Greg Irwin 0:18

Good day, everybody. Thank you all for joining. My name is Greg Irwin. I'm one of the partners at BWG. And we are partnered with the team over at WWT. That's World Wide Tech. And lead here today by Brendan Walsh, on a partnership that we've been pursuing over the past year related to driving and pursuing information sharing networking related to Senator sustainability, and sustainability, specifically, around technology. We've covered a number of topics and we pursue a monthly series where we get our group back onto onto a zoom to talk about, you know, topics in the area. And today we're going to be talking about elements related to regulatory compliance and disclosures and risks related to climate related events and and carbon neutrality. As such, we have Lorenzo Delzoppo joining us here from Co.Ris.Ma and I shared his link there in the in the chat. Without further ado, I'm going to ask Brendan to give a little bit of his intro, I'm going to ask Lorenzo to give us a little bit of his, and then we're going to jump right in, in terms of some stories about what companies are doing to tackle and get their arms around some of their disclosure and risk management requirements around some of these areas. Brendan, please, please give your intro to the group.

Brendan Walsh 1:55

Okay. Thank you, Greg. Good afternoon. Good morning, everyone. Or good evening. In some cases, they are delighted to be here. I think actually, this is a topic that's very near and dear to my heart. Why? Because prior to joining WWT, I actually had my own consultancy, and this was one of my big focus areas, they TCFD assessments, climate related disclosures, particularly in the financial community now and why, why is that? Hello. And suddenly ask yourself, why is this? Why is the theme of climate related financial disclosure, increasing in terms of visibility in terms of prominence, because essentially, with the intensification and the acceleration of climate related events, and the costs associated with that, that has a significant financial impact on the global economy. And so I'm sure you'll hear from Lorenzo we can talk more about it. But there is now run out by the formation of TCFD, the Taskforce on Climate-Related Financial Disclosure. And that became that essentially setting the scene for the tenants of disclosure. So that's been excited to be here today. Let me turn it over to Lorenzo. Thank you.

Lorenzo Delzoppo 3:31

Brief Introduction, then my name is Lorenzo Delzoppo, I'm actually a New York attorney. But I'm based in Miami, Florida. And my background is, as I said, in the regulatory environment, I start working for the European Union. That was my first job after law school. And I was working on actually on the unification of the Eurozone at the time. So I was exposed to all the financial intricacy of this, this huge project of putting together the the euro and then became very familiar with the let's see what the process is on and how actually a the the European government system works. After that here in the US, I've been working for multiple financial institution, I was the chief compliance officer in charge of monitoring and reporting, a for multiple financial institution and particularly for a Florida bank for over 10 years. And then, in 2017, I decided to create my own company, this consulting company called the Co.Ris.Ma Solutions. And we provide a pretty broad broad service a risk management services compliance risk management Service is mainly focused on poor financial institution in the US and abroad. When I say abroad, I'm talking about Caribbean LATAM. and the EU. And we focus a lot on anti money laundering of fraud, mitigation, regulatory compliance, licensing and any kind of reporting to the regulators. And ESG is becoming particularly a sector particularly interesting for us. Because from a interesting aspect, from the investors aspects, because we work a lot with, we many FinTech buy in when I say financial institution, many of those besides banks, many are like, actually startups and fintechs. And they, we saw an increase interest from from the side of the investors. So particularly, the investors are increasingly like applying some non financial factors as part of their analysis, in their process to identify like, material risks and growth opportunities in this kind of startups. So we saw a particular interest on that side. And so we, we started focusing on, on, on how to support practically not only the financial institution, but only, but also like, how those financial institution are, we help them raise funds, practically support their fundraising activities. And we saw that that is a very, it's a growing sector.

Greg Irwin 6:50

So let's, let's get into some stories here. But first, what are some of the standard disclosure requirements that, that are coming to bear here? And I'm glad, you know, we can start with TCFD. But you know, as, as somebody here who has responsibilities for general counsel, or for a board that, you know, is over a fairly complex organization, let's set the baseline in terms of what kind of regulatory compliance parameters come into play, both in North America and in Europe related to climate related disclosures?

Lorenzo Delzoppo 7:33

Yes, as I said, we are focusing on three different levels, like our activities, because we have the risk assessment level. And when I say risk assessment, I mean, you know, the say, if you can to read the scoreboard, you can see who's winning the game. So we help assess the actual ESG risk in a way that can be reported. And that the second side effect is actually the reporting and the third is actually managing the actual impact of the financial activities. We support the reporting piece we do not perform directly the report reporting for us, it's like is a set currently that only in the UK, we have actual regulatory requirements? It's a that's in this very recent, it's from April, April 2022, if I'm not wrong, that became there were mandatory rules for large businesses, these are for blood businesses that are about 500 employees, and certain amount of revenue, I don't remember. But that's, that is it dramatically change, like dramatically, a not dramatically change because it's very, it's very recent, they are actually working start working right now. On how to protect how to report actually reported, their, their impact, and how they can actually provide some useful, useful and it's a forward looking information on on the organization is actually addressing the climate related risk and opportunities. Like not only at the risk level, but at the business level. As I said, this is a very new thing. In in the EU, like the new European sustainability standard, they should become effective. I I'm not sure about the actual adoption of that. But it's Very limited to the disclosure of their sustainability impact, not only from the aspect of the company inside internally, but surely on the society and the environment. I think at the EU level, that is probably the most interesting change of point of view, like it really how, like, how the company per se Epstein's in a certain kind of society in the environment. It, I think is very interesting from because usually, Europe before, it has been very seen internally only internally, the ESG element internally, the company in the US, instead for the reporting, there is the proposal, the SEC is actually proposing certain reporting requirements to the investor, for public companies. This is it's, it's still at the stage, per se, that is there a stage that they are encouraging, they are not making it fully mandatory, they are a stage that they are collecting information from the public to come out with with the exact ruling, they are just a subject thing to adopt, because they haven't really adopted specific standards for for these disclosure of the material ESG risk, they are encouraging this, this because it actually represent a risk to the investors. So, they are seeing it from our point of view from a from a consumer protection, remember, like the SEC here in the US, it's a consumer protection investor protection. Organized like agency. So their point of view is very letter a lot of flexibility for for the for the actual company, public company, on on how to disclose those risks. And as I said, they haven't defined very clear standards. So we can think that those standards are very similar to the one for the like, you know, the financial disclosure, you know, like, for a company being a going concern, ongoing concern. Think about like, very, very close to accounting, financial status.

Greg Irwin 12:44

Can you give an example here of what the potential? I mean, maybe you've done some assessments for Yeah, it's but what's, what's the range of risks that need to be identified? What goes involved in terms of actually sizing and measuring those risks? And what is realistic over the next year or so in terms of these disclosure rules being being codified?

Lorenzo Delzoppo 13:11

I'm a very practical person. How about I show you, I will show you something. This is I just pull it out? Because it's something that I I'm building it actually for? Can I share it? Can you allowed me sharing? Okay, I apologize. Because this is, as I said, I'm, we are still at the stage that we are kind of building this infrastructure. And this is very financial institution. as a, as a very, let's say, they, they approach is very focused on financial institution. And as I said, I haven't completed yet we are analyzing, because you know, how the risk is the Analyze you, you need to identify what are the key risk indicators. And then you determine the inherent risk, then you you're associated associate a certain number of controls to mitigate that risk, so that you can get to the residual risk. So particularly the fact that a hurricane, I live in Miami, the fact that the hurricane is going to hit us is not a matter of if it's a matter of when, and the controls that you can put in place are very, very standardized. You can put shutters on on your windows and your doors, or you can move in an area that is not close to the ocean, these kinds of things. Very, very standardized responses to mitigate that risk. Here, I like we broke it down In, in three categories, like environmental climate, the social diversity, equity and inclusion and the oversight and management, in will, you have to think about the financial institution, they've been various affected, like, by, by, by certain rule with the social, with the social implication, like the Community Reinvestment Act. That is, that's something long, long time ago that old financial institution, they have actually to collect the data related to the lending activities, and they have to actually land in certain kinds of areas that are like low income areas. So, they already had a pretty good vision and the approach of how some social social, let's say impact monitoring has to be done. So, we kind of build on that point of view and infrastructure fracture, let me just make you the example like for the environment, environmental climate, something basic as electronic waste, such as a battery computer, TVs, etc, thrown in the trash to the detriment of the environment, some of these are very general said I apologize is like, we are building categories here. And we are throwing ideas into this. And like, in this case, to a risk like this, we can measure the inherent risk and the the inherent risk here is you have the impact and the likelihood that that can happen. In this case, the fact that there is electronic waste, the likelihood is very, very high, currently, because we can really diversify too much our our waste, particularly for an organization like a bank, and the impact for the environment is very high, because they ended up in the landfill. And what can we do the kind of control kind of control so we pick some finances to institution, they have the asset management programs. So like the, in the inventory, it like they, you can actually monitor what kind of inventory you have, and where that should be. How it should be disposed. Because, you know, it's a, it's something that is monetized on the balance sheet. Like, as I said, we can go through we have failure to identify money lending opportunities, this is important, this part is particularly important for, as I said, for financial organization, because, you know, it's, as I said, through the CRA system, the Community Reinvestment Act system, we can gather a lot of informations like, where you're lending, the kind of company that kind of areas that you're lending to. So, this is a way to actually support support on your community, like the ESG impact socially, in your actual community and, and environment. So, like, this is like a sample, as I said, we have apologizes like I had to refresh. And like, like in this case, is you can there are social diversity, equity inclusion, it also affected inside the company, like the, the employees. And when,

Greg Irwin 19:19

Lorenzo I see I see these items are very confused about how you measure them, or you measure the magnitude of them, or your ability to mitigate them. Correct. Aiming to understand, I think these risks appear logical, but they also appear pervasive. And yeah, so how do you measure these?

Lorenzo Delzoppo 19:45

Well, as we said, it's a it's a very, at this stage. It's a little bit of subjective assessment. Like there is an assessor The level of risk that you can measure pretty easily is the impact and the likelihood, like the likelihood that something that the risk can happen. So the inherent risk is pretty easy. The control per se, is a lot on the assessor that assess how good like the quality of those particular controls are. So present, what is the residual risk that we have at the end, that is what, what used for our purposes, that the purpose is, like, investor, like disclosure to actual investors. And in the reporting to the, like, in this case, let's say, for a public company, that the disclosure, our as we said, are, like, forward looking risk. Accurate. So, this is a way for sec to quantify that. I know that this looks general, but this is from a measurement standpoint, in a financial institution at this stage is as close to two verifiable numbers that you can get. Okay, that is the closest, as we said, like, you'll see things, let's say a risk, like this, you know, apply, that do not feel that they are treated fairly have equal opportunity to have a sense of belonging, and truly including the work environment due to differences in race, gender, religions are things that are very general categories. And this is like affected the social and the diversity, social diversity, equity and inclusion elements of the ESG. Like the controls, you can set up committee, you can designate employees that are in charge of verify that and you can have the periodic training. And all this you have individuals or committees that they can ask us, they make an assessment of how good are those controls to mitigate this particular risk?

Greg Irwin 22:31

Lorenzo, this is the thank you for sharing this. We have a number of questions here. And I think I'll bring up Brendan into this. Brendan, what are some of the salient points here in terms of the proposals that you think the team here should be well aware of above and beyond the reporting? The reporting standards that are currently currently in place?

Brendan Walsh 22:59

Sure, sure. So first thing I would say is, no one should be under any illusion about the direction of travel globally. Why? Because as of like, today, 38 of the top 50 global economies in the world, have either regulation in place are and are passing through government to enact disclosure regulation. So that's the first thing. And guess what, for the most part, that is modeled on or in some cases like the UK and New Zealand, Australia, Canada, it's actually called TCFD. Welcome back in what TCFD means, in terms of your specific question, in terms of how you measure it, that's the first thing. The second thing is there's not so much behind the scenes, credible amount of activity through different consortia. For example, there's a consortium of the roughly 700 financial institutions around the world who control between them 170 billion in assets, and they in turn up turn to their top 10,000 customers and saying, hey, you need to disclose through TCFD. So TCFD is definitely the direction of travel. But that's the first thing I would say. The second thing into the builder in a point that you raised a new Lorenzo strategy answer was how risks measure tower climate risks measure. And TCFD There's basically two types of risk identified physical risk, which can either be a chronic or one to chronic means ongoing or one time and transition risks and transitional risks could be things like regulatory it can be a market demand that can be technology technologically based. While the disclosure requirements, states as the companies have to look at both physical and transitional risks, and then quantify them. And to answer the question about how do you start to measure this, basically, in the case of physical risks, companies have to look out what their possible exposure has been, or could be to physical risks. And if that exposure is estimated to be, you know, in excess of 1% of a line item, like an asset on the balance sheet, then that has to be disclosed. So that's like the thinking in terms of the matrix to be used. So I think it's just wanted to get that out there that there's no question about the direction of travel. There are pretty clear guidelines there. Clearly, from a TCFD perspective, the focus has been on financial institutions first and foremost. And thereafter, you know, what we would call GSG, sensitive, high emitting industries, cement, oil and gas fertilizers. Why? Because they have the most exposure to transition risks. So that's why I thought it would be useful just to give people that background.

Greg Irwin 26:35

Brendan, what do you think the greatest challenge is going to be implementing this?

Brendan Walsh 26:45

One to touched on Al there. So think of the disclosure along a couple of different dimensions. There's the greenhouse gas score one score to score three, disclosure. And then there's the climate related risk disclosure, I just spoke about, certainly, as these regulations have come in, around the world, and we're looking at them coming in, in the US, clearly, that focuses on the requirements for companies to report their school three emissions, which basically are their ambitions and their entire value chain, purchase goods and services, capital gains rate through investments, and so on, so forth, that most companies have historically not collected that data, why, and there's been non regulatory requirements for it be, it's hard to collect, because there's lots of different stakeholders involved internally, externally. There's a lot of time and effort involved in doing that. But now that that is looking mandatory, and in fact, some of the major US companies like Salesforce example, for example, have mandated that for the top 1000 customers. So the thinking being that that will cascade down through the industry. So to answer the question, data, the collection of scope, three data, the calculations that go with it, are probably the biggest stumbling block. And we see that all the time. And pretty much every discussion we have today is in and around school, three, the calculation of it, you know, how to really get the data from how that is stored. And I think that is why you have seen, there's such a massive increase in technology providers, providing these platforms that can not only report and manage your scope, one, two, and three. But thereafter, Lincoln to CDP for reporting to TCFD, they'll even do some of the TCFD reports are the basis of them, and so forth. So data is one big challenge. The other is specific to TCFD. And it's an area of scenario analysis, where companies actually have to look at different scenarios that they could be exposed to, and make an informed guess about what their exposure is.

Greg Irwin 29:13

Alright, Lorenzo and Brendan, let's do a closing comment. I'll remind folks if you haven't already follow, sustainable ETC. Let us know if we can help connect people across the group. And now for our final wrap up Lorenzo. Any closing comments here for for for our attendees?

Lorenzo Delzoppo 29:34

Well, just a note on on Europe, European let's remember that the standards Okay, there are general standard, but it's the kind of patchwork because there are like internal implementations and like the the probably the the actual, we will see the actual penalties at the at the street level at the country level more than the EU level and the other. The other note that just want to as a closing is we are in a transition period, as we said, we are getting like it's gonna take another couple of years probably to have actual, the actual reporting like and to to implement those requirements. And who's going to start first to start collecting the data, they will have an amount of data that will facilitate the dramatically the the complying to those requirements. So better start as soon as possible. Because my only advice. At least try.

Greg Irwin 30:52

Very good Lorenzo Thank you, Brendan, any closing comments for our group?

Brendan Walsh 30:57

Discussion, traffic info, great questions, I think, be under no illusion disclosure is coming to either that is going to be through disclosure of scope, one, two, and three, or disclosure of your underlying risk. And it's not just for you as the entity, you will be required to do that by people that you supply to so that the supply chain is very much focused on this as well. So it's coming. I think it's best just to get ahead of it. As you heard Lorenzo say. I stopped planning for that.

Greg Irwin 31:36

Excellent. All right, everybody. It's we're at the top of the hour. Time to wrap up. Thank you, Lorenzo. Thank you, Brendan, and thank you all for joining and sharing. One done Wanda and Cassie and Shawn, thanks for jumping in here. Imran. Thanks for your your report. David, thanks for your report. Let me know if I can help people connect. Thanks, everyone. Have a great day. Thank you. Bye bye. Thanks.