2024 CRD Report

About this report

This report is the Vector Limited group's (Vector or the group) first mandatory climate statement prepared under New Zealand's climate-related disclosures regime. The Vector group comprises Vector Limited and its subsidiaries. This report relates to the reporting period 1 July 2023 to 30 June 2024 and constitutes Vector's climate statement in respect of that period under the Financial Markets Conduct Act 2013 (FMCA).

Under the FMCA, Vector is required to produce climate statements that comply with the Aotearoa New Zealand Climate Standards (NZCS) 1, 2 and 3 issued by the External Reporting Board (XRB). Accordingly, this document has been prepared in compliance with NZCS 1, 2 and 3, and covers four thematic areas: governance, strategy, risk management, and metrics and targets.

The intended primary users of this report, are existing and potential investors, lenders and other creditors.

This report is published as part of a reporting suite, which also includes our 2024 greenhouse gas emissions inventory report, and annual report. All three reports are available at vector.co.nz/ investors/reports.

Given this report relates to the FMCA and NZCS requirements, it necessarily differs from earlier Vector reports prepared voluntarily in response to the recommendations of the taskforce on climate related financial disclosures.

Unless the context otherwise requires, all references in this report to we, us, our and Vector should be interpreted to relate to the Vector group.

Approved on behalf of the Board on 26 August 2024.

Adoption provisions

Vector has elected to use the following NZCS2 adoption provisions for this FY2024 report. This means the disclosures in this report do not cover these aspects of the NZCS, though some information is provided to maintain consistency with Vector's wider disclosures.

Adoption provision 1: Current financial impacts

Adoption provision 2: Anticipated financial impacts

Adoption provision 3: Transition planning

Governance Strategy Risks

Disclaimer

This report is not earnings guidance or financial advice for investors. Rather, this report provides a summary of Vector's current understanding of, and response to, climate-related risks and opportunities, and Vector's current climate- related governance, risk management, strategy, metrics and targets. The report reflects Vector's current understanding as at 26 August 2024, in respect of the 12 months ended 30 June 2024.

Climate-related risk management is an emerging area, and often uses data and methodologies that are developing and uncertain. Vector acknowledges that the understanding of climate risk, and the inputs to assist with this understanding are constantly evolving.

Vector (including its directors, officers and employees) do not:

• represent that the statements, intentions and/or opinions contained in this report will not change, or will remain correct after publishing this report, or
• promise to revise or update those statements and opinions if events or circumstances change or unanticipated events happen after publishing this report.

Vector is committed to progressing our response to climate- related risks and opportunities over time but is constrained by the novel and developing nature of this subject matter. In particular, the statements contained in this report involve assumptions, forecasts and projections about Vector's present and future strategies and Vector's future operating environment. Such statements are inherently uncertain and subject to limitations, particularly as inputs, available data and information are

likely to change. As such, Vector cautions reliance on climate- related forward-looking statements that are necessarily less reliable than other statements Vector may make in its annual financial reporting.

The risks and opportunities described in this report, and Vector's strategies to achieve our targets, may not eventuate or may

be more or less significant than anticipated. There are many factors that could cause Vector's actual results, performance or achievement of climate-related metrics (including targets) to differ materially from that described, including economic and technological viability, climatic, government, consumer, and market factors outside of Vector's control. Vector gives no representation, warranty or assurance that actual outcomes or performance will not materially differ from the forward- looking statements.

To the maximum extent possible under New Zealand law, Vector (including its directors, officers and employees), does not accept and expressly disclaims any liability whatsoever for any direct,

indirect or consequential loss or damage occasioned from any use or inability to use the information contained in this report, whether directly or indirectly resulting from inaccuracies, defects, errors, omissions, out of date information or otherwise.

Vector makes no representation as to the accuracy of any information in this report. We recommend you seek independent advice before acting or relying on any information in this report. Vector reserves the right to revise statements made in, or its strategy or business activities described in, this report, without notice.

This disclaimer should be read along with other methodologies, assumptions and uncertainties and limitations contained in this report, as well as in Vector's greenhouse gas emissions inventory report for FY2024.

Unless the context otherwise requires all references to amounts in $ in this report are estimates, are in NZ dollars and all references to balances or amounts relate to amounts at the end of each financial year, namely 30 June.

This report is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, or other interests. Nothing in this report should be interpreted as capital growth, earnings or any other legal, financial tax or other advice or guidance. For detailed information on our financial performance, please refer to our annual report,available on vector.co.nz/investors/reports..

Vector's board oversight

Vector Limited's board of directors is the governance body ultimately responsible for overseeing Vector's strategic direction and its climate-related risks and opportunities. Climate-related risks and opportunities are considered as part of Vector's 16 group-level material risks that are monitored with priority. These 16 risks are generally reviewed four times per year at the group material risk review. In FY2024 four of these 16 risks relate to climate change. Refer to the governance report within Vector's annual report for a list of these group material risks [1].

The board's role in relation to climate-related issues is supported by two board committees: the audit committee, and the risk and assurance committee. These committees have delegated responsibility for managing Vector's risks, including its climate- related risks and opportunities.

The audit committee is responsible for oversight of climate- related reporting. This committee meets to review key accounting decisions which include those regarding climate- related scenarios, materiality thresholds, consolidated risks and opportunities, as well as greenhouse gas emissions quantification and target. The audit committee is responsible for reviewing and recommending the climate-related reports, under the Financial Markets Conduct Act (FMCA), for board approval. The audit committee is responsible for ensuring Vector's climate-related disclosures comply with the New Zealand Climate Standards

(NZCS) and is responsible for external reviews and assurance in relation to the climate-related disclosures. The independent reasonable assurance of Vector's greenhouse gas emissions by KPMG is set out in Vector's greenhouse gas inventory report [1].

The risk and assurance committee is responsible for the oversight of climate-related risks and opportunities as part of the committee's oversight of Vector's enterprise risk management framework.

These two committees are accountable to the board and each generally meets at least four times per year. Following each meeting the relevant committee updates the board in relation to matters within its scope that significantly affect Vector, as well as noting decisions of the committee and recommendations to the board. The board notes or approves the findings or recommendations of the committees as appropriate.

All committee papers are available to the full board and all directors have the opportunity to submit questions and/or attend committee meetings.

Members of Vector's management attend the meetings of the committees also, where relevant, to provide a two-way engagement between the board and management. Charters of the board and relevant committees can be found in the governance section of Vector's website [2].

Board

Executive

Group

Level

Board of directors

Governance body ultimately responsible for overseeing Vector's strategic direction and Vector's climate-related risks

and opportunities. 7 Members

Executive management

Executive leadership and day-to-day management for ensuring delivery

and development of the strategic objectives. 7 Members

The board ensures that it has the appropriate skills and competencies by accessing expertise from within the group as well as external advice where needed. For example, the group sustainability team has expertise in physical and transitional climate change trends, while the group insights team has skills to produce and update transitional scenario models for the electricity distribution network. The board also holds sessions that assist in upskilling the directors on topics relevant to Vector's businesses. For example, in FY2024 the board held a session with the National Institute of Water and Atmospheric Research (NIWA) on climate change and the impact of extreme weather events on Vector's network. Vector's board charter requires that all directors continuously educate themselves to ensure that they can perform their duties appropriately and effectively.

A summary of key board and board committee meetings in

FY2024 is found in figure 1.

Vector's executive management oversight

The group chief executive is responsible for the day-to-day leadership and management of Vector's businesses to ensure the business strategy and objectives are successfully developed and delivered.

The climate change steering committee is a subcommittee of

the executive, consisting of five members, and normally meets

monthly to provide executive oversight of climate-related topics including climate change risks and opportunities. The climate change steering committee is chaired by the chief public policy

and regulatory officer, who holds overall executive responsibility

for climate-related risks and opportunities. The climate change steering committee reports to the chief executive periodically via

the chief public policy and regulatory officer.

September 2023

1. Reviewed group material risks which includes climate-related risks - this process occurs quarterly.

1. Update on Vector Technology Solutions - this process occurs quarterly and is related to the energy platforms opportunity.

1. Board deep dive on climate- change weather impacts with NIWA.

December 2023

1. Discussed electricity network preparation for extreme summer conditions.

1. Reviewed group material risks.

May 2024

1. Reviewed group material risks.

1. Approved short-term incentive measures for the following
   financial year.

1. Update on Vector Technology Solutions.

March 2024

1. Reviewed group material risks.

1. Update on climate-related risks and opportunities identified through the business unit risk review.

1. Approved the electricity asset management plan which contains 10-year investment and maintenance programmes over the period
   1 April 2024 to 31 March 2034.

February 2024

1. Update on scenarios, methods, and judgments influencing
   Vector's FY2024 climate-related disclosures.
2. Update on Vector Technology Solutions.

June 2024

1. Reviewed key judgments made during modelling, carbon emission calculation, and a draft of the climate-related disclosures.
2. Approved the gas asset management plan which contains 10-year investment and maintenance programmes over the period 1 July 2024 to 30 June 2034.

August 2024

1. Recommended climate-related disclosures to the board.

1. Recommended the greenhouse gas emissions inventory report to the board.
2. Approved climate-related disclosures.

1. Approved greenhouse gas emissions inventory report.

1. Update on Vector Technology Solutions.

1. Approved staff incentive target for the following financial year.

1. Board audit committee

1. Board risk and assurance committee B Board

Tracking climate-related metrics and targets

The climate-related metrics set out in this report are prepared by Vector's management and discussed with the Vector board audit committee. The metrics are monitored by management and integrated into performance dashboards. Any noteworthy changes in Vector's performance against metrics can be presented to the group chief executive via a chief public policy and regulatory report. Relevant contents from the monthly report are then reported to the board in the group chief executive's report.

As noted on page 23, Vector's greenhouse gas emissions reduction target was developed by thinkstep-anz, and approved by the board in FY2021. In addition, Vector has targets for consumer outages which are set by Vector's economic regulator, the Commerce Commission.

Progress against Vector's targets is monitored by Vector's management and integrated into performance dashboards. Also, Vector's management is responsible for updating the board on performance against these targets. For example, consumer outage performance is presented to the board in an electricity distribution networks operational board paper.

In FY2024, short-term incentive payments for Vector's executive and their direct reports included a component linked to Vector's performance against its emissions reduction and consumer outage targets. These incentive targets are designed and agreed by the executive team, and approved by the board. Specific details can be found in the metrics and targets section on page 29.

Vector's group oversight

The Vector group risk team is responsible for Vector's enterprise risk management framework. Risks, including climate-related risks and opportunities, are identified, assessed and managed across the group in line with the enterprise risk management framework and the group risk assessment criteria. This approach to risk management is designed to ensure that there is appropriate and regular board and management oversight of material risks identified to drive informed decision-making. Vector's group sustainability team consults with Vector's business units to drive Vector's climate change strategy. The group sustainability team reports to the chief public policy and regulatory officer and sets the agenda for the climate change steering committee. Greenhouse gas emissions are accounted for by group finance, with transitional scenario modelling conducted by the group insights team or external consultants, as needed.

Vector annual report, half- yearly report, and operational performance updates

Discloses financial and operational information at a group level.

Integration with climate-related disclosures: Operational statistics disclosed in the operational performance update inform the metrics and targets section of the climate-related disclosures. Some information from the climate-related disclosures, and greenhouse gas emissions inventory report is repeated in the annual report so that fair and accurate information is available to readers of the annual report.

Electricity and gas distribution information disclosures

Annual disclosures of historical financial and non-financial performance, in accordance with regulatory information disclosure requirements.

Integration with climate-related disclosures: Metrics disclosed here, such as SAIDI/SAIFI, inform the metrics and targets section of the climate-related disclosures.

Electricity and gas distribution price quality statement

Annual assessment of performance against price path and quality standards, in accordance with distribution services regulatory price/quality path requirements.

Integration with climate-related disclosures: Metrics disclosed here inform the metrics and targets section of the climate-related disclosures.

Strategy

Vector's transition plan

A key aspect of Vector's strategy, known as Symphony, aims to use digital technologies, specifically demand-side orchestration, to more efficiently manage the electrification during the low- carbon transition.

Vector's strategy for our electricity distribution business is to orchestrate distributed energy resources, such as managable electric vehicle (EV) charging and hot water effectively, to reduce the need for additional spend on infrastructure. Vector's electricity management plan reflects this through a future network road map [3].

This strategy reduces the traditional approach of constructing physical infrastructure to meet increasing peak demand. While Vector may still earn an appropriate return on this larger infrastructural spend, consumers may be impacted by a higher price for their electricity. This opens Vector to regulatory/policy risk, which is detailed in risk 1: inability to efficiently manage peak load.

Vector's strategy for our gas distribution business is to advocate to government and regulators for a managed gas transition whereby future gas network costs and potential stranded asset value is recovered from current consumers through capital recovery models such as accelerated depreciation. As Vector's gas network is regulated, we need clear and timely policy direction and regulatory coordination to achieve this while minimising impact to future consumers during the transition. Our gas asset management plan reflects this strategy, for example by minimising capital expenditure where it is safe to do so [4].

Our approach to asset management

As a regulated entity, Vector publishes detailed 10-year electricity and gas asset management plans, available here [3,4]. These plans detail our prudent asset management strategy, and are informed by asset management specific scenario modelling - see

figure 2 on page 12.

Our approach to using climate scenarios

Vector has developed three group climate scenarios, as outlined in the adjacent table, which adapt data from the Intergovernmental Panel on Climate Change (IPCC) Assessment Report Six [5] for physical analysis, and the Network for Greening the Financial System (NGFS) [6] (an international network of central banks and supervisory authorities including the Reserve Bank of New Zealand) for transitional analysis. We consider that the IPCC scenarios [5] are best suited for New Zealand physical risk impact analysis due to their data availability. Likewise

we consider that the NGFS scenarios are relevant to Vector's assessments as they capture the consumer burden on an unmanaged transition.

These group scenarios were initially developed by Vector's management, informed by existing scenario modelling for asset management, globally recognised scenarios, and engagement with the wider electricity distribution and transmission sector in New Zealand. These group scenarios are assessed and if necessary updated with oversight from our climate change steering committee and board audit committee. For example, if changes to the group scenarios are considered necessary, these would be discussed by the climate change steering committee who would then provide a recommendation to the board audit committee for final approval of changes.

Orderly decarbonisation

• Limits warming to 1.5ºC (RCP 1.9) by 2100
• Net zero by 2050 in New Zealand and globally
• Transition includes uptake of digital platforms for demand-side management
• Rapid electrification managed through demand response
• Regulations aligned with decarbonisation, and pricing models that manage whole-of-system costs
• Ongoing efforts with energy efficiency to reduce demand
• Managed transition away from fossil fuel gas
• SSP 1-1.9

Disorderly decarbonisation

• 2.7ºC world (RCP 4.5) by 2100
• New Zealand still achieves net zero by 2050 but via a disorderly transition
• World maintains current emissions until 2050 and net zero by 2100
• Transition focuses on large-scale renewable supply with no demand side or digitalisation
• Rapid unmanaged electrification
• Regulations lag behind decarbonisation efforts and create barriers to efficient decarbonisation
• Consumers bear the cost of an expensive unmanaged transition
• Unmanaged transition from fossil fuel gas
• SSP 2-4.5

Hothouse

• 4.4ºC world (RCP 8.5) by 2100
• Emissions triple by 2075
• Policies revert New Zealand to the fossil fuel era
• Consumers bear the cost of expensive fossil fuel energy
• Regulations block decarbonisation spending
• SSP 5-8.5