Climate change adaptation and risk management
As recommended by the Task Force on Climate-related Financial Disclosures (TCFD), we continue to monitor our risks and opportunities related to climate change.
As a company, we’re exposed to physical risks – such as those associated with water scarcity, flooding and weather events – and transitional risks, such as changes in technology, market dynamics and regulation.
We have sustainability assessments in place for all material investment projects. For the last seven years, we’ve implemented an internal carbon price for these investment decisions, anticipating the impact of any future carbon pricing.
Annually, we quantify the potential transitional risk impact of any global carbon taxation by multiplying our carbon footprint (Scopes 1 and 2) with the internal carbon price. To analyze different potential scenarios, we calculate the impact using a carbon price ranging from €50 to €150 (per ton), the latter being the suggested UN price on carbon. That range results in an impact well below 1% of 2022 revenues.
Our suppliers and customers might be impacted by carbon pricing, which creates both risks and opportunities. For example, we can mitigate the carbon cost impact for our customers by offering sustainable solutions (see Carbon emissions in our full value chain).
Physical risks: Natural catastrophes
As climate change will most likely increase the frequency of natural hazards, during 2022 we’ve further analyzed the natural hazards our operations are exposed to.
As part of our risk and insurance process, we collect information about our sites by conducting risk engineering site surveys. Risk engineering is a methodology for mapping hazard risks – to evaluate the frequency and the consequences of potential hazards related to the production process – and natural hazards.
Annually, around 20% of sites are assessed following a materiality-based approach. The scope and frequency is based on the replacement value of the site, in a cycle of three to five years.
Natural hazards taken into account during this process are: earthquakes, floods, drought, hailstorms, lightning, wind, tornados, subsidence, landslides and active volcanos.
Based on these assessments, several sites are in scope with increased risk, due mainly to the potential for natural catastrophes. Based on the individual risk assessments, we put measures in place to mitigate the risks to an acceptable level.
We’re currently studying what additional temperature changes (climate scenarios) would mean for our current risk profile. As indicated in Summary of significant accounting policies in Note 1 of the Consolidated financial statements, we assess the carrying value of intangible assets, property, plant and equipment and right-of-use assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable as a result of risks, including environmental and climate change. With regards to the risks related to water, we use the Aqueduct water risk atlas developed by the World Resources Institute to assess the level of risk at our production locations – an exercise run every three years (see Report 2021). For 2022, we observed a decrease in overall water consumption compared with 2021.
We continued to assess our suppliers in 2022 and take steps to better understand and manage risks around the globe from a supply perspective. We implemented a new early warning process using the “riskmethods” tool, which immediately informs us if one of our critical supply chains is potentially under risk. We also proactively map supplier locations against natural catastrophes and work with suppliers on risk mitigation plans (see Sustainability and risk management with our suppliers).
We’re also exposed to transitional risks, such as market and technology shifts, reputation risks and policy and legal changes. Identifying and addressing risks, including transitional risks related to climate change, is part of our regular risk management process (see Risk management).
The total amount of greenhouse gas (GHG) emissions caused during a defined period of a product’s lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted. Greenhouse gases include CO2, CO, CH4, N2O and HFCs, which have a global warming impact. We also include the impact of VOCs in our targets.