of climate change. It is focused on the risks to physical assets and services, but comments on climate risks to the state's finances where this is contextually relevant.

The term 'agency' in this report is defined as an agency under section 2.4 of the Government Sector Finance Act 2018. This includes State Owned Corporations.

For further detail see Appendix three.

The Auditor-General's 2018 performance audit on managing risks in the NSW public sector

Our 2018 audit, 'Managing risks in the NSW public sector: risk culture and capability', found scope to improve how agencies communicate about risks, and use risk registers to support decision-making. We recommended that NSW Treasury review the scope of its risk management guidance and identify additional guidance, training or activities to improve risk culture across the NSW public sector.

Agencies with significant assets and services have not conducted climate risk assessments and support for this has been insufficient

The department’s support to agencies to manage climate risks to their assets and services has been limited. NSW Treasury did not apply dedicated resourcing to support agencies' climate risk management until late 2019, with the establishment of the Sustainable Finance team. These factors have created a risk that agencies' will be unable to prepare for and manage the physical risks from climate change.

Most of the 13 entities examined for this audit (ten agencies external to the department and three entities within the Planning Industry and Environment cluster), had not completed climate risk assessments across their assets and services. These entities included nine major asset holders identified as a priority by the department: the value of physical assets held by these entities was around $120 billion, as at June 2020. These results are consistent with surveys, conducted by the department in 2015 and by the department and NSW Treasury in 2018, that found low levels of capacity across agencies to undertake this work.

Among the 13 entities that we examined, a key issue raised for not progressing climate risk assessments was low awareness of the NARCliM projections and the information on the department’s AdaptNSW website. Some agencies we examined were aware of the resources but lacked internal technical capacity to use them. In these interviews, we also observed that there was no consistent view as to a difference between identifying risks related to natural hazards and identifying risks related to climate change, and how such differences should be assessed and managed.

The department has not applied dedicated resourcing to a structured mechanism for guiding agencies in developing climate risk assessments. Since 2014, the department’s support has primarily involved the information on the AdaptNSW website, a newsletter published three or four times per year, annual forums, and workshops for agency staff. The department also advises it has provided one-on-one advice to agencies if they request it.

Of the ten agencies external to the department that were examined for the audit, fewer than half indicated that they have identified climate change as a risk at the enterprise risk level. There was not a shared sense of how climate risk should be communicated, and whether it should it appear at an enterprise level or another organisational level.

In risk registers across the Planning, Industry and Environment cluster, consideration of climate risk was not as comprehensive as expected. Climate change impacts were only identified as a physical risk to assets and/or services in two of the 21 risk registers from 2020 that we examined. We expected to see consideration of climate change in at least nine relevant risk registers, such as those relating to property, recreational infrastructure, and public spaces. The impact of climate change on program delivery and business operations (e.g. on strategic water planning, on delivering on biodiversity-related objectives, and on achieving adaptation and resilience objectives) was noted in another five risks registers.

Most agencies do not have plans to adapt to climate risks and the department's support to facilitate this has been insufficient

According to the department and NSW Treasury, and in line with international standards, effective climate risk management includes adaptation planning. To date, and most agencies have not developed adaptation plans to respond to climate risks to their assets and services. These risks are significant and will continue to grow: accounting for projected economic growth, NSW Treasury has estimated that fiscal and economic costs each year associated with natural disasters will more than triple by 2061.

Our interviews with ten external agencies and three entities in the cluster found that five had developed, or were developing, adaptation plans. A factor described as limiting their progress was not being able to effectively communicate the need for adaptation planning to senior leaders. Again, this is consistent with the 2015 and 2018 survey findings about low levels of agency capacity to undertake climate risk management.

The department has delivered limited support to agencies to use climate information to develop appropriate responses to climate risks. The department advises it has provided ad hoc feedback on adaptation plans to agencies that request it, but it has not applied resources to a systematic approach. It is also unclear whether or how outputs from the department-led NSW Adaptation Research Hub have been used to inform guidance to agencies on adaptation planning.⁷

Within the department cluster, there are significant gaps in adaptation planning. For example, there are no adaptation plans for its Crown Lands division or for the Land and Housing Corporation.

• Crown lands cover about 42 per cent of the state land area, including significant coastal land and infrastructure. In addition to Crown land that is owned and managed by the department, its Crown Lands division is responsible for overseeing and providing governance of Crown land managers.⁸ Crown lands will be increasingly exposed to climate risks, including risks associated with sea level rises. According to the CSIRO, sea levels have risen by around 25 cm since 1880 and continue to rise.
  The 2021 Crown Lands Strategic Plan does list expanding green space, sustainable quality of life, and climate change resilience as a priority for the next ten years. The strategy contains some high-level commitments but does not quantify these.
• The Land and Housing Corporation (LAHC), which owns around $50 billion of the social housing portfolio, needs to maintain the thermal comfort of its properties to limit the risk of heat stroke and other poor health outcomes for social housing residents. According to the department, significant increases in the number of heatwaves are projected for most of NSW in the future. This means that LAHC housing will be increasingly exposed to risks associated with heat waves.

Exhibit 6 illustrates how climate change impacts may look different across the Greater Sydney region over the forthcoming decades, with the number of days of 35 °C being highest in western parts of the metropolitan area.

The department has not delivered on the NSW Government commitment for a state-wide adaptation action plan, limiting a coordinated approach to supporting agencies to manage climate risks

The department has not delivered a state-wide adaptation action plan. This was a commitment in the 2016 NSW Climate Change Policy Framework for it to be completed in 2017.

The department did develop a draft adaptation action plan in 2017 but this was not finalised. The proposed NSW adaptation action plan was to cover adaptation actions to reduce costs to public and private assets, reduce impacts on health and wellbeing, manage impacts on natural resources, ecosystems and communities, and take advantage of opportunities to grow adaptation services. Within this broad scope, actions specific to supporting agencies climate risk management were to be included.

The department has also not delivered, or led in conjunction with other key agencies, a broader adaptation strategy for the state. All other Australian states and territories have released adaptation strategy or similar to coordinate efforts across government, industry and the community. Based on this, such a strategy in NSW could have assisted the department in supporting adaptation planning in state agencies, and promoted broader state-wide adaptation priorities for government, industry and the community. It could have also outlined expectations and accountability, including roles and responsibilities within and across agencies, resourcing and timeframes.

The absence of an overall adaptation strategy, and a state-wide action plan, means that the department's climate risk and adaptation-related activities (including its supports to agencies on the physical risks of climate change) have been occurring for at least four years (2017-current) without strategic direction, strong levers for coordination across agencies, and clear resourcing towards defined outcomes.

The Draft Climate Change Fund Strategic Plan 2017–22, published in 2016, is referenced in the NSW Climate Change Policy Framework. It contains potential actions (including those related to adaptation) which were to be given effect through the development of action plans committed to in the Framework. These actions are listed in the following exhibit.

We note that the Draft Climate Change Fund Strategic Plan was never released by the NSW Government as a ‘final', though the published draft is cited in the NSW Climate Change Policy Framework. Both the department and NSW Treasury sat on the Climate Change Fund Steering Committee, along with other agencies, with the role of providing input on the prioritisation of activities and development of an action plan.

Climate change is referenced in a range of NSW Government strategic planning documents including the State Infrastructure Strategy 2018–38, Future Transport 2056, the Greater Sydney Regional Plan 2018, the Marina Estate Management Strategy 2018–2028, and regional and district plans produced by the department. These have been produced for different purposes, and to what extent these references translate into climate change being ‘embedded’ in government decision-making is unclear.

There is also evidence that the NSW Climate Change Council has not been engaged as expected, but it could have informed the state's adaptation priorities. The Council was established in 2004 by the NSW Government to provide independent, expert advice on climate change related matters. It may have been a source of expertise on risk management adaptation responses relevant to agencies' assets and services. We understand that the Council is still in place, but has not been engaged recently.

The department has been progressing activities related to communities' climate resilience, but lacked focus on supporting agencies' climate risk management until recently

The department has been progressing activities related to communities' climate resilience by developing the Regional Preparedness Operational Plan 2018–21, and through the 'Helping Communities become more Resilient to Climate Change (CRCC) program’, which started in November 2018. But these are not clearly focused on actions to support agencies' climate risk management.

• The Regional Preparedness Operational Plan 2018–21, produced by then Office of Environment and Heritage, is a plan for a program intended to support local decision makers from across government (local and state) to implement actions that enable their region to build resilience to the impacts of climate change. It does list some activities relevant to supporting state agencies⁹, but there is no explanation of how these supports are to be prioritised alongside a range of general community and industry related activities.
•  A Program Board for the CRCC program was set up in February 2019 with representatives from key branches across the department including Climate Resilience and Net Zero Emissions, and Climate and Atmospheric Science. But no overall plan for this program has been finalised. The draft plan includes potential outcome indicators.

Prior to the release of the Climate Risk Ready NSW Guide and Course in 2021, resourced support for agencies does not appear to have been a priority.

By way of contrast, in particular cases when the department has prioritised relevant activities, notable outputs have been achieved. The National Parks and Wildlife Service developed the NSW National Parks Climate Change Strategy in 2018, following a request from the NSW Minister for the Environment in 2014. The Strategy maps out adaptation pathways and actions for the protection of nature conservation, assets, Aboriginal and historic heritage, fire management, pest and weed management and customers. The department advises that significant resourcing and support were provided by its experts to develop the Strategy.

Draft regional water strategies have also been developed by the department, along with a draft state-wide water strategy in 2021. These refer to climate change, the need to consider its impacts in long-term water resource planning and management, and NARCliM (see section 3 for detail about the department's development and communication of climate projections). We understand that further work is required before these water strategies are finalised.

There is also further work required before the data being used by the department in the regional water strategies (that is, specialised hydrological modelling that incorporates the use of NARCliM) is incorporated into updates to water sharing plans. Water sharing plans are a statutory obligation under the NSW Water Management Act 2000, and set rules for how water is allocated between different users. Water sharing plans are also a key input to water resource plans, which are required and assessed by the Murray Darling Basin Authority under rules in the Commonwealth Basin Plan 2012.

A department-led project aims to help agencies identify infrastructure-related climate risks and adaptation opportunities, but faces challenges to its success

The department commenced the Cross-Dependency Initiative (XDI) NSW in 2020 following a Sydney XDI pilot that ran from 2017 to 2020. There is more groundwork to be done before the XDI NSW project is fully functioning.

The XDI NSW project involves partnering between agencies that own or operate critical infrastructure. It aims to bring together hazard maps, climate projections, engineering data and financial analysis to identify infrastructure interdependency risks, and assist agencies undertake collaborative adaptation planning.

In late 2020, the XDI NSW project produced ‘State of Asset Resilience' (SOAR) reports related to agencies' education, health, power, transport, water and council infrastructure. While these reports do not identify infrastructure interdependences, they do aggregate hazards at the asset portfolio level and could be used by agencies to inform strategies to prioritise investments.

Some agencies we examined for the audit have used the XDI NSW platform to generate reports on their assets and some others are not aware of it. The department is involved in discussions to support relevant agencies in how to understand and use this information, and it is represented on the XDI Technical Advisory Committee that is kept informed of updates to NARCliM.

The development and initial stages of XDI NSW are funded through the Climate Change Fund. Separate funding has not been allocated to support agencies' use the XDI platform to produce climate risk assessments for their infrastructure. The cost and features of the proposed user-pays funding model appears likely to limit its take-up and therefore limit agencies’ (and local councils’) ability to identify and prioritise climate risks to their assets and services. There is also a need to establish appropriate governance and data sharing protocols between participating agencies. The department has sought external legal advice on these data sharing protocols.

The evaluation of the Sydney XDI pilot (draft in 2020) indicated that a further expansion of the approach would require NSW Government support and advocacy.

The Climate Risk Ready NSW Guide and Course, developed by the department with support from NSW Treasury, are designed to assist agencies manage climate risks

The department and NSW Treasury published a Climate Risk Ready (CRR) NSW Guide for agencies in March 2021. It is accompanied by the CRR Course that commenced in February 2021 with 100 funded places for agency staff. The Course is accredited with a Registered Training Organisation as Nationally Recognised Training.

The department and NSW Treasury developed the CRR Guide and Course following a pilot and agency consultations, but the products were released four years after relevant commitments in the 2016 NSW Climate Change Policy Framework. The release of the Guide was also a year after initially planned (in March 2020, according to the Climate Risk Steering Group's terms of reference, see Exhibit 9). As such, it is too soon to comment on its outcomes for agencies.

The CRR products do, nonetheless, represent a major new initiative intended to support agencies' use of climate projections, climate risk assessments, and adaptation planning. They are a key output of the partnership between the department and NSW Treasury through the Climate Risk Steering Group since mid-2019. The Guide was endorsed by the Secretaries of both departments in early 2021.

The CRR products have a specific focus on physical climate risk and include practical resources for agencies such as a Climate Risk Maturity Health Check Tool and a Climate Risk Assessment Tool. The CRR Guide cites ISO31000 ‘Risk Management – Guidelines’ and ISO14091 ‘Adaptation to climate change — Guidelines on vulnerability, impacts and risk assessment’, although it does not cite ISO14090 ‘Adaptation to climate change — Principles, requirements and guidelines’. NSW Treasury advises the CRR Guide is aligned to both standards.

The CRR Guide's process for climate risk assessment and adaptation planning for agencies to follow is summarised in Exhibit 8 below.

The department can demonstrate a robust approach to developing climate projections

According to the cepartment, climate projections are a key means of understanding the potential impacts of climate change. NARCliM is a NSW Government-led partnership that provides regional climate projections across the state. The first full version of NARCliM (v1.0) was released by the department on the AdaptNSW website in 2014 and is based on global climate models dating from 2007. This remains the primary version on the AdaptNSW website that is readily accessible to agencies.

The department's approach to generate the projections has been tested and supported by an expert evaluation. The department acquitted the feedback from the NARCliM evaluation and undertook a range of other activities to support its rigour, including implementing quality assurance processes, engaging with experts and stakeholders.¹² Peer-reviewed scientific publications have used the NARCliM outputs, which further supports the approach.

The department has been collaborating in research partnerships with universities and other jurisdictions inform the development of the climate projections since 2012–13. The department signed memorandums of understanding with the South Australian Government in 2019 and the Australian Capital Territory Government in 2020 for further improving the science used in the development of climate change projections. The department also continues to participate in a Cross-Jurisdictional Community of Practice for Climate Science, with representatives from all Australian jurisdictions, which was established in 2019.

The 2019–20 Climate Change Fund annual report highlighted the department’s collaborations and progress towards a national approach to climate modelling.

The department released an interim version of its climate modelling in 2021 and is producing further enhancements

NARCliM (v1.0), based on global climate models from 2007, is the department's most accessible source of regional climate projection information. The department released enhanced projections (NARCliM v1.5) to users of the NSW Climate Data Portal in early 2021. This version is based on the global climate models that were the most recently released at the time of its development i.e. the models released in 2014. The department is currently working on an updated version of NARCliM (version 2.0) which will use the latest global climate models released in 2020. This should be available in 2022.

The process of producing new versions of NARCliM is challenging for the department because of the significant resourcing, including substantial computational power and time. For example, the data processing for NARCliM (v1.0) required one Petabyte in 2014.

NARCliM (v1.0) uses one emissions scenario (SRES A2)¹³, which presents a relatively high emission 'business as usual' climate change scenario. The department advises it selected this scenario for cost-effectiveness reasons, given the considerable data processing resources required for regional climate modelling.

NARCliM (v1.5) enhancements include two future climate scenarios; additional variables to understand wind gusts, storm surge, and drought (over 70 variables in total); and continuous climate simulations from 1950–2100. By way of contrast, NARCliM (v1.0) includes only one scenario and defined date ranges, that is: projections for the ‘near future’ (2020 to 2039) and the ‘far future’ (2050 to 2069). Many of these enhancements were made by the department in response to evaluation findings, stakeholder consultation and requests from users.

The department has also undertaken testing, expert and stakeholder engagement, and peer reviews, for NARCliM (v1.5). The department advises that this version does not replace the original version (that is, v1.0), but should be used in conjunction for comparison. NARCliM (v1.5) is available for no charge to users who register on the NSW Climate Data Portal and to users who submit data requests.

Expert and stakeholder feedback has been sought and considered for improvements to NARCliM (v2.0) through the department's NARCliM Technical Working Group with representatives from a number of agencies and a university.

Climate projections are accessible to agencies, but some information has not been updated and there is limited awareness and use of this information

Climate projections based on NARCliM (v1.0) have been accessible to agencies, and the community, on the AdaptNSW website and NSW Climate Data Portal since 2014.¹⁴ The department is yet to update the AdaptNSW website content with the outputs of NARCliM (v1.5).

The department has not updated some AdaptNSW website content (for example, regional and issues-based climate change 'snapshots') since these were initially released in 2013. Specific information about climate projections has not been substantively updated since 2014. The department has indicated it will update these when the next version of NARCliM (v2.0) is released in 2022.

We interviewed agency staff who were potential data users, given their roles related to climate risk management. These staff represented 13 entities¹⁵ and included agencies with critical assets or services. But engagement with the climate projections among these staff and for their agencies/ entities was mixed. Six of the 13 had little or no awareness of the NARCliM projections and how to use them, four were using NARCliM, and three were using projections from other sources such as the CSIRO data or via consultants.

Some agency staff reported that the department's use of only one climate scenario in NARCliM (v1.0), and that this had not been fully updated since 2014, has limited the usefulness and perceived currency of this data.

Another issue noted in interviews was that agencies have been waiting for more guidance from the department about to use the NARCliM projections before engaging with the information. This was due to concerns that the projections, and related climate information on the AdaptNSW website, do not consistently meet their needs: for example, agencies may need a range of emission scenarios to understand the range of risks, and to test for investment at different levels.

As noted, the department has taken steps to address agencies' concerns through the release of NARCliM (v1.5). But this has only been available since early 2021 to users of the NSW Climate Data Portal.¹⁶ Moreover, the department has not provided guidance to agencies on how to use each NARCliM (v1.5) emission scenario, and over what time periods. It is unclear whether the more extreme scenario (resulting in higher projected temperatures) should be used to test the integrity of existing assets, or should be used for planning future assets and services, or used for both. The 2021 CRR Guide also has limited information for agencies on which NARCliM emission scenarios they should be using when considering climate risks in different decision-making contexts.

This lack of guidance is relevant as the department's climate projections from NARCliM are listed under the NSW Government's Common Planning Assumptions, which are the 'agreed information assets' for use by state agencies to prepare proposals, business plans and strategies that rely on projections. NSW Treasury advises that use of the Common Planning Assumptions is required, unless agencies have documented an appropriate reason for not using them.

Within the department, the Water Group was provided with early access to the NARCliM (v1.5) data for use in the development of projections of future rainfall, streamflow and water storage levels. This is in addition to data from long-term paleo-historical climate record. Some concerns have been raised about the lack of a coordinated approach across the department in using the NARCliM projections.

The department advises that it plans to update the AdaptNSW website and climate snapshots based on the comprehensive NARCliM (v2.0) projections in 2022. It has also committed to producing other outputs such as state-wide maps and data for natural hazards under climate change scenarios (such as flooding, coastal erosion and lightning strike). The department advises that NARCliM (v1.5) needed to be completed prior to commencing the development of these maps, which are now to be delivered by June 2022.

The department's approach to communicating its climate information, including educating agencies about the climate projections, has been insufficient

The department's communications plans on climate projections have been insufficient because they have not clearly documented how it will educate agencies in the use of NARCliM since its first release in 2014. The AdaptNSW newsletters have been the principle means of communicating information on projections to agencies since 2014. The department advised that it has educated agencies on a one-on-one basis in response to requests, but there is no evidence about how routine this has been, or its outcomes.

The department's March 2019 communications plan for NARCliM outlines communications around the staged release of NARCliM (v1.5) and (v2.0) but its finalisation status is unclear. The plan is focused on technical users among a limited number of agencies, and it does not adequately consider engagement with other potential agency users and their range of information needs.

In August 2020, a communication plan was approved for the NARCliM (v1.5) release to technical users.

In December 2020, a two-year communication strategy and annual plan for the NARCliM projections were approved, which seek to raise the profile of the Department’s work related to communicating climate change impacts. The department advises that a communication plan for NARCliM (v2.0) was also proposed and is currently under review.

In mid-late 2020, the department also commissioned an overall communication strategy for the AdaptNSW website and related content, such as the newsletters. This strategy covers marketing and content, focused on community, researchers, local government and business users, but there is no detailed plan outlining responsibilities with the department and implementation timeframes.

The department's approach to educating state agencies remains unclear, especially in targeting the information needs of agencies with significant assets and services who need to identify and assess climate risks, and developing adaptation responses.

The Climate Risk Ready NSW Guide and Course are an opportunity for enhanced communication and engagement with agencies

The department and NSW Treasury published the CRR Guide for agencies in March 2021, and an accredited CRR Course, with 100 funded places for agency staff. These resources are intended to form the foundation from which capability is built consistently across agencies.

The department advises that agencies have been prioritised for engagement through the funding to attend the CRR Course. The department's information indicates that 52 staff from 17 NSW agencies have enrolled, including 22 staff that were involved in the 2020 pilot. Other course participants are from local councils in NSW, and from organisations in other jurisdictions.

There are opportunities for the department to facilitate the good practices being shared across agencies to assist in take-up of the CRR Guide, and to encourage climate risk assessment and adaptation planning. Along with feedback from agencies, this could inform updates to the Guide and Course. For example, Transport for NSW has developed relevant resources which could be adapted for use by other agencies. This is illustrated in Exhibit 10.

The department has taken steps to strengthen the planning system in relation to considering climate risk

The 2016 NSW Climate Change Policy Framework set directions for embedding climate change consideration in government decision-making. The department's role in land-use planning, guiding development controls, and building regulations, can affect a wide range of decisions by state agencies, and local government. These decisions have wide implications for communities and may also impact the climate resilience of state assets and services.

The department has taken steps to strengthen how the planning system considers climate risk and guides agencies on how to embed this in their decision-making.

The department produced the NSW Coastal Management Manual in 2018 to guide councils in the development of coastal management programs (CMPs). Under the NSW Coastal Management Act 2016, a local council may, and must, if directed to do so by the Minister, prepare a CMP. The manual requires that the CMP demonstrate how a council has considered the effects of projected climate change and how it may affect the relevant area. To date, three coastal management programs have been finalised.

The department is taking further steps, although much of this is in draft. Its reform package 'Planning for a More Resilient NSW' includes a draft environmental planning policy related to natural hazards. This draft policy aims to inform the preparation of regional, district and local strategic plans, planning proposals and other strategic planning. It outlines climate risks to communities, assets and services. In 2021, the department also released a Strategic Guide to Planning for Natural Hazards in NSW – A Toolkit and this refers to relevant resources including the AdaptNSW website and NARCliM outputs.

The department has stated it is working with NSW Treasury to develop an addendum to the Guide to Cost Benefit Analysis (TPP17-03) for agencies on how to include 'green infrastructure' in their cost benefit analyses for future projects. Green infrastructure includes waterways, bushland, tree canopy and green ground cover, parks, and open spaces, which can reduce the impacts of heatwaves in urban environments.

Weaknesses remain such that the department could do more to leverage its land use planning role to ensure agencies and communities are more resilient to climate change

There remain weaknesses in the planning system that create a risk that climate change will not be adequately considered by state agencies, or by local councils and the community which can in-turn impact state agencies' assets and services.

For example, few of the department's relevant State Environmental Planning Policies (SEPPs) mention climate change. There is no mention of climate change in the SEPPs for Coastal Management 2018, Koala Habitat Protection 2020, and Major Infrastructure Corridors 2020. We have been advised that the department is considering enhancing a range of instruments including SEPPs to improve community resilience, including consideration of climate change.

The department's 2018 Local Strategic Planning Statement (LSPS) Guidelines for councils do not refer to ‘climate change’ and how it should be considered, although they do refer to regional plans.¹⁷ The department's 2018 Guide to preparing Local Environmental Plans (LEPs) for Councils does not mention climate change and the 2006 Standard Instrument for preparing LEPs only mentions climate change in relation to planning for floods—this was included in an amendment to the instrument in 2021.

Of the 143 council LEPs we examined in March 2020, all make a reference to climate change, but this is only in relation to flood planning, reflecting guidance from the department's 2005 Floodplain Development Manual. This manual states it is important to consider climate change in flood studies and sea level in relation to flood risk, though it does not provide guidance on what future flood risks are acceptable. Fourteen LEPs refer to climate change at a high level, that is in the Aims of Plan section. One LEP requires the council to have regard to studies addressing 'global warming'. That the department's guide does not mention climate change means that LEPs, and council's subsequent Development Control Plans, are at risk of not considering climate change.

The Building Sustainability Index (BASIX) is a sustainable planning measure intended to drive reductions in household water and energy usage. BASIX requirements apply to all residential dwelling types and are part of the development application process in NSW.¹⁸ We understand the BASIX targets for energy usage and thermal comfort are currently under review in line with the Commonwealth of Australian Governments agreed Trajectory for Low Energy Buildings and the NSW Net Zero Plan Stage 1: 2020–2030. The department is not considering the potential impact of climate change in relation to these requirements.

A report commissioned by a council in January 2021 estimates that, for homes in the eastern suburbs of Sydney, there will be a 70 per cent increase in energy cooling requirements in 2030 compared with 2020, and a 300 per cent increase by 2070. The report notes that all dwelling types tested failed the current BASIX Thermal Comfort requirements for cooling in 2030 and 2070. This, along with information presented in Exhibit 6 about future predicted temperature across Greater Sydney, indicates that homes in NSW are currently being built for the present, but not for a potential future climate.

NSW Treasury has updated some relevant policies and guidance with climate-related considerations, but key gaps remain

NSW Treasury has the lead role in public sector stewardship for managing the financial exposure of the state's assets, economy and balance sheet to climate risk, and in supporting agencies to identify risks to their assets and services. Relevant activities include issuing policies and guidance on risk and financial management, and coordinating the state's responses to climate risk through the Sustainable Finance Steering Committee, the Climate Risk Steering Group and other executive forums.

NSW Treasury’s Internal Audit and Risk Management Policy (TPP20-08), Asset Management Policy for the NSW Public Sector (TPP19-07) and Guide to Cost-Benefit Analysis (TPP17-03) and Risk Management Toolkit for NSW Public Sector Agencies (TPP12-03) refer to the need for agencies to consider the impacts of climate change. For example, and in addition to the updates to the TPP20-08 which now cites climate change as a 'contemporary, emerging risk':

• TPP17-03 states that potential climate change impacts should be assessed in the same way as other risk factors that affect the economic life cycle of assets, as part of an agency’s ongoing risk management and decision-making for both existing and new assets
• TPP12-03b states that, when agencies are defining the external context in which they operate, they should consider a range of factors. One of these factors is identified as ‘environmental: impacts that your agency’s operations have on the built or natural environment, climate change.’ NSW Treasury has indicated that it plans to commence a review of the Risk Management Toolkit in 2021, which presents an opportunity to clarify and strengthen guidance on how climate change is considered in the risk management process.

NSW Treasury's updates to policy and guidance for agencies have been focused on guidance related to physical climate risk. Although not documented as part of a climate risk-related policy approach, according to NSW Treasury this focus been informed by considering the financial exposure these risks present to the state, and because assisting agencies to respond to physical climate risks will help NSW Treasury deliver on its state outcomes (see section 1.4).

There remain limitations in how climate change and/or climate risk is incorporated into NSW Treasury policies and guidance, which creates a risk that this will not be sufficiently understood and operationalised by agencies. Throughout its guidance, there is no clear articulation of the distinction between considering risks from individual natural hazards using historical data, and considering climate risk in relation to projected changes in the climate, which are likely to change the intensity and frequency of natural hazards.

Furthermore, there are gaps in specific policies and guidance materials.

• There is risk that climate change will not be effectively considered in the asset management process through the TPP19-07. The policy states that the ‘typical information' in an agency’s asset management plan should include: an assessment of the resilience and vulnerability of assets to the impacts of climate change, and proposed mitigations/ interventions,’ but the ‘typical information in an agency’s asset management plan’ is not a core requirement of the policy. As such, considerations of climate change may not be subject to an annual assurance review by Infrastructure NSW.¹⁹ Also, there is no reference to climate change in relation to strategic asset management plan requirements.
• State Owned Corporations (SOCs), which are major infrastructure holders and service providers, are not covered by the Internal Audit and Risk Management Policy (TPP20-08) or the Asset Management Policy (TPP19-07), such that the climate considerations in these policies do not apply.²⁰
  Guidance to SoCs and other government business related to how these organisations are overseen, managed and held accountable for performance, is provided through the Commercial Policy Framework policies, TPP18-02 and TPP17-10. These policies do not mention climate change.
• NSW Treasury’s Annual Reporting and Compliance Checklist for agencies does not mention climate change, although there is scope to do this.
• The Organisational Resilience: Practitioner Guide, TPP18-07, which is designed to provide advice on areas agencies can focus on to strengthen their resilience capability, does not refer to climate change.

There is also scope to refer to climate risk, and link to the 2021 CRR Guide, in relevant NSW Treasury policies and guidance to agencies, such as the:

• NSW Government Business Case Guidelines, TPP18-06
• Major Projects Policy for Government Businesses, TPP18-05
• NSW Gateway Policy, TPP17-01.

Finally, steps to finalising draft Guidelines for Resilience in Infrastructure Planning: Natural Hazards, which were developed by NSW Treasury and Infrastructure NSW in 2019, are unclear. The draft guidelines are a potentially critical source of information to agencies when considering how climate change exacerbates natural hazard risks: for example, it is noted that damage to one asset may impact on others and affect their capacity to provide services, making it essential that agencies consider the vulnerability of existing and new infrastructure to these risks.

The NSW Treasury technical papers accompanying the 2021 Intergenerational Report highlight the costs associated with climate risks

The 2021 Intergenerational Report technical papers, including one on physical climate risks, contain relevant information for agencies. The technical paper examines four areas of physical risk, relating to natural disasters, property and land damage from sea level rise, the effects of heatwaves on productivity, and the effects of climate change on agricultural production.

The modelling indicates that the fiscal and economic costs each year associated with natural disasters will more than triple by 2061. Significant costs associated with sea level rises, heatwaves and lost agricultural production are also predicted. These baseline costs, of identified physical climate risks, could be used by agencies to inform strategic planning documents, policy and program proposals, as well as adaptation plans for assets and services.

NSW Treasury also produced technical paper for the Intergenerational Report that models the transitional risks of climate change.

Governance and some reporting on the progress of the department and NSW Treasury’s efforts to support agencies manage climate risks have been in place since 2019

Progress in the delivery of support to agencies is overseen by the interagency Climate Risk Steering Group made up of senior agency staff, administered by the department and chaired by NSW Treasury. The steering group met six times between August 2019 and December 2020 to discuss progress in supporting agencies, including the development of the CRR Guide and Course.

The department and NSW Treasury have provided periodic updates to the Asset and Liability Committee (ALCO) on climate risk since April 2018 including updates on progress with the CRR Guide and Course in December 2019 and June 2020.

The ALCO noted extreme weather as a State Significant Financial Risk (SSFR) in June 2019. This risk was renamed to climate risk in December 2019. The inclusion of climate risk as a SSFR was to mean that the department, with NSW Treasury, would then report to ALCO once every 12 months on progress in managing this risk.

The ALCO Charter was updated in April 2021, including a new approach to categorising significant financial risks: as a SSFR, or as an 'Other Significant Financial Risk' (OSRs). Climate risk has now been categorised as an OSR. For SSFRs, ALCO retains primary responsibility for advising on the state's exposures and any mitigating action for SSRFs. For OSRs, this responsibility is covered by another government entity.

NSW Treasury has indicated this new approach attempts to clarify that the operational risk component associated with climate is the responsibility of the department, while the financial risk component the responsibility of the department, Resilience NSW, Treasury and iCare. NSW Treasury advises that the ALCO continues to monitor climate risk in the context of it representing a risk to the state's assets. We note, however, that OSRs do not require annual reporting to the ALCO, rather periodic reporting. It is unclear under what conditions this periodic approach to reporting will be activated. There is a risk that climate-related matters receive less specific attention and will not be subject to reporting at the ALCO at least once a year.

Going forward, both the department and NSW Treasury intend to report annually to the Secretaries Board. This follows the April 2021 endorsement for these agencies to develop a program of actions to better identify and respond to climate risk across government operations, with clear governance and against which progress will be reported. This 'roadmap' would cover an agreed program of priority actions for delivery by relevant government units, against which progress will be tracked.

The department has some draft evaluation documents relevant to their support to agencies, but the indicators have not been finalised, or reported against. There are drafts output and outcome measures for the Helping Communities become more Resilient to Climate Change (CRCC) program, such as AdaptNSW web analytics, Climate Data Portal user trends, the number of climate projections, hazard maps, and the number of XDI and (State of Assets Resilience) SOAR reports produced.

The department and NSW Treasury have plans but not a clear, confirmed approach to how they will monitor agencies’ progress or report on outcomes

There is limited information on how the department and NSW Treasury intend to routinely monitor agencies' progress with implementing the CRR Guide, or managing climate risks more broadly. There is no agreed mechanism for agencies to report on their climate risk management ‘maturity’ levels and progress with risk assessments and adaptation planning. NSW Treasury advises that planned mechanisms include reporting on agencies’ progress to existing governance forums.

The department previously developed performance indicators to monitor agencies’ progress, but the status of reporting on these is unclear. Examples of indicators from the department’s Regional Preparedness Operational Plan 2018–2021 are: percentage of agencies reporting climate risks; number of state agencies with a climate change risk assessment; and number of XDI test projects completed.

The department advises it will monitor the progress of the uptake of the CRR Guide, training and practices and report to the Climate Risk Steering Group during the tenure of this group. It plans to survey agencies’ take-up of climate risk assessment planning in 2021 and every three years thereafter. It indicated the survey will be based on previous surveys (in 2015 and 2018) to enable comparison and will include a series of questions that will evolve over time as government practice matures, for example regarding climate-related financial impact analysis by agencies and questions regarding the uptake of the CRR Guide and Course.

The department indicated procurement for the revision and design of the survey is in progress. NSW Treasury advises it intends to report future survey results and comparison over time to the Sustainable Finance Steering Committee and as part of the above-mentioned annual reporting to Secretaries Board.

We note that the other ‘emerging’ risk flagged in TPP20-08 is cyber security and that there is a requirement, under the NSW Cyber Security Policy, for agencies to report annually to Cyber Security NSW on their cyber security maturity. This indicates there is scope for NSW Treasury to require agencies to report annually on their climate risk management maturity.

No plans are in place to report progress to stakeholders or the public on how effectively agencies are managing climate risks to their assets and services.