(C2.2) Describe your process(es) for identifying, assessing and responding to climate-related risks and opportunities.
Question dependencies
This question only appears if you select "Yes" in response to C2.1.
Change from last year
Minor change for FS only.
Rationale
Understanding how a company integrates the consideration of climate-related issues into its overall risk management framework provides insight into the thoroughness of the risk management processes employed by organizations. Companies that fully integrate and frequently assess climate-related risks and opportunities across their value chain and over a range of time-horizons may be better equipped to handle longer-term uncertainties and liabilities.
Connection to other frameworks
TCFD
Risk Management recommended disclosure a) Describe the organization’s processes for identifying and assessing climate-related risks.
Risk Management recommended disclosure b) Describe the organization’s processes for managing climate-related risks
Risk Management recommended disclosure c) Describe how processes for identifying, assessing, and managing climate related risks are integrated into the organization’s overall risk management.
Response options
Please complete the following table. You are able to add rows by using the “Add Row” button at the bottom of the table.
| Value chain stage(s) covered | Risk management process | Frequency of assessment | Time horizon(s) covered | Description of process |
|---|---|---|---|---|
Select all that apply:
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Text field [maximum 7,000 characters] |
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Requested content
General
- You are requested to provide information on the risk management processes at all the stages of the value chain applicable to your organization.
- Upstream value chain refers to activities, products and services that are inputs to the activities of your business, sourced from third parties. This may include the regulations and policies applied by governments, or the products and services provided by your suppliers (i.e. the supply chain).
- Downstream value chain refers to the third parties benefiting from the outputs, products and services of your business activities. This may be your customers and clients, or the organizations and projects your business invests in.
- Note that if your response to this question refers to the position of employees relevant to your risk management processes, do not include the name of any individual or any other personal data in your response.
Value chain stage (column 1)
- Select all the stages of the value chain that your risk management process covers.
- If you have separate processes for different value chain stages, you may add rows to describe those processes separately.
Risk management process (column 2)
- Select the option that best describes how your process for identifying, assessing, and responding to climate-related risks and opportunities is integrated into your overall risk management framework. If your organization has more than one process in place, select the one that is most commonly employed. You will have the opportunity to expand further in column 5 “Description”.
- Integrated into multi-disciplinary company-wide risk management processes: a documented process where climate-related risks and opportunities are identified and assessed in an integrated way in the company’s centralized enterprise risk management program covering all possible types/sources of risks and opportunities
- A specific climate-related risk management process: a documented process that identifies, assesses and responds to climate change risks and opportunities separate from other business risks and opportunities.
Frequency of assessment (column 3)
- Select the option that describes how often climate-related risks are assessed. If climate-related risk management is integrated into company-wide risk management processes then the frequency of assessment will be the same throughout the enterprise risk management process.
Time horizons covered (column 4)
- Choose all the time horizons that are considered in your climate-related risk assessment. For example, if you only consider risks that may impact your business in the short term, in line with your definition of time horizons provided in C2.1a, you should select “short-term” here. Or, if you consider, short-term, medium-term and long-term horizons, select all three.
- In case none of the time horizons provided in C2.1a are covered by this risk management process, select “None of the above/ Not defined” and explain the applicable time horizon or why it is not defined in the column “Description”
Description (column 5)
- Describe your process for identifying, assessing and responding to climate-related risks and opportunities, including:
- The process used to determine which risks and opportunities could have a substantive financial or strategic impact on the organization;
- How your organization makes decisions to mitigate, transfer, accept or control the identified climate-related risks and to capitalize on opportunities.
Note for financial services sector companies
- This question is asking about the processes used to identify, assess and respond to climate-related risks and opportunities within your operations and your supply chain.
- There is a separate question on portfolio risk management.
Explanation of terms
- Risk management: Risk management involves identifying, assessing and responding to risk to make sure organizations achieve their objectives. It must be proportionate to the complexity and type of organization involved (based on Institute of Risk Management, 2016).
Example response
| Value chain stage(s) covered | Risk management process | Frequency of assessment | Time horizon(s) covered | Description of process |
|---|---|---|---|---|
| Integrated into multi-disciplinary company-wide risk management process | More than once a year |
| Climate-related risk management is integrated into our multi-disciplinary company-wide risk management process. The objective of this procedure is to identify and control risks to ensure the positive business development of the organization and effective risk reporting, in compliance with laws and regulations. The process used to determine which climate-related risks and opportunities could have a substantive financial or strategic impact applies to all value chain stages and consists of two parts: Part 1 IDENTIFICATION: Both bottom-up and top-down processes are used to identify climate-related risks and opportunities. - All risks and opportunities (including climate-related) are identified and assessed on a regional level using regional expertise. For example, regulatory changes are monitored by Regulatory Affairs. All risks and opportunities with a considerable impact on net sales or costs and with a considerable likelihood of occurrence are reported to the group-wide Risk Manager. This represents a bottom-up, asset-level process leading to group-wide risk/opportunity identification. - At group level a top-down approach is also applied, whereby a team consisting of internal and external experts assess our business model to identify potential climate-related risks and opportunities. Part 2 ASSESSMENT: Identified risks and opportunities are assessed for substantive financial or strategic impact (greater than our defined threshold level of €50 million on EBIT). The effect of revenue-related risks and opportunities on EBIT are estimated, and cost-related effects are calculated by multiplying specific effects (e.g., cost increase per MWh or per ton of CO2 or raw material) by volume. In order to be conservative, potential price increases on sales which might balance out cost effects are neglected when the impact on EBIT is calculated. All inherent risks and opportunities above a financial impact of €50 million or higher are to be reported. Process for responding to climate related R/Os: After climate related R/Os have been identified and assessed, they are prioritized according to impact, likelihood and potential influence on net sales. There are different ways to treat risks: 1. Avoid risks with a high likelihood and high impact by stopping specific activities. 2. Reduce risks with a high likelihood but low impact by mitigation measures. 3. Transfer risks with low likelihood but high impact by insurance, outsourcing, etc. 4. Accept risk with low likelihood and low impact, if the cost to mitigate risk is higher than cost to bear the risk. Decisions need to be made which way of treatment should be applied. Basically, we mitigate risks if the respective measures lead to a strengthening outcome for our core business, e.g., through energy savings or diversification of sourced materials and suppliers. If mitigation measures are not possible for substantive risks but an insurance is available – e.g., for acute climate risks – we make use of this and transfer respective risks. If both options are not possible to realize we accept and control the risks. Our typical management method in regard to transitional risks is to reduce their impact by reduction of our energy consumption and carbon footprint in a systematic way. Climate-related opportunities typically require investments in plants, R&D or M&A. CASE STUDIES for the process used to determine which climate related R/Os could have a substantive financial or strategic impact: PHYSICAL RISK: - Situation: Our supply managers have experienced increased prices for agricultural raw material through bad harvests due to water scarcity. As the likelihood and severity of water scarcities is closely linked to climate change, this risk has been attributed to climate change in the top-down-part of the identification related step described above. - Task: In order to be able to prioritize this risk, its financial and strategic impact has to be assessed. - Action: To do so we follow the assessment process described in the text above including the comparison against the outlined threshold. - Result: The impact of this risk has been estimated to €69 million EBIT per year. This is above the defined threshold, so this risk has a substantive impact. TRANSITIONAL OPPORTUNITY: - Situation: Our sales force identified an increased demand for sustainably manufactured products. As climate-related issues form a major part of the related sustainability criteria, this opportunity has been attributed to climate change in the top-down part of the identification step described above. - Task: In order to be able to prioritize this opportunity, its financial and strategic impact has to be assessed. - Action: To do so we follow the assessment process described in the text above including the comparison against the outlined threshold. - Result: The impact of this opportunity has been estimated to €52 million EBIT per year, above the defined threshold. Hence this opportunity has a substantive impact. |
