Climate change is arguably one of the biggest challenges for the global economy
Climate risk was identified within our 2018 materiality review as an important area for the business to address. The Task Force for Climate Related Financial Disclosures has raised awareness of the need for greater transparency of exposure to climate risk for all business. We have been working to understand our exposure to both climate transition and physical risk since 2017.
The introduction of policies and regulations designed to reduce carbon emissions are a direct transition risk for the business. Examples already in place include the implementation of Minimum Energy Efficiency Standards in the UK, NZEB regulations in Ireland or energy audit requirements under Article 8 of the EU Energy Efficiency Directive.
Climate Risk Review
We carried out an extensive physical climate risk review of the UK, Ireland and French managed assets in 2019. This showed that climate change will expose the portfolio to:
Higher average summer temperatures
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An increase in the UK and Ireland of between 1.5 and 4.2ºC in peak summer temperatures by 2050s
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More frequent intense rainfall events in coastal regions, with drought expected for inland assets
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Up to 35 consecutive days of drought combined with a significant increase in extreme rainfall in southern France.
blueThe forecasts are based on the achievement of the most likely carbon reduction pathway – known as IPCC Medium Emission Scenario. Whilst these forecasts give an indication of expected outcomes under specific scenarios, we have already experienced much more rapid climate change than anticipated.
The medium emissions scenario describes a future world of very rapid economic growth, a growing UK population peaking in 2050 at nearly 9 billion and continued use of fossil fuels, but with an element of renewable energy use.
What this review does not do is provide an analysis of how the business might be directly or indirectly affected by policies required to achieve the IPCC Medium Emissions Scenario. We will be developing our understanding of this through climate scenario work which is planned for 2021.
