Construction and Building Materials TCFD Preparer Forum Communicating Collective and Individual Climate-Related Challenges and Action July 2020 in Collaboration With

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Construction and Building Materials TCFD Preparer Forum Communicating collective and individual climate-related challenges and action July 2020 In collaboration with:

2 Construction and Building Materials TCFD Preparer Forum Contents

1 | 4 Executive summary

2 | 7 Introduction

3 | 11 Context: The construction sector and the climate challenge

4 | 15 Climate risks and opportunities across the value chain

5 | 27 Strategic resilience

6 | 40 Metrics and targets

7 | 50 Developing climate disclosure through collaboration

8 | 55 References

3 Construction and Building Materials TCFD Preparer Forum 1 Executive summary

4 Construction and Building Materials TCFD Preparer Forum 1 Executive summary

The construction sector To stay resilient in the long term, Three years on from the release provides essential products, those operating in the construction of the TCFD’s recommendations, infrastructure and services sector must manage their corporate reporting on climate that drive growth and exposure to climate-related risks change is still evolving. The 2019 productivity and improve while decarbonizing production TCFD Status Report shows social conditions around processes, product offerings that, although companies have the world. The sector is built and infrastructure design by made progress, the pace of around a complex global value incorporating low-carbon solutions. implementation is slow and there chain that encompasses Their ability to do so, alongside is scope for improvement in diverse materials, products commercial viability, will depend climate-related financial disclosure and processes and supports on collaborative action across practices. In particular, disclosures the livelihoods of millions the value chain, development of about the potential financial impacts of people. In the coming supportive policy frameworks and of climate-related issues and the decades, the sector will investment in innovative, low- resilience of company strategies provide crucial practical carbon technologies. under different climate scenarios solutions to enable society require more clarity. to respond to the challenges The Task Force on Climate- of population growth, related Financial Disclosures The aim of this report is to provide increasing urbanization (TCFD) Construction and Building a snapshot of progress, including and climate change. Materials Preparer Forum (“the examples of how Forum member Forum”) is a collaboration companies are providing effective Construction and building materials between ArcelorMittal, CRH, climate-related financial disclosures. are vulnerable to climate-related LafargeHolcim, Lendlease, Saint Forum members have explored transition and physical risks. Gobain, Skanska and the World ways in which participants in the Transition risks, such as the Business Council for Sustainable construction and building materials introduction of carbon pricing Development (WBCSD). Forum value chain can collectively policies, have the potential to drive members collectively represent contribute to the objectives of the operational costs up throughout key players in the construction TCFD. They discuss some of the the value chain. Physical risks, such and building materials value chain. challenges in responding to the as increased severity of extreme The Forum’s collective aim is TCFD’s recommendations and weather events, could disrupt to advance the implementation meeting the expectations of users supply chains, halt operations and of the TCFD recommendations of climate-related information. The damage valuable assets. But there by sharing members’ report also includes perspectives are also opportunities in improving experiences in implementing the from information users, including societal resilience to climate recommendations. Members’ investors and other financial market change. The sector will play a dual commentary is supported by participants, who use climate- role – firstly, providing infrastructure examples of effective practice related financial disclosures to that is resilient to a changing climate consistent with the TCFD’s assess and quantify risk and make and extreme weather events, and recommendations and proposals decisions about how to allocate secondly, reducing its own carbon on how disclosures might evolve financial capital. footprint to reduce emissions and over the TCFD’s “implementation help limit climate change. path”. This anticipates the development of climate change- related disclosure practices over the three to five-year period following the publication of the recommendations in June 2017.

5 Construction and Building Materials TCFD Preparer Forum understanding of expectations Construction and building materials MAIN FINDINGS AND THEMES and requirements around the low companies face specific challenges FROM THE REPORT carbon transition; transparency associated with long-term planning Strategy: Climate risks and and standardization in emissions and value chain complexity. In Forum members opportunities - reporting and the development particular, defining Scope 3 publicly disclose their climate- of ‘green’ labelling systems. emissions context and materiality related risks, which can broadly at different stages in the value chain be categorized into key themes: Strategy: Strategic resilience - is a key challenge. Further work and policy and legal; technology; Strategic resilience refers to the consultation is needed to improve market; reputation; chronic physical; way in which a company’s strategy the application and reporting of and acute physical. Member’s supports and prepares it to achieve Scope 3 emissions. disclosures typically summarize a resilient state under different the potential business impacts of climate scenarios. When assessing In this report, Forum members risks and the mitigation measures in strategic resilience, users seek provide a table of illustrative place to reduce them. forward-looking information, for metrics designed to enhance example climate strategy that goes disclosure and provide options Members also disclose the beyond just carbon performance, companies can choose from when business opportunities associated to evaluate how a company might communicating climate-related with the low-carbon transition. cope under different scenarios and objectives and performance. The These include: in what ways it needs to change. expectation is not to report against all of the metrics listed, but to • Product and process Forum members demonstrate innovations that reduce the provide options to support TCFD resilience by disclosing how climate implementation over time. embodied carbon of final considerations are integrated into products; governance and risk management Developing climate disclosure processes. In addition, companies Forum • Material innovations that through collaboration - reduce the operational carbon can demonstrate resilience through members outline four critical levers emissions of finished buildings; disclosures which highlight how that are necessary to accelerate, opportunities presented by the improve and develop TCFD • Renewable energy generation low carbon transition are being implementation approaches:

and procurement; capitalized on, such as through innovation and research and 1. Complementing company- • Transport and distribution development activities. To consider specific climate disclosure network optimization; and long-term strategic resilience some with a value chain approach Forum members are exploring to preparing and interpreting • Implementing technologies scenario analysis, supporting climate-related financial such as carbon capture, discussions around preparedness information; utilization and storage (CCUS). and responses to climate change. 2. Actively supporting Forum members acknowledge that, Metrics collaboration between whilst they share many climate- Metrics and targets - and targets demonstrate companies in the construction related risks and opportunities, how companies measure and sector, and their partners, impacts and responses differ monitor climate-related risks and suppliers and investors; depending on where a company opportunities and how they are operates within the value chain. The 3. Developing practical tools progressing in implementing a decisions and actions taken in one to enhance climate-related strategic response. part of the value chain have knock- disclosure; on effects for those operating Forum members disclose 4. Securing enabling support from in other areas and this can both operational metrics and investors and policy-makers to facilitate and frustrate the transition performance over time, including enable corporate climate action to a low-carbon, resilient value greenhouse gas (GHG) emissions, and disclosure. chain. The Forum recognizes the carbon intensities and renewable/ power of strategic collaboration to low-carbon energy use. Forum drive this transition, realized through members are beginning to dialogue to create alignment report forward-looking climate- on policy advocacy positions; related financial metrics, such as engagement between customers/ investments in low-carbon projects. clients/suppliers to create a shared

6 Construction and Building Materials TCFD Preparer Forum 2 Introduction

7 Construction and Building Materials TCFD Preparer Forum 2 Introduction

Forum members represent • Architects and engineers; BACKGROUND TO THE specific parts of the construction • Developers; FORUM, ITS MEMBERS and building materials value • Construction companies; AND PURPOSE chain (see Figure 1). Unless The TCFD Construction and otherwise stated, the phrase • Investors and financiers, Building Materials Preparer Forum “Forum value chain” refers to including local governments (“the Forum”) was established the parts of the construction and municipalities; in July 2019. sector value chain in which Forum • Insurers; Coordinated by WBCSD, it member companies operate. • Property owners and users; comprises representatives from Reference to the “construction • Refurbishment and repurposing six companies – ArcelorMittal, sector” covers the sector as a companies; and CRH, LafargeHolcim, Lendlease, whole, including those parts of • Deconstruction companies. Saint-Gobain and Skanska. the value chain that fall outside of The senior management of Forum members’ direct activities. In this report, Forum members member companies have made The construction sector value explore the ways in which they public statements in support chain includes: can collectively contribute to the of the TCFD’s work and have objectives of the TCFD. The Forum’s welcomed the initiative to enhance • Extractors and processors commentary is designed to support transparency regarding climate- of raw materials; investors’ understanding of climate related financial risk. • Manufacturers of building risks and opportunities across the materials (e.g. steel and construction value chain, including cement); how connections and points of influence within the value chain can • Manufacturers of other support the low-carbon transition. products for the built environment (e.g. equipment, fittings, construction elements);

Activities conducted by Forum members within the “Forum value chain” Figure 1:

Raw material extractors and processors

Manufacturers & distributors of construction materials

Construction companies

Developers

Property owners and users

8 Construction and Building Materials TCFD Preparer Forum In preparing the report, the Forum • Provide insight into the roles received valuable input from of Forum members, both FORUM MEMBERS the TCFD Secretariat along with individually and collectively, in Alan Knight – ArcelorMittal representatives of a small group of supporting the transition to a Annie Heaton – ArcelorMittal users of climate-related financial low-carbon economy; disclosures from across a range of Shane O’Reilly – CRH investor and data user types. Users • Highlight disclosures that Ciarán Collins – CRH are defined by the TCFD as those demonstrate the role of the Naomi Cooper – CRH who use information prepared by sector as a whole in enabling companies to assess and quantify the low-carbon transition; Antonio Carrillo Doblado – risk and make decisions about how LafargeHolcim • Consider how disclosure might to allocate financial capital, including Francois-Marie Gardet – continue to develop in the future investors and other financial market LafargeHolcim in line with the TCFD’s illustrative participants. A limited consultation implementation path; and Simon Wild – Lendlease with users was conducted to seek Paul King – Lendlease their views on how companies can • Explore the role information maximize the usefulness of climate- users can play in helping Fabienne Grall – Saint-Gobain related financial information for companies progress their Nicolas Baglin – Saint-Gobain financial market participants. User disclosures. perspectives are summarized for Emilia Hagberg – Skanska the purposes of this report and The Principles for Effective Annelie Lakner – Skanska presented anecdotally in the “user Disclosure, as defined by the TCFD Annika Winlund – Skanska perspectives” sections. (see Figure 2), have been used to identify examples of disclosures that conform with aspects of the In this report, the Forum provides PURPOSE AND AUDIENCE FOR TCFD recommendations. a commentary on key areas of THIS REPORT the TCFD’s recommendations The purpose of this report is to: based on members’ individual • Reflect the current state experience of implementing them. of climate-related financial This commentary is supported disclosure in the construction by examples of effective practice industry by highlighting how that are consistent with the Forum member companies recommendations. have implemented the TCFD’s recommendations;

Principles for effective disclosure (FigureTCFD Final 2: Report: Recommendations of the Task Force on Climate-related Financial Disclosures 2017)

PRINCIPLES FOR EFFECTIVE DISCLOSURE

1. Represent relevant information

2. Be specific and complete

3. Be clear, balanced and understandable

4. Be consistent over time Disclosures should

5. Be comparable among companies within a sector, industry or portfolio

6. Be reliable, verifiable and objective

7. Be provided on a timely basis

9 Construction and Building Materials TCFD Preparer Forum The audience for this report • Chapter 5 “Metrics and includes, but is not limited to: REPORT STRUCTURE examines the climate- Following this introduction, the targets” related metrics and targets • Construction sector companies report is organized into five further chapters: used by Forum members seeking to enhance their and explores the associated climate-related financial • Chapter 2 challenges and ways metrics “Context: The disclosures; disclosure can be progressed construction sector and the provides in the future throughout the • The TCFD, in order to climate challenge” Forum value chain. provide input into any further an overview of the context in which the construction deliberations on how the • Chapter 6 recommendations should sector operates and how “Developing it is affected by potential climate disclosure through evolve over time; summarizes risks and opportunities collaboration” Forum member views on • Investors and other users related to climate change. how climate-related financial of climate-related financial • Chapter 3 disclosure and associated disclosures seeking to “Climate risks collaborative engagement understand the current state of and opportunities across explores activities could be developed disclosure practice and scope the value chain” and enhanced over time. for future development; specific climate-related risks and opportunities identified This report structure reflects the • Investors and other users by Forum members, provides growing maturity and progress of climate-related financial examples of current disclosures made by Forum members since disclosures seeking to and describes how climate risks the TCFD recommendations understand climate risk linkages and opportunities manifest were launched in June 2017. The and differences between actors across the Forum value chain. chapters reflect the topics Forum across the Forum value chain; • Chapter 4 “ members decided to prioritize Strategic considers and address. These topics were • Organizations the TCFD has resilience” identified as making a valuable aspects related to the influenced by current challenges contribution towards adopting TCFD’s recommendation that associated with climate-related the recommendations, companies should disclose financial disclosure. For example, including stock exchanges, information about their the TCFD’s June 2019 Status investment consultants, credit strategic resilience to climate Report identified disclosure of rating agencies, organizations change, including: integration of strategic resilience against climate that develop climate-related climate change considerations change risks as a priority area for scenarios etc. so that they into governance and risk improvement across all sectors. can consider what further management processes; Rather than dealing with this in work is required to support opportunity management and isolation, in Chapter 4 of this report, and enhance climate-related development; and long-term members suggest how strategic financial disclosure; and analysis and planning. resilience disclosures may be enhanced in line with the TCFD • Companies from other sectors recommendations by incorporating looking to implement the disclosure about governance, risk TCFD’s recommendations. management and strategy.

10 Construction and Building Materials TCFD Preparer Forum 3 Context: The construction sector and the climate challenge

11 Construction and Building Materials TCFD Preparer Forum 3 Context: The construction sector and the climate challenge

The construction sector plays a crucial role in GROWTH IN DEMAND A SIGNIFICANT EXPECTED TO CONTINUE CONTRIBUTOR TO driving economic growth Growth is expected to continue and improving social CLIMATE CHANGE in the construction sector in the The construction sector is a high conditions across the forthcoming decades.1 It will largely emitter of GHGs; buildings and world. Its diverse global be driven by population growth construction are responsible for value chain encompasses and urbanization, particularly in 39% of energy-related carbon a wide range of materials, emerging economies where more dioxide (CO ) emissions globally products and activities which 2 than 60% of global infrastructure (when upstream power generation come together to create investment will be required.2 By is included).4 These emissions residential, commercial and 2050, 70% of the global population can be separated into operational industrial infrastructure. is expected to reside and work and embodied carbon emissions. As the climate changes and in cities. At present, some 60% Operational emissions are economies set out on a path of this urban area is still to be generated through the use of towards decarbonization, the 3 built. In developed countries, buildings – such as through heating, construction sector will play renovation demand will be a cooling and lighting. Embodied a crucial dual role. First by key driver of growth, especially emissions are associated with supporting adaptation and in response to green building materials and construction societal resilience through regulations and rising electricity processes and are dependent on sustainable infrastructure expenses. In common with other the operations of the construction and GHG emissions industries, the construction sector value chain.5 A large part of Forum reductions and secondly by will be affected by a wide range members’ activities contribute to helping to limit and manage of climate-related economic and embodied carbon emissions. Thus, climate change. regulatory considerations. For references to carbon emissions in instance, differences in regulatory this report relate to the embodied approaches between developed type, unless otherwise specified. and emerging economies mean that the effect of building standard certifications and carbon pricing frameworks will be clearer in some jurisdictions than in others.

12 Construction and Building Materials TCFD Preparer Forum Global buildings energy-related emissions (GlobalFigure 3:Alliance for Buildings and Construction, Global Status Report 2018)

Emissions (GtCO2) Change since 2010 Emissions 10 20% Non-residential (indirect) 8 15% Non-residential (direct) Residential 6 10% (indirect) Residential 4 5% (direct) Change in growth 2 0% Floor area Population 0 -5% Emissions 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017

Sources:Sources: : Derived from IEA (2018a), Derived from IEA (2018a); World World Energy Statistics and Balances 2018Energy Statistics and Balances 2018; www.iea.org/statistics, www.iea.org/statistics and IEA Energyand IEA TechnologyEnergy Technology Perspectives buildingsPerspectives model;buildings model, www.iea.org/buildingswww.iea.org/buildings. .

Despite appearing to have routes, delaying construction levelled off since 2015 (Figure 3), RISKS AND and damaging infrastructure.9 emissions from the construction OPPORTUNITIES SPAN Chronic shifts in the climate and sector represent a substantial THE ENTIRE VALUE CHAIN environment manifest as increased Many companies have taken share of the total global energy- average temperatures, sea level steps within their own operations related CO emissions.6 More rise and altered rainfall patterns. 2 to respond to climate-related significant emissions reductions These changes influence the challenges. However, tackling are dependent on the development energy requirements of buildings climate risks and leveraging and implementation of technologies and the suitability of locations opportunities effectively requires that decarbonize manufacturing for new development projects.10 action that extends beyond the processes - such as those They may also influence the cost operational boundaries of individual for cement and steel - and on and availability of insurance. As companies along the whole improving the commercial viability well as the risks, the physical construction value chain. Like other of technologies such as Carbon impacts of climate change stakeholders6,8, Forum members Capture Usage and Storage (CCUS). present opportunities for the believe that the construction construction sector. They include sector can optimize progress With the help of supportive policies adaptation activities such as towards tackling climate change and targeted investments, the creating infrastructure that is by taking a holistic, collaborative sector can play a crucial role resilient to both the acute and approach and by collectively enabling the low-carbon transition chronic impacts of climate change. harnessing the dynamics of and building climate resilience. Mitigation measures include supply, demand and innovation. The challenge is for governments reducing emissions intensity in to develop policies that align the construction value chain by competing incentives throughout developing low carbon materials; the value chain and provide a level PHYSICAL RISKS providing infrastructure for playing field, for example through AND OPPORTUNITIES Acute physical climate change renewable energy generation; a suite of policies that support and using CCUS. the adoption of energy efficient risks include extreme weather events such as flooding, technologies, promote use of alternative fuels and raw materials, hurricanes, extreme wind and wildfires. Such events can have encourage the development and deployment of CCUS, and also financial and operational impacts compensate for asymmetric on the construction sector by pricing pressures in different preventing extractive activities, disrupting supply and distribution regional markets.7

13 Construction and Building Materials TCFD Preparer Forum European Union (EU) Taxonomy for TRANSITION RISKS AND STIMULATING ACTION sustainable activities14 and the EU OPPORTUNITIES THROUGH CORPORATE Non-Financial Reporting guidance.15 Transition risks for the construction DISCLOSURES Business-led initiatives have also sector relate to market, reputation, As the climate disclosure landscape grown, with the creation of the technology and policy/regulatory evolves and the low-carbon Climate Action 100+ group and developments, such as carbon transition progresses, stakeholders the alignment of the CDP (formerly pricing.11 Companies that generate are demanding more climate the Carbon Disclosure Project) large amounts of emissions transparency.9 Stakeholders – , and United Nations’ Principles for uch as materials manufacturers, including investors, governments, s Responsible Investment (UNPRI) are more exposed to the higher customers and suppliers – are questionnaires with the TCFD operational costs associated looking to understand how recommendations. with carbon pricing schemes construction companies are in certain jurisdictions. This has assessing their resilience to The TCFD is strongly supported implications for competitiveness climate change and adapting their by the business community but in the global market, causing strategies. The TCFD encourages there is no consensus on exactly some companies to advocate for companies to enhance the what form disclosures should policies such as a “green border quality and quantity of climate- take. Disclosure practices will adjustment”, designed to prevent related disclosures, focusing on naturally evolve as frameworks, carbon leakage. In December risks, opportunities and strategic methodologies and use cases 2019, the European Green resilience to climate change.11 develop further. The Forum Deal proposed a carbon border contributes to the enhancement Since the TCFD issued its Final adjustment mechanism should of climate-related disclosures, Report in 2017, a number of regional differences in climate with members seeking to find other initiatives have emerged to ambition persist.12 While carbon an efficient and fair approach to address the low-carbon transition pricing uncertainties remain, some stimulating disclosure action within and increase focus on sustainable companies are using internal their markets. carbon pricing to guide project development. They include the selection and investment decisions on low-carbon alternatives to mitigate the impacts.1

Opportunities for the construction sector continue to grow as activities increasingly focus on ‘greening’ the built environment. Downstream in the value chain, some construction and development companies see emerging low-carbon regulation as an opportunity to market energy efficient buildings. Rising demand for low-emissions materials is also creating opportunities upstream for materials manufacturers, incentivizing development of carbon-efficient production techniques.13

14 Construction and Building Materials TCFD Preparer Forum 4 Climate risks and opportunities across the value chain

15 Construction and Building Materials TCFD Preparer Forum 4 Climate risks and opportunities across the value chain

In the “Strategy” pillar of their recommendations, the TCFD RISK AND OPPORTUNITY SUMMARY: encourages companies to: EXAMPLES • Forum members’ Forum members commonly disclosures about a. Describe the climate-related disclose their climate-related risks climate-related risks risks and opportunities the and opportunities – most often summarize the potential organization has identified over in qualitative terms – through impacts of these risks the short-, medium- and their annual and sustainability on the business and long-term. reports. Disclosures align with the the mitigation actions in categories used in the TCFD’s Final place to reduce them. b. Describe the impact of climate- Report which distinguish between related risks and opportunities transition and physical risks and • Forum members on the organization’s business, identify subsets of risks within disclosures about strategy and financial planning. each category. climate-related opportunities reflect the The first part of this chapter Disclosures by members include development of low- provides examples of how Forum a description of the risks or carbon products and members have responded to opportunities arising from climate processes, including the TCFD’s recommendations change, explanation of the potential case studies detailing on strategy (parts a and b) business impacts, and details of specific solutions and along with commentary on the the way members identify, assess projects. associated challenges and and respond to climate risks. learnings. The second part of the Risk responses often give rise to • Disclosures about chapter explores how risks and opportunities, including greater climate-related risks opportunities can be understood resource efficiency, substitution and opportunities are across the Forum value chain. of materials, development of predominantly qualitative. new products, preparation • This chapter includes for regulatory changes and a table illustrating key innovation of new technologies. climate-related risks and their impacts, connection and responses across the value chain.

• The Forum is keen to leverage and reflect opportunities for greater collaborative action across the construction value chain, to drive the low-carbon transition and mitigate the impacts of climate-related risks.

16 Construction and Building Materials TCFD Preparer Forum LafargeHolcim’s disclosure of climate-related operational, transition and physical risk (LafargeHolcimFigure 4: Integrated Annual Report 2019)

KEY OPERATIONAL RISKS

RISK POTENTIAL IMPACT OUR RESPONSE

Greenhouse gas emissions Based on TCFD LafargeHolcim has already reduced its net carbon scope one emissions per ton of recommendations, cementitious material by 27% compared to 1990 and remains the best performer among & Climate change LafargeHolcim assesses in a international peers. systematic way all potential LafargeHolcim cement is one of the most carbon-efficient in the world. With our target of The cement industry is associated with impacts of climate-related 520 Kg of CO2/ton cementitious by 2030, we are among the most ambitious companies in our high CO2 intensity and LafargeHolcim is risks: sector. This target is aligned with the 2° scenario (Paris Agreement, United Nations) and has exposed to a variety of regulatory been validated by the Science Based Targets Initiative (SBTi). frameworks to reduce emissions, some TRANSITION RISKS: More specifically, we have developed two comprehensive sets of actions, short and long of which may be under revision. These POLICY AND terms, to address greenhouse gas emissions and climate challenges along the construction frameworks can affect the business REGULATORY: value chain. activities of LafargeHolcim. In addition, Following the agreement on a perception of the sector as a high climate change at Paris COP21, Short-term actions: focused on existing levers to reduce CO2 emissions (i) improved clinker emitter could impact our reputation, signatory countries are required production technology; (ii) higher usage of alternative fuels and alternative raw materials; thus reducing our attractiveness to to communicate reduction (iii) optimization of the cement portfolio with lower CO2 footprint; (iv) optimization of the investors, employees and potential commitments and pass concrete product portfolio; (v) increase share of solutions and products with favorable CO2 employees. implementation regulation. The impact. likely effect of this increasing Strategic pillars impacted: number of frameworks will be In addition and as a response to policy and regulatory risks and opportunities in Europe, a to: i) increase the cost of fossil specific short-term response plan to the Phase IV of the new European Trading System was fuels by carbon price developed and addresses main focus areas: mechanisms, ii) impose more • CO2 & energy performance, (e.g. increase biomass usage & reduce clinker factor); restrictive cap & trade systems • Integrate CO2 in management (e.g. include cost in production to incentivize change and iii) increase the cost to firms management and include CO2 impact in all M&A and CAPEX decisions); of emitting CO2. In Europe, Phase IV of the • Scenario planning (e.g. evaluate profitability of exports, manage +/– 15% thresholds as well European Trading System (ETS) as 50%, 25%, 10% limits of historical activity levels). will come into force in 2021, reducing CO2 allowances. In the As result, over the next years, LafargeHolcim will invest CHF 160m and work on more than 80 absence of efficient border projects across 19 European countries with a focus on low-carbon fuels, recycled materials adjustment mechanisms, and carbon-efficient solutions, reducing annual CO 2 emissions in Europe by a further 15% imports of clinker and cement representing 3 millions tons by 2022 from outside the EU might bring With regards to physical risk, LafargeHolcim has introduced a new, risk-based Security and more competition. Resilience Management System (SRMS) to plan for, respond and recover from all kinds of TECHNOLOGY: unwanted events through integrated emergency response, crisis management and business We are currently engaged in continuity activities. The process is continuously improved by structured self-assessment several initiatives which require and implementation of lessons learnt, and assured through a formal audit and performance large investments, especially evaluation programme. carbon capture and storage technologies. Long-term actions: Innovation and research and development into (i) Breakthrough The risk of the cost of technology technologies such as carbon capture utilization and storage (CCUS) ; (ii) decarbonized fuel being significantly higher than and energy; (iii) the development of low-carbon products and solutions (iv) ultimate existing carbon pricing construction methods to reach low-carbon construction. mechanisms and the lack of In addition, initiatives such as our Plants of Tomorrow initiative is the industry’s largest roll integrated deployment of out of 4.0 technologies; and our open innovation, where we are collaborating with numerous carbon capture in the supply startups. chain ecosystems (transportation, sequestration, Advocacy positions: We engage proactively and transparently with external stakeholders etc.), could prevent on the basis of positions that are aligned and consistent with the goals of the Paris LafargeHolcim from its Agreement. At the global level this is best illustrated through our cooperation with the World successful implementation. Bank’s Carbon Pricing Leadership Coalition (CPLC) or the Global Alliance for Buildings and MARKET: Construction (GABC). Our climate-related advocacy focuses on two main topics: RISK AND CONTROL As the carbon debate intensifies, CONTINUED cement and concrete could be 1. Carbon pricing mechanisms: A stable and reliable carbon price is fundamental to challenged by our customers as accelerate the low-carbon transition. This requires associated policy frameworks that: the building material of first • Respond dynamically to unforeseen macroeconomic evolutions; choice because of perceived • Provide an unconditional level playing field across regions and industries; high embodied CO2. In the long term, should regulatory • Target entire value chains by tackling both supply and demand sides; frameworks fail to incentivize consumption of low-carbon • Enable carbon cost pass-through, thereby creating financial incentives for carbon-efficient TIONAL RISKSproducts,CONTINUED customers may be solutions unwilling to pay for additional Ultimately, carbon pricing mechanisms must lead to an integration of carbon costs across costs and the cement sector’s the entire value chain, thereby creating competitive advantages for carbon-efficient low-carbonPOTENTIAL roadmap IMPACT might be OUR RESPONSE products and solutions. compromised. REPUTATION: 2. Construction and building standards: progressive standards are key to ensure customer The risk of being perceived as a acceptance and creating a market demand for low-carbon solutions. In order to drive large carbon emitter could changes across the construction sector and ensure an adequate focus on the carbon and reduce our attractiveness to energy performance of buildings and infrastructure, standards must be based on the LafargeHolcim Integrated Annual Reportstakeholders 2019 such as customers, principles of material-neutrality and lifecycle performance. It must not be about one 103 investors, and potential material versus another. The focus must be on the overall carbon and energy performance employees. of our buildings and infrastructure. PHYSICAL RISKS: Impact of climate change (such as flooding, changes in precipitation patterns or extreme variability in weather patterns) on our operations might lead to higher logistics and transportation costs and reduced production capacities (e.g., delayed planning approval, supply chain interruptions).

17 Construction and Building Materials TCFD Preparer Forum

TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES ALIGNMENT

GOVERNANCE STRATEGY RISK MANAGEMENT METRICS AND TARGETS

Disclose the organization’s Disclose the actual and Disclose how the Disclose the metrics and governance around climate potential impacts of climate- organization identifies, targets used to assess and related risks and related risks and assesses, and manages manage relevant climate- opportunities. opportunities on the climate-related risks. related risks and organization’s businesses, opportunities where such strategy, and financial information is material. planning where such information is material.

Board oversight Risk and opportunities CO2 risk identification Reporting CO2 metrics Page: 83, 101 Page: 44 – 47, 103-4 Page: 100, 103 – 4 Page: 44 – 47, SPR*

Management’s role Link to financial planning CO2 risk management Details Scope 1, 2 and 3 Page: 83, 101 Page: 103 – 4 Page: 101, 103 – 4 Page: 44 – 47, SPR*

Scenario planning Integration into overall risk CO2 targets Page: 103 – 4 Page: 85 Page: 44 – 47

* SPR refers to the 2019 Sustainability Performance Report, available on www.lafargeholcim.com/sustainability

104 LafargeHolcim Integrated Annual Report 2019 • • • • • Skanska’s disclosure of climate-related risks• Figure• 5: • (Skanska Annual and Sustainability Report 2019) • • Risk area and description Potential• impact Mitigation• measures/activities • Strategic risks • Climate risks • Physical risks caused by adverse impact • Operational cost increases or project • Skanska’s climate target of achieving net zero carbon emissions by •from climate change such as extreme •delays due to extreme weather •2045 will guide the work on reducing the climate impact from the weather conditions conditions Group’s operations • Not adapting to new climate • Decreased ability to deliver for • Drive innovation and offer new low-carbon solutions to customers regulations and demands from customers and inability to meet project • Skanska integrates climate resiliency into project development investors and customers. commitments •to help cities and communities prepare for and respond to the • Lost business opportunities changing conditions that are an effect of the climate issue. • Being at the forefront and driving innovation for new low-carbon • solutions creates business opportunities for Skanska. • Operational risks

Environmental risk • Major environmental incident in • Harm to people and ecosystems • Mandatory ISO 14001 (international environmental management operations or supply chain or pollution • Negative environmental impact system standard) certifications ensures a systematic approach to or other negative environmental • Damaged reputation and loss of license managing environmental risk and issues. impacts. to operate • Skanska engages with suppliers to minimize risks of supply chain • Increasing cost and decreasing profits environmental breaches • Fines, penalties, lawsuits. • Employee training in proper environmental practices • Environmental specialists at Group and business unit levels secure compliance with the Group’s environmental expectations, which go beyond compliance and include retaining ISO 14001 certification.

Resource efficiency • Inefficient use of energy, materials, • Negative environmental impact • The Skanska Color Palette secures a strategic approach to future- waste and water. • Operational inefficiency, increasing proofing projects as regards resource efficiency (energy, carbon, costs and decreasing profits materials and water) • Inability to meet project schedule. • Improved planning through building information modeling (BIM) 236 CRH ANNUAL REPORT AND FORM 20-F I 2019 and other digital tools to increase efficiency and productivity.

• • • CRH’s disclosure• of climate change risk • FigureKey Strategic 6: Risk Factors• - continued • (CRH Annual Report and Form• 20-F 2019) • • • Principal Operational Risks and Uncertainties Joint Ventures and Associates ClimateRisk Change and Policy Discussion DescriptionDescription: ImpactDue to the absence of full control of joint venturesHow weand Manageassociates, the important Risk decisions such as the approval The Group does not have a controlling of business plans and the timing and amount of cash distributions and capital expenditures, for example, The cement industry has recognised the Should the Group not reduce its • The Group has delivered on a CO reduction programme from interest in certain of the businesses (i.e. joint may require the consent of partners or may be approved without the Group’s consent.2 In addition, the lack impact of climate change and its greenhouse gases (GHGs) emissions 2007 to 2020. A revised CO reduction programme has been ventures and associates) in which it has of controlling interest may give rise to the non-realisation of operating synergies2 and lower cash flows than responsibilities in transitioning to a lower by its identified targets, the Group may developed to 2030, details of which can be found on page 21 invested and may invest, which gives rise to anticipated at the time of investment, thereby increasing the likelihood of impairment of goodwill or other assets. carbon economy. The Group is exposed to be subject to increased costs, adverse of this Annual Report and Form 20-F. This initiative increased governance complexity and a need financial, reputational and market risks arising fTheseinancial limitations performance could and impair reputational the Group’s abilityencompasses to manage jointall cement ventures plants and inassociates our portfolio effectively at present and/or for proactive relationship management. from changes to CO policies and regulations. drealiseamage. its strategic goals for these businesses. In addition, improper management or ineffective policies, 2 • Operational improvements at plants are focused on reducing Impact: procedures or controls for non-controlled entities could adversely affect the business, results of operations or the CO2 footprint of our businesses RiskThe trend: lack of a controlling interest could impair financial condition of the relevant investment and, by corollary, the Group. the Group’s ability to manage joint ventures • For more information please refer to page 21 in this Annual and associates effectively and/or realise its Report and Form 20-F or to our independently-assured Sustainability Report, which is prepared in line with the Global strategic goals for these businesses. Reporting Initiative Standards and is available on www.crh.com

Key Operational Risk Factors

Climate Change and Policy Risk Discussion

Description: TThehe impact of climate change may ooverver time affect the operations ooff the Group and the markets in which The cement industry has recognised tthehe Group operates. This could include physical risks such as acutacutee and chronic changes in weather and/or the impact of climate change and its ttransitionalransitional risks such as technological development, policy and regregulatoryulatory change, and market and economic responsibilities in transitioning to a lower rresponses.esponses. Efforts to address climate change through laws and regulations, for example by requiring reductions in emissions of GHGs such as CO , can create economic risks and uncertainties for the Group’s businesses. carbon economy. The Group is exposed to in emissions of GHGs such as CO2, can create economic risks and uncertainties for the Group’s businesses. financial, reputational and market risks arising Such risks could include the cost ooff purchasing allowances or credcreditsits ttoo meet GHG emissions caps, the cost ooff installing equipment to reduce emissions to comply with GHG limits or required technological standards, from changes to CO2 policies and regulations. decreased profits or losses arising from decreased demand for the GroupGroup’s’s goods goods and and higher higher production production costs costs Impact: resulting directly or indirectly from the imposition of legislative or regulatory controls. Manifestation of these Should the Group not reduce its greenhouse increased costs may increase the underlying cost of production of the GroupGroup’s’s products which may adversely gases (GHGs) emissions by its identified impact the financial performance of the Group. 6 kap eng.indd 52 impact the financial performance of the Group. 2020-03-11 15:44 targets, the Group may be subject Stakeholder expectations in relation to climate change continue to increase. The Group is subject to a broad to increased costs, adverse financial Stakeholder expectations in relation to climate change continue to increase. The Group is subject to a broad range of additional environmental product information requests by customers in certain regions and increasing performance and reputational damage. range of additional environmental product information requests by customers in certain regions and increasing levels of disclosure regarding climate-related environmental performance. The Group includes within its oofferingsfferings products aimed at climate adaptation, including sustainable drainage systems, flood defences and more resilient structures, as well as products that lower the operational carbon footprint of buildings, including high performance glass and glazing proproductsducts that incorporate innovative thermal break technologies for superior thermal performance, precast coconcretencrete flooring and walling elements delivering energy savings, and balcony connector products that reduce thermal bridging, delivering energy saving. If customers’ and other ststakeholders’akeholders’ sustainability expectations are not satisfied, the GroupGroup’s’s product product portfolio portfolio may may be be of of reduced reduced relevance, the GroupGroup’s’s reputation may be harmed and the Group could experience a deteriodeteriorationration in financial pperformance.erformance.

Please refer to page 244 of this Annual Report and Form 20-F for further details. In addition, the Group publishes an annual independently-assured Sustainability Report, which is prepared in line with the Global Reporting Initiative Standards and available on www.crh.com.

18 Construction and Building Materials TCFD Preparer Forum Saint Gobain’s disclosure of opportunities associated with the low-carbon transition Figure(Saint Gobain 7: Registration Document 2019)

SEIZE THE OPPORTUNITIES LINKED TO THE Thus, the benefits offered by the Group’s Saint-Gobain’s solutions are designed to be TRANSITION TO A LOW CARBON ECONOMY thermal insulation products and glass exceed used in larger structures. Therefore, in addition Designing innovative solutions with carbon significantly the impacts associated to their to the carbon benefits linked to the products, benefits production in terms of energy consumption Saint-Gobain solutions make it possible to and greenhouse gas emissions. reduce the carbon footprint of a building or car Saint-Gobain is innovating to develop solutions throughout their life cycle. to reduce the carbon footprint of buildings In partnership with EY, Saint-Gobain developed throughout their life cycle: in 2015 a methodology that allows for the Co-developing solutions for new markets estimation of greenhouse gas emissions arising from the low-carbon economy • by reducing their energy consumption during prevented thanks to the utilization of its the utilization phase; these are insulation In response to the challenges of population insulation solutions in Europe. The calculations growth and urbanization, it is imperative to and glazing solutions that improve energy realized with 2014 sales numbers were efficiency; design sustainable solutions and contribute to updated in 2017 with 2016 sales; the scope the construction of resilient cities that ensure • by reducing the carbon impact of its of Europe was enlarged to the world. These the well-being of individuals in a context of products and solutions: particularly by updating efforts have permitted to confirm the resource scarcity and climate change. New developing lighter building solutions, three key teachings of 2015: lightweight constructive methods can be used increasing the amount of recycled materials to meet these challenges. For example, the used to manufacture them or by using • after three months of use on average, the Group’s insulation solutions compensate the Group is investing in the fields of prefabrication renewable energy to power its industrial and 3D printing. The development of processes. emissions linked to their production. Beyond these three months, the gains continue to prefabricated or off-site construction solutions Measuring the carbon benefits of products accumulate; encourages the use of lighter construction and solutions methods using wood or metal structures as • the Group’s insulation solutions produced an alternative to traditional cement and brick The innovative solutions developed by the Group and sold throughout the World in 2016 have constructions. The transition to a low-carbon to improve the energy efficiency of buildings generated, across their lifespan, a potential economy is also impacting markets related lessen the negative impacts of the construction cumulated net prevention of over 1,200 to mobility and energy. Thus, the Mobility sector on the climate and cut consumers’ million tons equivalent CO2; BU is working both on solutions to support energy bills, while enhancing well-being. They • the estimated potential prevention of the customers in the transition to vehicles that therefore play an important role in the fight said solutions corresponds to about 90 emit less and less CO2 and on adapting its against climate change, as they permit through times the Group’s greenhouse gas emissions offer to the development of hybrid or 100% a reduction of energy demand to decrease the in 2016 over the same geographical scope. electric vehicles. quantity of greenhouse gases emitted.

19 Construction and Building Materials TCFD Preparer Forum TRANSITION RISKSArcelorMittal’s Type & status disclosure of physical and market transitionResponse climate-related risks and opportunity case studies FigureMarket 8: We have faced the risk of substitution from competing materials We continue to grow (ArcelorMittal Climatedisplacing steel Action in particular Report applications. 2019) We have seen this from opportunities in all these aluminium and cement due to an excessive focus on emissions from markets, for example via our TRANSITION RISKS Typeproducts & status in their use phase only (where the lightest weight wins) S-inResponse motion® and Steligence Market Werather have than faced on athe whole risk lifecycleof substitution basis (cradle from competing to grave). However,materials Weprogrammes continue .to grow displacingas customers steel deepen in particular their understanding applications. We of embeddedhave seen thisand fromlifecycle opportunities in all these aluminiumemissions ofand the cement materials, due steelto an compares excessive favourably,focus on emissions and so we from see markets, for example via our productsthis risk diminishing. in their use phase only (where the lightest weight wins) S-in motion® and Steligence Withrather the than switch on a towhole electric lifecycle vehicles, basis we (cradle see opportunities to grave). However, for programmes. high-strengthas customers deepen steels for their battery understanding protection of and embedded electrical and steels. lifecycle Weemissions also project of the that materials, the move steel to compares wind and favourably,solar power and generation so we see willthis requirerisk diminishing. more steel per unit of electricity generated compared Withto conventional the switch technologies.to electric vehicles, we see opportunities for high-strength steels for battery protection and electrical steels. We also project that the move to wind and solar power generation will require more steel per unit of electricity generated compared to conventional technologies.

PHYSICAL RISKS Type & status Response Acute Adverse weather events, such as extreme low temperatures in North Our risk management process physical risks America, very high winds in Europe and flooding in Spain have on enables us to build resilience at occasion hampered our supply and distribution routes. Our Calvert JV our plants and in supply chains Steligence® plant is in an area prone to hurricanes and tornadoes, and wildfires are where extreme events already PHYSICAL RISKS Type & status Response In 2018, ArcelorMittal launched the Steligence® concept to a risk to our sites in Kazakhstan and South Africa. With 3 to 4°C of occur; this may need further Acute Adverse weather events, such as extreme low temperatures in North Our risk management process facilitate the next generation of high-performance buildings warming, hurricanes are projected to increase in intensity – along with development where extreme physical risks America, very high winds in Europe and flooding in Spain have on enables us to build resilience at and construction techniques for our customers. Built into associated increases in heavy precipitation – but not in frequency. events are currently rare, occasion hampered our supply and distribution routes. Our Calvert JV our plants and in supply chains the holistic Steligence® approach is a broad range of thinner, but may be more frequent plant is in an area prone to hurricanes and tornadoes, and wildfires are where extreme events already lighter, high-performance steel solutions. Demonstrating or intense in the future. a risk to our sites in Kazakhstan and South Africa. With 3 to 4°C of occur; this may need further the potential to reduce the embedded carbon footprint of warming, hurricanes are projected to increase in intensity – along with development where extreme a building by 38%, the Steligence® approach can also enhance Chronic associatedWater is crucial increases to our in steelmaking heavy precipitation processes – butand not where in frequency. plants are in eventsWhere theseare currently risks exist, rare, such its flexibility and economics. Considering the share of global physical risks areas of water stress, this is even more important. Some facilities are butas in may South be Africamore frequentand Brazil, emissions from the built environment, the impact of at risk of being affected by long periods of drought conditions. orwe intense have developed in the future. local Steligence® could be particularly significant. resource management plans Chronic Water is crucial to our steelmaking processes and where plants are in Whereto ensure these that risks operational exist, such physical risks areas of water stress, this is even more important. Some facilities are aswater in South requirements Africa and can Brazil, be at risk of being affected by long periods of drought conditions. wemet. have We developedare fully engaged local with resourcelocal stakeholders management on this plans issue. to ensure that operational water requirements can be met. We are fully engaged with local stakeholders on this issue. Carbalyst®: capturing carbon gas and recycling Figure 8: Carbalyst® technology into chemicals

The waste gases that result from iron and steelmaking are Blast furnace composed of the same molecular building blocks – carbon and hydrogen – used to produce the vast range of chemical products our society needs. Today most waste gas is incinerated, resulting in CO2 emissions. With our partner Lanzatech, supported by the EU Horizon2020 Steelanol project, we are building the first large-scale plant to capture the waste gas and biologically convert it into bio-ethanol, the first commercial product of our Carbalyst® family of recycled carbon chemicals. Thanks to a lifecycle analysis study, we can predict a CO2 reduction of up to 87% compared with fossil transport fuels, so this bio-ethanol can be used to support CO the decarbonisation of the transport sector as an intermediate solution during the transition to full electrification. In the future, we will expand the family of Carbalyst® products to other biochemicals and biomaterials.

Construction started recently on a €120 million demonstration Chemicals facility in Ghent, Belgium. Once completed in 2020, the facility Plastic Fuel Fabrics will capture around 15% of the available waste gases at the plant and convert them into 80 million litres of ethanol per year.

This result will be a CO2 reduction equivalent to 100,000 electric vehicles or 600 transatlantic flights per year.

Carbalyst® Ethanol process

20 Construction and Building Materials TCFD Preparer Forum sourced and manufactured in a jurisdictions in which they operate ADDRESSING RISKS responsible and sustainable way. and their engagement with partner AND OPPORTUNITIES CSC certified concrete provides organizations. Table 1 also aims THROUGH SECTOR-WIDE a third party verified performance to help investors to interpret COLLABORATION label about sustainable concrete individual companies’ climate- As the examples above indicate, production including the supply related disclosures in the context of Forum members have identified chain. The CSC label can be directly the wider construction sector and how climate-related risks and used in Green Building Labels, such to focus attention and decisions opportunities impact their as BREEAM and DGNB, as well as on parts of the Forum value chain individual businesses, now and in local green public procurement where individual or collective action in the future. Members contend schemes. The CSC is a not-for- can be most impactful. that greater collaboration profit organization, which has been between industries, within the founded by some Forum members, Table 1 is intended as useful construction sector and beyond, independent certification institutes reference material for risk is also needed to open up more and WBCSD. Steel certified disclosure. It should not be significant opportunities to drive under the ResponsibleSteel™ interpreted as a checklist. The decarbonization progress at scale. standard has been sourced Forum does not expect companies to report against every risk As public disclosures focus on and produced responsibly at all levels of the supply chain: from and opportunity listed. Rather the performance of individual the table is designed to help companies, members rarely mining and production to sale and distribution. The initiative, which companies consider which risks articulate instances where progress and opportunities are most material to address climate change risks and involves some Forum members and other stakeholders across to their business and disclose the to support climate opportunities relevant information accordingly. depends on collaboration. The the steel value chain, has the absence of disclosures about the potential to play an important scope for collective action limits the role in driving the commitment of steel companies to achieving STRUCTURE OF THE CLIMATE- potential for investors to allocate RELATED RISKS TABLE finance and drive investment to the Paris Agreement objectives. Columns 1 and 2 - The type initiatives that together contribute that and subcategories of risk towards a low carbon economy. affect Forum members are based CLIMATE-RELATED RISKS on Table 1 in the TCFD’s Final Nonetheless, it is clear that TABLE Report, including policy and legal, Table 1 is designed to show that, collaboration is occurring within the technology, market, reputational although individual companies construction sector. For example, and physical climate risks. the development of material face the same types of climate- stewardship standards such as the related risks, the way in which they Column 3 - The main types of Concrete Sustainability Council are affected and their capacity , illustrated using business impact (CSC) or ResponsibleSteel™ aims to respond depends on the the following icons: to give businesses and consumers activities they undertake, where confidence that the materials are they sit in the value chain, the

Opportunity for strategic change and/or differentiation

Collaboration potential

operational costs Increased

Business interruption

Increased capital expenditure and/or project investment

21 Construction and Building Materials TCFD Preparer Forum building products and materials, Column 4 - Value chain Column 5 - Influences, development and construction implications of climate-related connections and collaboration . Where appropriate, the – including the impact on those highlights the key factors that could risks column is subdivided to show how segments and how companies influence impacts and responses risks affect different value chain respond. such as the interconnection segments – raw material extraction, between risks, how they pass manufacture and distribution of through the value chain and collaboration opportunities between value chain segments.

Climate-related transition and physical risks across the Forum value chain Table 1:

VALUE CHAIN IMPLICATIONS INFLUENCES, SUB- IMPACT MANUFACTURE & CATEGORY RAW MATERIAL CONNECTIONS AND CATEGORY TYPE DISTRIBUTION OF EXTRACTION AND DEVELOPMENT CONSTRUCTION COLLABORATION CONSTRUCTION PROCESSING MATERIALS

• Increased GHG emissions Policy and Pricing Possible impact Possible impact Possible impact • Higher carbon taxes and/or emissions • More demand for • Requirement to pricing drives up relative Legal of GHG emissions allowances costs raise operation and efficient buildings. work with lower operational costs of distribution costs. • More demand for carbon materials/ material extractors and • Increased competition from imported lower embodied products. producers due to their materials/products in the absence of carbon. • Higher materials high levels of emissions. border adjustment mechanisms. • Higher materials costs if carbon • Increasing cost of high- costs if carbon taxes are passed emissions products Response • Capital expenditure to develop and taxes are passed through the value provides an incentive deploy low-carbon extraction/manufac- through the value chain. across the value chain turing technologies and methods. chain. • Demand for com- to substitute low-carbon • Decision making and new project selec- panies to reduce materials and methods. Response tion guided by internal carbon pricing • Align develop- their operational • Dialogue between value analysis. ment processes, emissions. chain actors is critical • Procure competitive low-carbon energy decisions and for the development and Response through partnerships with electricity expenditure plans • Expenditure to deployment of low-carbon producers (PPAs). with low-carbon adopt new materi- alternatives. • Diversify products and services towards priorities. als and methods. lower carbon materials and products. • Innovation to drive • Switch to lower carbon distribution meth- increased material ods such as electric vehicles (EVs). efficiency. • Purchase carbon credits/offsets for • Explore options, un-abatable emissions. such as carbon offsetting, to reduce impact of operational emissions.

• Similar effects are felt Enhanced Possible impact emissions • Increased operational spend on reporting activities. across the value chain. reporting • Increased scrutiny from investors and other stakeholders on emissions reporting and • Opportunity to address obligations action taken to mitigate climate change. Scope 3 GHG emissions • Greater stakeholder scrutiny of Scope 3 emissions reporting throughout the value chain. challenges through • Increasing discrepancy between legal reporting requirements and stakeholder collaboration disclosure expectations in some jurisdictions, requiring companies to produce an • Greater transparency increasing number of specific reports. supports assessment of environmental credentials Response • Dialogue and collaboration between value chain players and other stakeholders across the supply chain to improve emissions reporting standards, with a focus on Scope 3 emissions and informed engagement calculations and reporting. between value chain • More transparent reporting of Scope 1, 2 and 3 emissions across the value chain. participants. • Opportunities for trade associations to promote best practice in climate- related disclosures. • Scope for investors to specify their information needs and benefit from enhanced reporting when seeking to understand and support transition priorities.

22 Construction and Building Materials TCFD Preparer Forum VALUE CHAIN IMPLICATIONS INFLUENCES, SUB- IMPACT BUILDING CATEGORY CONNECTIONS AND CATEGORY TYPE RAW MATERIAL PRODUCTS AND DEVELOPMENT CONSTRUCTION COLLABORATION EXTRACTION MATERIALS MANUFACTURE

• As sustainability and Policy and Product Possible impact Possible impact Possible impact • Mandated changes to product • Introduction of • Requirement to climate change related Legal specification and specifications, limits on certain materials new processes use materials and regulation evolves the regulatory and other regulatory changes impact and regulations conduct activities construction value chain changes production volumes and profitability. potentially leading in conformance may experience changes • Compliance risks become more material. to new ways of with updated in product specification • Increased demand for low-carbon working, greater specifications. requirements and/or products and services that conform with compliance costs • Project timelines operational requirements specifications. and increased and methods which may affect the risk of fines impacted by status quo. The impact of Response • Adjust manufacturing output/product mix and/or project variation in this risk is dependent on in response to changes in demand. cancellation. availability of a company’s position in certain materials. the value chain. Upstream • Evolve the product portfolio mix in Response the longer term to adopt lower carbon • Stay up to date companies may be Response alternatives. and compliant • Stay up to date required to change their • Stay well informed of regulatory with evolving and compliant product specifications, developments. regulation. with evolving whilst downstream • Source from regulation. companies may require suppliers that new ways of working and are compliant greater levels of envi- with new product ronmental assessments. specifications and Ultimately, these changes regulation. are likely to drive the construction value chain towards lower carbon products and operations. • Adjusting to new regulations could require additional expenditures from value chain participants.

• Impacts depend on the Climate Possible impact change • Climate change litigation risks are nascent but include exposure to damages claims, litigation environment and litigation financial and reputational costs of defending litigation, disruption to operations and propensity of investors, enforcement of financial disclosure requirements. activist shareholders, cities and states to pursue Response • Use existing risk management processes to manage exposure to climate change climate change-related litigation. Company risk registers typically include ‘exposure to litigation’ as a risk. claims against companies • Monitor developments in climate-related disclosure requirements, including evolving and company directors investor and stakeholder expectations regarding climate-related disclosures. related to disclosure failures. • Climate-related litigation continues to evolve. To date, cases have sought action against companies for their alleged contributions to climate change and for failure to disclose climate change-related financial risks. Most cases have not succeeded due to the difficulty of attribut- ing climate change on any one emitter and uncertainty about the extent to which climate-related risks must be considered and disclosed pursuant to existing financial disclosure obligations. • Reputational damage caused by legal action against a company may limit inward investment.

23 Construction and Building Materials TCFD Preparer Forum VALUE CHAIN IMPLICATIONS INFLUENCES, SUB- IMPACT BUILDING CATEGORY CONNECTIONS AND CATEGORY TYPE RAW MATERIAL PRODUCTS AND DEVELOPMENT CONSTRUCTION COLLABORATION EXTRACTION MATERIALS MANUFACTURE

• Downstream demand in Techno Substitution Possible impact Possible impact Possible impact • Increased demand for materials, • Prioritize lower • Construction the value chain incen- logy of existing products products and services with lower emissions methods and tivizes investment in the and services emissions and associated drop in products, materials development and man- with lower demand for emissions-intensive services and increasingly ufacture of lower carbon emissions options counterparts. methods. incorporate materials and products • Pressure from stakeholders to reduce lower emissions by upstream players, ulti- Response emissions associated with distribution. • Adopt a holistic options. mately inducing a change approach focused in the product mix. Response Response • Incorporate lower emissions options into on reducing • Ensure capability • Product development and the product portfolio mix. embedded to incorporate substitution opportu- • Assess and communicate the carbon carbon and lower emissions nities are enhanced by intensity of materials/products using a operational materials and collaboration across the lifecycle/circular economy approach emissions of the products. value chain. Continuous • Increase R&D spend on developing lower built environment. • Develop a dialogue can optimize the emissions materials and products. • Include climate framework development of solutions, • Increase investment and capital change-related for selecting aided by development of expenditure to develop and deploy screening in suppliers, ‘green’ labeling certifica- technologies that lower operational supplier and materials and tion schemes for lower emissions – for example CCUS. partner selection products based emissions materials. to procure lower on sustainability • Collaboration with carbon products criteria. organizations beyond the and materials. • Increase construction sector could collaboration accelerate development with upstream of lower carbon substi- suppliers to tutes, for example col- optimize lower laboration with academic emissions and financial institutions materials. to support technological innovation and financing.

• The way in which com- Costs to Possible impact Possible impact Possible impact transition • Higher R&D costs and increased risks • Fluctuation in • Construction panies transition to low to lower associated with developing and bringing the profitability costs could rise emissions operations, emissions pioneering technologies to market. of projects periodically as products and services technology • Increased capital investment to depending on companies adapt depends on strategic deploy low-emissions technologies in upstream costs to working with decisions about capital operations. of producing lower emissions expenditure and re-allo- • Loss of competitiveness if low-carbon lower emissions materials and cation of resources based technologies are operationally less materials and methods. on the assessment of risk, profitable and/or if customers continue to products. opportunities and financial Response use high-emissions technologies. • Increased • Provide training indicators. profitability of and preparation • Communication between Response • Re-allocate capital based on strategic projects where for key actors and players about custom- assessment of lower emissions regulatory employees. ers’ preferences and operations and products. changes/ • Maintain expectations facilitates • Advocate for policies and financing government communication decisions about allocating solutions to support and de-risk incentives favor with value capital to lower emissions the development of low emissions low-carbon chain partners technologies/products technologies. options. to prepare and projects. for disruptive • Collaborative marketing Response • Assess the changes. and customer/public viability of education initiatives can construction promote consumer un- projects that derstanding of low-carbon utilize low technologies and grow the emissions market. technologies. • Financial products • Communicate designed to support results of viability low-carbon or “green” assessment innovation and co-created to help identify by value chain participants solutions and investors/financiers and promote could play a critical role adoption/ in providing the capital uptake of these to develop low-carbon technologies. technologies.

24 Construction and Building Materials TCFD Preparer Forum VALUE CHAIN IMPLICATIONS INFLUENCES, SUB- IMPACT BUILDING CATEGORY CONNECTIONS AND CATEGORY TYPE RAW MATERIAL PRODUCTS AND DEVELOPMENT CONSTRUCTION COLLABORATION EXTRACTION MATERIALS MANUFACTURE

• Exposure to raw material Market Increased Possible impact Possible impact Possible impact Possible impact cost of raw • Changes in the • Changes to • Increased • Increased costs price volatility risks could materials, cost of carbon input costs for materials if prices of affect the value chain in shift in intensive raw construction costs impact energy and/or different ways, influencing consumer materials affect products affect profitability and/ raw materials rise downstream players to preferences demand and demand and or viability of and are passed seek alternative material/ profitability of profitability. construction through the value product options and operations. • Demand for projects. chain. changing the operational • Increased energy substitute goods. • Ability to prioritize • Changing costs and demand for prices affect • Increased energy use of low- customer products from upstream operational costs. prices affect carbon materials preferences players. operational costs. jeopardized if incentivize use of • Increased energy costs Response • Stabilize they become too new materials. would cause operational Response operational costs • Diversify product expensive. costs to rise for all value Response to capitalize on portfolio. • Increased energy • Improve capacity chain participants. raw material price • Hedge price prices affect to satisfy • Changing demand could increase. volatility of key operational costs. consumer offer opportunities • Adjust production materials. preferences and for specialization and Response outputs to reflect • Source raw • Materials price manage exposure diversification, such as demand. materials more sensitivity to price volatility. the expansion of low • Diversify product widely, engage assessment and • Develop emissions services and portfolio to reflect with suppliers and contingency plans contingency products. shifting consumer vertically integrate for procurement. plans to manage preferences. operations. material price • Explore circular fluctuations. economy options. • Improve efficiency of energy consumption and material use.

• Public sentiment around Reputation Changing Possible impact public • Negative public image arising from issues related to sustainability and climate change sustainability and climate perceptions results in reduced demand for products and services. change issues affects all of the sector value chain players. Response • Maintain focus on sustainability reporting, corporate citizenship and environmental • Negative perceptions responsibility, ensuring this is well documented and transparently communicated. can result in reputational • Maintain strategic focus on minimizing environmental impact and contributing to damage and influence climate change mitigation and adaptation efforts. customer decisions, • Explore potential for differentiation in the market based on environmental credentials. whereas positive perceptions create opportunities to attract talent and investors. • Collaboration to develop educational initiatives could help explain the sector’s role in climate change adaptation and mitigation and wider societal issues.

25 Construction and Building Materials TCFD Preparer Forum VALUE CHAIN IMPLICATIONS INFLUENCES, SUB- IMPACT BUILDING CATEGORY CONNECTIONS AND CATEGORY TYPE RAW MATERIAL PRODUCTS AND DEVELOPMENT CONSTRUCTION COLLABORATION EXTRACTION MATERIALS MANUFACTURE

• Chronic physical changes Chronic Rising sea Possible impact Possible impact Possible impact • Flooding risk to sites located in coastal • Disruption to • Construction have the potential to af- physical levels, increasing areas. business in key timelines fect all players in the con- risks mean • Water availability risk in some regions markets/coastal extended or struction value chain, but temperatures, due to changing precipitation patterns. areas. disrupted due companies can prepare changing precipitation • Variation in operational costs where • Devaluation to increased and identify opportunities patterns temperature changes affect electricity of partially frequency/ to provide solutions during consumption. completed intensity the gradual onset of risks. • Reduced availability and/or increased projects in of extreme • Pre-existing assets in cost of raw materials from suppliers exposed areas. precipitation/heat vulnerable locations, such affected by water scarcity, flooding or • Greater days. as manufacturing sites increased operational costs. demand for • Flooding risk to and newly built infrastruc- climate-resilient sites located in ture in low-lying coastal Response • Environmental risk assessment of asset infrastructure coastal areas. areas are particularly at locations, implementation of preventative solutions. • Changes in risk of devaluation. Assets measures and/or development of demand for located in areas exposed Response alternative risk mitigation strategies. • Change of zoning construction to extreme heat could • Diversified portfolio/approach to and development projects in become more expensive compensate and cover for business code particular markets to maintain. interruptions. requirements. and locations. • Extreme heat and flooding • Comprehensive supplier selection • Conduct forward- pose a risk to human Response criteria and diversification of supplier mix. looking chronic • Assess life and could affect • Contingency planning in distribution climate risk construction project development and routes. assessments delivery timelines construction timelines in prior to based on exposed areas. commencing forecasts that • Changes in the physical projects. account for environment may result in • Prioritize chronic changes changes to development climate-resilient to climate. and financing require- development • Increase capacity ments and regulations, approaches. to deliver affecting downstream construction players in the value chain. projects in lower • Risk management and risk locations. strategic decision-making should take account of climate science and long-term forecasts when assessing new sites.

• All value chain partic- Acute Increased Possible impact Possible impact Possible impact • Damage/loss of assets such as • Unexpected and • Construction ipants are exposed to physical severity and frequency manufacturing equipment and buildings. severe delays to site damage acute physical risks as risks of extreme • Lower production capacity and revenue the development and challenging/ the climate changes and events due to extreme weather events. process. unsafe working extreme weather events • Disruption and delays in the • Some conditions. become more frequent transportation and delivery of goods. development • Delays to project and severe in some sites may become timelines resulting locations. Response • Increase resilience of sites/facilities to unviable. Extreme in increased • There are opportunities extreme weather events by improving cases may require costs. to collaborate and share defenses and implementing contingency projects to be monitoring and commu- Response plans. cancelled. • Close monitoring nication efforts relating to • Relocate production sites to less of weather early warning/intelligence Response exposed areas where feasible. • Comprehensive forecasts to on extreme events. • Build in flexibility and contingency by evaluation of the ensure worker • Responses that increase diversifying supplier mix. physical climate safety and resilience include pur- • Insurance arrangements. risk exposure of adequate chasing insurance and projects. preparation. assessing and strength- • Contingency • Contingency ening mitigation options, planning and planning and such as ensuring sites insurance insurance have efficient drainage. arrangements. arrangements. • Materials purchasers can diversify their supplier mix to reduce geographical exposure. • Developers can integrate the latest science and forecasts on extreme events into new project assessments to minimize exposure and, as far as possible, promote resilience to extreme climatic events

26 Construction and Building Materials TCFD Preparer Forum 5 Strategic resilience

27 Construction and Building Materials TCFD Preparer Forum 5 Strategic resilience

WHAT IS CLIMATE INTEGRATION OF CLIMATE SUMMARY: RESILIENCE? CONSIDERATIONS INTO • Strategic resilience, in There is no universally agreed GOVERNANCE AND RISK the context of climate definition of climate resilience. The MANAGEMENT PROCESSES change, refers to the way TCFD’s Final Report states that In its Final Report, the TCFD notes in which a company’s “the concept of climate resilience that “many investors want insight strategy supports and involves organizations developing into the governance and risk prepares it to remain adaptive capacity to respond to management context in which resilient under different climate change to better manage [organizations’ financial and climate scenarios. the associated risks and seize opportunities including the ability operating] results are achieved… • Forum members to respond to transition risks and [and] that disclosures related to its demonstrate strategic physical risks.” governance and risk management resilience to climate recommendations directly address change by disclosing: Strategic resilience is threatened this need for context and should be by climate-related shocks included in annual financial filings.” º How they and stressors that affect the In the cases of both governance integrate climate infrastructure, assets, plans, supply and risk management, the TCFD considerations into chains, products, processes and expects companies to state governance and finances on which a company whether they have integrated risk management depends to realize its strategy climate considerations into relevant frameworks; and and objectives. processes. Uncertainty about when, where and how climate risks might º Examples of how Resilience can be demonstrated by materialize, as well as their breadth, they are leveraging reference to a number of features magnitude, non-linear development the opportunities including the following, each of and interconnections with other presented by the which is examined in this Chapter: low-carbon transition, risks can make them appear remote including innovations from current business activity and a. The integration of climate planning horizons. in their operations considerations into , and product mix. corporate processes Integrating climate change practices and decision-making considerations into business º Forum members including governance, strategy processes minimizes the possibility are starting to use and risk management; scenario analysis to that systemic, non-diversifiable and unpredictable risks will be explore long-term b. Innovation, R&D of new overlooked in strategic planning resilience under a products and services range of possible that leverage mitigation and to the potential detriment of future states to adaptation opportunities; and future performance. By integrating support complex climate considerations into routine decision-making processes, the decision-making and c. Future plans to develop the supported by intention is that companies will strategic planning. business long- informed by develop investment, strategic term analysis . planning and business development scenarios plans that effectively prepare them for shifts in consumer behavior, new regulatory environments and behavioral incentives designed to combat climate change.

28 Construction and Building Materials TCFD Preparer Forum The TCFD expects that governance Forum members use a range • How does the low-carbon processes applied to climate change of approaches to develop transition and climate change the culture, capabilities and relate to the organizational “would be similar to those used for practices necessary to manage purpose and values? existing public financial disclosures climate risk. Some members use and would likely involve review by discussion-based workshops • What opportunities for the chief financial officer and audit with senior leaders to support a collaboration and new ways of committee, as appropriate.” comprehensive understanding working could be explored to In the case of risk, the Task Force of trends, developments and tackle climate risks collectively? asks whether climate change challenges that could impact • What skills, capabilities and has been integrated into the the achievement of strategic knowledge are needed to organization’s processes for objectives. Climate change, understand the characteristics identifying, assessing and managing emissions and energy are all topics of climate-related risks? climate-related risks. The emphasis included in discussions. Other on integration of processes is a members have developed in-depth • What are the key value creation response to the characteristics interview and survey processes to and business model impacts and of climate-related risks (e.g. their capture perspectives from relevant dependencies associated with breadth, magnitude, non-linearity leads across multiple jurisdictions climate change-related risks? and interconnectedness), which and business streams. Some have need to be considered and incorporated climate change within • How might a changing climate captured through governance, established internal controls, with and the low-carbon transition risk management and decision- three lines of defense provided by impact organizational strategy making techniques. operational management, group and objectives? functions and internal audit. Forum members’ governance and • How might climate change management approaches respond Questions that can support impact other risks on the risk to the challenging characteristics of strategic integration of climate register? What are the drivers climate-related risks by leveraging considerations and inform and connections between risks? diverse skills, knowledge and assessment of strategic resilience • How can the potential impact expertise across committees by businesses include: and working groups. Business of climate risk be characterized, processes that integrate climate measured, observed and considerations clearly articulate understood? the roles and responsibilities of The following examples reflect those involved, including sign-off Forum members’ approaches of relevant policy, positions, codes to integrating climate change of conduct and decision-making considerations into governance and procedures. Associated processes risk approaches to ensure threats and systems support internal and to strategic resilience are monitored external information flows, reflect the on an ongoing basis. company’s culture and values and respond to regulatory requirements and governance codes.

29 Construction and Building Materials TCFD Preparer Forum ArcelorMittal’s disclosure of governance organogram (ArcelorMittalFigure 9: Climate Action Report 2019)

Board of Directors Group executive management Chaired by CEO and Chairman Lakshmi Mittal. The CEO office (chief executive officer, Mr. Lakshmi N. Mittal, committee. Responses are determined by each business and president and chief financial officer, Mr. Aditya Mittal) segment, on the basis of the markets they serve and works closely with relevant executive officers and members national or regional regulatory trends. The Board and Chairman have overall responsibility for the of the senior management on key strategic issues. Business segment CEOs report quarterly to the CEO office governance and strategic direction of ArcelorMittal, which Executive officer Brian Aranha oversees the Group’s strategy on climate change. Europe Flat Products currently faces the includes taking into account the effects of climate change. on climate change and emissions reporting, as well as relevant most significant climate-related regulatory risk due to The Board has two committees with further oversight and corporate functions covering strategy, technology, R&D, its exposure to the EU ETS. Executive vice-president and responsibilities on climate-related issues. Risks are also communications and corporate responsibility. CEO ArcelorMittal Europe Flat Products, Geert Van Poelvoorde considered by boards of subsidiaries worldwide. reports on the strategy and performance of this business Climate-related risks and group-level strategy are segment. discussed regularly at the group-wide management

Appointments, Remuneration, Corporate Audit & Risk Committee Investment Allocations Climate & Environment Global Breakthrough Government Affairs Governance and Sustainability (ARCGS) Committee Working Group Technology Council Council Committee Chaired by non-executive independent director (GBTC) Chaired by lead independent director Karyn Ovelmen. Chaired by executive Chaired by executive Chaired by Carl de Mare, Chaired by Frank Schulz, Bruno Lafont. The Audit & Risk Committee ensures that officer Brian Aranha. officer Brian Aranha. VP, technology strategy. VP government affairs. the interests of the company’s shareholders The ARCGS oversees the implications of This committee also The group is responsible for The GBTC consists of This group is responsible are properly protected in relation to risk sustainability issues under five sustainability includes VP technology informing and shaping the regional/project based for aligning local climate management, internal control and financial pillars, of which one is climate change. The chair strategy and VP head of company’s climate change R&D officers. GBTC change policy strategies reporting. It oversees both the identification of the ARCGS also liaises closely with the chair strategy. This committee strategy. Members of coordinates progress on with the overall Group of risks to which the ArcelorMittal group is of the Audit & Risk Committee. makes capex decisions, the group include VP the low-emissions strategy. This ensures exposed, via regular senior management reports, which includes investment government affairs, VP technology programme. consistent engagement The Committee considers the implications of and the management response to these risks. to improve environmental corporate communications activities on climate- climate change for the business and oversees the performance, energy and & CR; VP head of strategy; related issues across company’s strategic planning in response to the carbon efficiencies. VP technology strategy; the Group. risks and opportunities that arise. It receives GM, head of SD. regular reports from senior management, led by executive officer Brian Aranha, on stakeholder This group links to the expectations, the company’s low-emissions GBTC via VP technology technology strategy, climate-related policy strategy. engagement and carbon performance.

CRH’s disclosure of its risk governance framework (CRHFigure Annual 10: Report and Form 20-F 2019) Risk Governance Framework

Ultimately responsible for risk management across CRH. Sets Board the risk appetite and ensures risks are managed within appetite. Delegates responsibility to Audit Committee.

Audit Responsible for monitoring and providing challenge on the principal risks and uncertainties facing the Group. Receives regular updates Committee on risk management strategies, mitigation and action plans.

Executive committee responsible for setting risk strategy and Risk overseeing our Three Lines of Defence and how we identify, assess Committee and manage the principal and emerging global risks the Group encounters in the pursuit of our strategic objectives.

Regional Responsible for identifying and managing divisional risks, ensuring risk management frameworks are operating effectively and Leadership capturing upside of risk, where possible.

Risk Embedded across businesses, functions and divisions. Responsible for integration of risk management frameworks, regular reporting of Champions risks and sharing best practice mitigation.

First Line Second Line Third Line of Defence of Defence of Defence

Operating company/ CRH has various oversight Group Internal Audit business leaders are functions which are provides independent responsible for risk responsible for providing assurance over the identification, management subject matter expertise, control environment and ensuring that the control defining standards and on a continuous basis. environment is robust. ensuring adherence.

30 Construction and Building Materials TCFD Preparer Forum LafargeHolcim’s disclosure of its governance approach for climate-related risks and opportunities (LafargeHolcimFigure 11: Integrated Annual Report 2019)

LAFARGEHOLCIM GOVERNANCE APPROACH FOR CLIMATE-RELATED RISKS AND OPPORTUNITIES

The Board of Directors bears ultimate responsibility for strategy and overall Board of Directors governance of the company. The HSSC advises the Board on all matters related to sustainable development, Health, Safety & Sustainability Committee including those related to climate and energy. The HSSC reviews and approves the (HSSC) company’s climate-related plans and targets. The Executive Committee is ultimately responsible for execution of the climate and energy strategy, and climate-related issues are managed on an operational level by Executive Committee the Chief Sustainability Officer (CSO), an Executive Committee-level position that (including Chief Sustainability Officer) was created in 2019. The CSO is supported by a sustainability core team. Fully half of Research and Development projects are aimed at finding low-carbon Research and Sustainability solutions. Around 40 percent of our patents have a positive impact on our carbon development core team footprint along the value chain.

Skanska’s disclosure of its sustainability governance procedure (SkanskaFigure 12: Annual and Sustainability Report 2019)

SUSTAINABILITY GOVERNANCE Procedure, Color Palette Standard, Restricted bonds is established in the Skanska Green The management of sustainability follows the Substance Standard, Health and Safety Bond Framework prepared by the Green Bond Group Governance Framework and internal Road Map Standard, Procedure of the Code Committee, which is headed by the Senior audit procedures. The Group Governance of Conduct Program, and the Community Vice President Sustainability. Investment and Sponsorship Standard. Framework is decided by the Board. The Sustainability performance is assessed via key business units are responsible to comply with To strengthen Skanska’s sustainability performance indicators and the annual Group- what is stated in the Group Policies and Group ambitions in relevance to business the wide employee survey (YVOS). Employees Procedures and Standards. The framework for Skanska Sustainability Business Forum, which are annually evaluated according to their sustainability is set by the Code of Conduct, includes members from Group Leadership capability to drive sustainability. Sustainability Supplier Code of Conduct, Anti-Corruption Team, is a body for anchoring strategic – through health and safety parameters – is Policy, Environmental Policy, Health and Safety decisions. Its aim is to strengthen Skanska’s part of incentive programs for business unit Policy, Health and Safety Standard, Health and sustainability ambition and its relevance to the management teams. Safety Reporting Procedure, Green Reporting business. The governance structure for green

Saint-Gobain’s disclosure related to Corporate Social Responsibility/Climate change governance (Saint-GobainFigure 13: Registration Document 2019)

Over four sessions, one point on the agenda • duty of vigilance and adoption of a Human was devoted to the circular economy and was dedicated to corporate social responsibility Rights policy; its challenges for the businesses. External matters, specifically the following topics: • human resources policy (in particular, experts, recognized internationally and in non-discrimination and diversity policy, complementary fields of expertise, gave • non-financial results and development of the presentations to the Directors and discussed dashboard to focus on the key challenges; particularly with regard to the balanced representation of women and men including the following with them: • climate change and reducing CO emissions 2 on governing bodies, professional and equal • the general outlook for and resources of the (carbon impact of production and contribution pay, talent management); of Saint-Gobain solutions) and appearance on circular economy; the CDP’s A List for the first time; • Health and Safety policy; • the regulatory approach by country and • environmental policy, for the purpose of sector; • monitoring of CO2 and energy roadmaps (reduction of energy consumption, in contributing to the emergence of a low- • the circular economy in the construction world. carbon economy capable of preserving the particular carbon), “R&D, CO2 and energy” innovation programs; common good. This seminar was intended to give every Director a better understanding of the • corporate social responsibility roadmap; In addition, in April 2019, the Directors challenges of the circular economy for the • compliance program (anti-trust, embargoes, took part in a half-day seminar organized Saint-Gobain Group and its implications for the fight against corruption); specifically for them by the Group, which Group’s strategy.

31 Construction and Building Materials TCFD Preparer Forum Lendlease’s disclosure of its sustainability framework and board activities related to sustainability (LendleaseFigure 14: Annual Report 2019)

Our new Sustainability Framework

Sustainability Material Issue:

Our Managing and optimising our performance in the context of imperatives Supporting sustainable Creating vibrant and resilient Fostering a healthy planet economic growth communities and cities and healthy people challenges facing the built environment, including climate change and social pressures such as population growth and housing affordability.

The Board and Sustainability Committee engaged in the following activities to help deliver inclusive, healthy and adaptable Conserving natural resources Adapting to and doing Protecting and restoring places that can thrive through change.

Focus Area Focus and selecting sustainably our part to mitigate the natural environment

Environmental Environmental Board activities and actions: sourced materials climate change • Approved the new Lendlease Sustainability Framework for 2020. The new framework responds to the need to plan for future generations and integrates sustainability into all parts of the business

Social Social Generating prosperity for the Creating thriving communities Supporting and enhancing • Continued to support the commitment

Focus Area Focus communities we impact resilient to climate change, people’s physical and to reconciliation and the initiatives in rich with culture and context with mental wellbeing the Elevate Reconciliation Action Plan. a place for all Supported and approved the Uluru Statement from the Heart • Five Directors attended the Garma Program in August 2018 supporting and services that leverage Indigenous culture in Australia. In total, LEVERAGING & climate mitigation and adaptation seven of the current Board members REALIZING INNOVATION have attended the Garma Program opportunities. Forum members • Endorsed management’s evolution OPPORTUNITIES pursue these opportunities of the 20 by 20 goals with the aim of continuously improving the "A resilient company has the through a number of mechanisms, environmental performance of the capability to self-renew over ranging from open collaborative Group’s projects and operations • Engaged with management and time through innovation…..and partnerships to business discussed the four Lendlease Climate Scenarios created to test business experimentation, by reinventing unit-led projects, connections strategies and respond to key trends business models as strategies and with academia and dedicated in line with recommendations of the 16 Task Force on Climate-related Financial circumstances change." cross-functional R&D centers. Disclosures (TCFD) The types of opportunities they • Received reports on the establishment Forum members communicate of the 10 year program between their organizations’ strategic explore include carbon neutrality, Lendlease and the Great Barrier Reef energy efficiency, circularity, high Foundation to support a range of resilience to climate risks by programs to protect critical habitats in disclosing, amongst other things, performance materials, insulation, the Reef sustainable materials and low- • Continued to support management in information about their innovation participating in industry roundtables activities and R&D of new products carbon heating and cooling. on modern slavery and supply chain

EXAMPLES OF INNOVATION ACTIVITY LafargeHolcim’s Accelerator program focuses on achieving carbon neutrality. Innovative companies are invited to pitch and participate in a six-month program to develop, test and market ideas to build a business around raw materials, industrial by-products, sensors, analytics, software models and new process solutions that support the transition towards neutrality.

Skanska’s Deep Green Cooling system provides low energy cooling by transferring ground bedrock chill via a water heat exchanger to cool rooms and air ventilation. Skanska participates in several collaborative R&D projects in Norway. They include Zero Emission Neighborhoods in Smart Cities and Climate 2050, which aims to reduce the societal risks associated with climate change, enhanced precipitation and exposure of the built environment to flood water.

Saint-Gobain spent €78.3 million on environment-related R&D in 2018. Since 2016, its cross-functional R&D

program, “Improvement in CO2 footprint” has coordinated and increased R&D efforts dedicated to improving manufacturing processes and reducing GHG emissions.

32 Construction and Building Materials TCFD Preparer Forum Disclosures relating to innovation, • Describe relevant patents • Describe the number/ research and new products and for mitigation and adaptation proportion of new products and services are useful where they: technologies; solutions that address climate- related challenges; and • Explain the variety of • Identify resources (financial, approaches taken to pursue human and functional) allocated • Describe the expected mitigation and adaptation to climate mitigation and contribution, outcomes and opportunities; adaptation research; impacts of the product/solution in terms of emissions reduction, • Identify collaborations energy saving, resource relating to climate, energy and efficiency or adaptive capacity. sustainability;

LafargeHolcim’s disclosure on innovation toward carbon-neutral construction (LafargeHolcimFigure 15: Integrated Annual Report 2019)

With the strongest innovation organization in breakthroughs in the chemical processes In addition to providing more low carbon the industry and an extended global network underlying our cement or shaping the solutions, we seek to further differentiate our of regional labs, reducing carbon emissions is construction industry of the future through our products offering for improved performance a key priority of our innovation agenda. contributions to 3D-printed buildings. and growth and to develop 300 new products per year by 2022, meeting regional needs with Half of our innovation projects are aimed at Today, around 40 percent of our patents have custom-tailored products – more than triple finding low-carbon solutions, whether they a positive impact on our carbon footprint along the amount we delivered in 2018. are digital tools to empower greener building, the value chain.

Saint-Gobain’s disclosure on cross-functional R&D including CO2 footprint reduction (Saint-GobainFigure 16: Registration Document 2019) TRANSVERSAL STRATEGIC PROGRAMS PROGRAM

CONTROL OF MATERIAL VALUE FOR CUSTOMERS DIGITAL TRANSFORMATION SUSTAINABLE DEVELOPMENT SCIENCE AND PROCESSES    Building Science Additive manufacturing Reduction of CO2 footprint  Physics and chemistry  Sensors and IoT for enhanced and 3D printing of mineral binders products and services  Robotics and automation  Organic and inorganic foams  Data science  Adhesives and adhesion and artiﬁcial intelligence  Wet coatings  Non-destructive testing for the improvement of industrial performance and product quality

33 Construction and Building Materials TCFD Preparer Forum Skanska’s disclosure of its Embodied Carbon in Construction Calculator innovation (SkanskaFigure 17: Annual and Sustainability Report 2019) Helping customers achieve climate goals

Skanska initiated and co-developed a carbon calculator, EC3, enabling Microsoft’s headquarters to achieve new levels of carbon reductions. Now an open-acceess tool, Skanska’s innovation has enabled more informed design decisions that reduce the carbon embodied in construction.

Microsoft’s global office portfolio consists impact further. For Skanska, who decided of more than 3 million square meters of alongside Microsoft and other initial part- space. Among Microsoft’s top priorities ners to make the tool publicly available, is reducing the carbon emissions of this tool is a means to drive sustainability buildings to support the company’s across the construction sector by increas- carbon reduction targets. ing transparency in carbon reporting and With Microsoft and other initial reduction. partners, Skanska developed a solution “Through EC3, Microsoft aims to for calculating and reducing carbon reduce embodied carbon emissions from emissions embodied in construction – the redevelopment of our headquarters the Embodied Carbon in Construction by 30 percent. With some materials, we’ve Calculator (EC3). been able to reduce emissions with no »Through EC3, we “The construction sector hasn’t cost premiums,” says Katie. aim to reduce embodied focused so much on sustainability, and Partnering to meet the most compli- the necessary data hasn’t been available cated challenges has proven to be a very carbon emissions from in an easy-to-consume way. When successful way of working and it creates the redevelopment of Skanska presented EC3, we thought EC3 value both for customers and for Skanska was perfect for our needs. We wanted to as a company. our headquarters by help fund its development and pilot it to “For us, sustainability is a core principle 30 percent.« help improve this tool so it benefits the – In our building projects, sustainability entire industry,” says Katie Ross, Senior has the same priority as the traditional Katie Ross, Senior Sustainability Manager Sustainability Manager at Microsoft. focus areas of cost and schedule. We at Microsoft EC3 measures the carbon footprint rely on trusted partners to help us create of materials and compares materials in amazing and highly sustainable work- order to identify the most sustainable places for our employees. We want to be solutions for a project. Using this tool, working with partners who can push us Skanska can help companies achieve as much as we push them – that makes ambitious climate goals and advance the us all better and lets us all move faster”, Group’s own efforts to reduce climate Katie concludes.

Embodied Carbon in Construction Calculator (EC3) The extraction, manufacturing and transport of building materials represent major sources of carbon emissions. EC3 is a groundbreaking database-driven tool that calculates and compares the carbon footprint of materials based on the environmental product declarations (EPDs) available from suppliers. Skanska conceived of EC3, which it co-created with support from Microsoft and other partners. Skanska then turned to University of washington Carbon Leadership Forum to lead development of EC3 as a public, open- access tool, with support from over 50 industy partners. Publicly available for use in the USA from fall 2019. Skanska will utilize EC3 in all further commercial development projects. The Group is also piloting EC3 in multiple construction projects, supporting both Skanska and the Group’s customers in achieving respective carbon targets.

34 Construction and Building Materials TCFD Preparer Forum ArcelorMittal’s disclosure of process innovation and R&D for circularity, reductions in carbon emissions Figure 18: and energy use (ArcelorMittal Annual Report 2019)

potential reuse of slag from furnaces in water Developing breakthrough process Reductions of carbon emissions and energy filtration and greenhouse gas capture. Other ArcelorMittal’s global R&D division also innovations to deliver cost reduction, use. circular economy initiatives include: working on continues to research processes to support sustainability benefits to meet current the use of mining tailings as a secondary raw carbon neutrality and energy efficiency. In and emerging environmental challenges, The material, either by finding marketable solutions 2019, significant progress was made in the and new product development. creation of unique processes creates value or generating valuable products to be used concept development and engineering of for the Company and its stakeholders by: in-house; and improving the quality of the a full H2 MIDREX direct reduction process, enhancing the performance of operations scrap the Company uses, as well as exploring and of a pilot plant in Hamburg for cold through cost efficiency and improved product automated sorting processes for treating scrap. electrolysis of iron, which will be operational quality; promoting process-driven product in 2022. Assessment through simulation . Work in this area development; and enabling environmental Improvement in air, land, water and experiments of several CO2 reduction improvements, including carbon reductions includes research in technology for cleaning technologies has led to the creation of and improvements in air, land and water. fumes from stacks, reducing dust diffusive breakthrough projects that should allow the Process improvements contribute decisively emissions, cleaning water discharges, and substantial reduction of blast furnace route solving water scarcity issues. In 2019, the to the future of the Company, both helping to CO2 emissions. Meanwhile, the roll-out of preserve its license to operate and ensuring research on cleaning fumes was extended in-house developed solutions, such as smart its financial sustainability through important to investigate a holistic combination of oxygen sensors and innovative combustion management gains. technologies for multipollutant abatement control strategies, is enabling incremental (of dust, SOx, NOx and dioxins) with great reductions in energy and CO emissions. . Work in this success, and significant progress was made on 2 By-products and circular economy area includes the re-use of slag as a valuable developing improved pleated bags for boosting The Company’s Jet Vapor Deposition (“JVD”) product for many applications, which reduces filters efficiency. Technology on desalination technology is an example of process- waste while avoiding the ecosystem disruption has been implemented at Tubarao, leading to driven product development, which enables that can result from the extraction of other an international award for the most innovative advanced steels for industry. The Company materials such as natural stone or sand. For desalination project in 2019 by International introduced its unique JVD line to create a new example, the Company is making innovative Desalination Association. Also in 2019, an generation of coated products with improved re-use of slag in the following applications: industrial demonstrator for waste water from quality and enhanced functionality (Jetgal® ballast in offshore wind turbine foundations to Blast Furnace treatment was launched at for automotive applications and Jetskin® for replace natural ballast; a construction material Asturias, along with an innovative technology industrial applications). for building protection walls to reduce noise and to reduce dust emissions in the chutes transfer dust; a fertilizer source for agriculture; and the with very high efficiency that was validated.

Lendlease has adopted scenario • Polarization (3-4°C) - disjointed, LONG-TERM ANALYSIS analysis as a means of testing localized approach to climate & PLANNING its strategic resilience against change mitigation, used to test The TCFD Recommended potential future climate change longer-term societal risks of Disclosure in Strategy c) asks outcomes through its “Creating climate change impacts. organizations to ‘describe the 2050 Future Scenarios.” resilience of their strategy, taking • Paris Alignment (2-3°C) - into consideration different climate- The analysis applies a range of delayed action on climate related scenarios including a 2°C environmental, social, technological, change resulting in a late, or lower scenario.’ The TCFD economic and policy indicators uncontrolled and rapid encourages all organizations from peer reviewed scientific decarbonization pathway, used exposed to climate-related risks to and academic research, which to test transitional risks of consider using scenario analysis to are viewed through the lens of uncontrolled decarbonization. help inform strategic and financial its Sustainability Framework. planning and disclosures about The analysis helps the company • Transformation (well below 2°C) the resilience of their strategies estimate the business impacts of - a societally driven controlled under a range of plausible four possible scenarios: and early rapid decarbonization climate-related scenarios. pathway where global • Resignation (more than emissions peak in 2020 and are Forum members are exploring and 4°C) - the worst of climate close to zero in 2040. developing a variety of approaches change, used to test physical to long-term planning and scenario risks across operations analysis to support internal and supply chain. decision making, as illustrated in the examples below.

35 Construction and Building Materials TCFD Preparer Forum Lendlease’s disclosure of indicators and parameters used in climate scenarios (FigureLendlease 19: website) INDICATORS OF CHANGE The following section provides details of our Lendlease Climate Scenarios. Unless otherwise stated, all metrics have been sourced from peer-reviewed data in the Reference Point sources.

Temperature Range 4°C+ | 7°F+ 3-4°C | 5-7°F 2-3°C | 3.6-5°F <2°C | <3.6°F Carbon Emissions Pathways, IPCC Assessment Report 5, RCP8.5 RCP6.0 RCP4.5 RCP2.6 2014 Energy Pathway, International New + Existing Policies Scenario Sustainable Development Current Policy Scenario (CPS) Energy Agency / WEO 2018 (NPS) Scenario (SDS) Energy Technology Reference Technology Scenario Beyond 2 Degree Scenario 2 Degree Scenario (2DS) Perspectives, IEA/ETP 2017 (RTS) (B2DS) Social and Economic Pathways, IPCC Shared Socioeconomic SSP5 + SSP4 SSP3 SSP2 SSP1 Pathways Cement + Steel: Energy Limited Climate Transition Ambitious Climate Transition Transition Risks Project Scenario (LCT) Scenario (ACT)

REFERENCE POINT REFERENCE CICERO Climate Scenarios Current Policies (CPS) New Policies (NPS) Sustainable Development (SDS)

Global Carbon Emissions Peak 2080 2040 2020 2020 in Year Net Zero Annual Global After 2100 After 2100 2080 2050 Emissions in Year CULTURAL - Proportion of New Vehicles are <14% 14% 44% 46% Electric in 2040 (IC1) SOCIO Residential building energy <0.6% 0.6% 2% >2% efficiency improvement per year Commercial building energy <1.5% 1.5% 2% >2% efficiency improvement per year % of Electricity used for heating 40-60% 66% 73% 84% and cooling (current 40%) Reduction in carbon intensity of <1% 1% 25% 63% cement by 2060 from 2014 Reduction in carbon intensity of 0% 0% 60% 90% steel by 2060 from 2014 Proportion of Energy from Renewable Sources by 2060 <36% 36% 72% 83% Globally (2014: 22%) Proportion of Energy from Fossil Fuels by 2060 Globally (2014: >74% 74% 5% 2% 65%)

TECHNOLOGICAL Total Energy Supply from Low- <50% 50% 85% 95% Carbon Generation by 2040 Annual Energy Intensity 1.9% (CPS) 2.3% (NPS) 3.2% (SDS) >3.2% Improvement to 2040 Proportion of Energy Generated Using Carbon Capture and <9% 9% 2% 12% Storage (2014: 0%)

Cost of Carbon by 2040 $50 $50 $140 $140 (USD/Tonne) Reduction in Labour Capacity 37% <37% 25% <25% 2100, compared to today. (IC2) ECONOMIC

Sea Level Rise Long-Term (IC3) 8.9m sea level rise 6.4m sea level rise 4.7m sea level rise 2.9m sea level rise

Sea Level Rise, 2100 45-82cm 32-62cm 32-62cm 26-54cm People displaced by sea level 627m people affected 432m people affected 280m people affected 137m people affected rise, long-term (IC3) Frequency of extreme rainfall >+36% >+36% +36% +17% (IC4) Increase in drought length >18 18 11 9

ENVIRONMENT (months) (IC5)

World Population 2100 7.4-9.3 Billion 12.6 Billion 9 Billion 6.9 Billion Intergroup Conflict (IC6) +45.2% +33.9% +22.6% +11.3% Global Dryland Area Suitable for +27% +19% Malaria Transmission (IC7) POLITICAL

36 Construction and Building Materials TCFD Preparer Forum LafargeHolcim describes key construction value chain contributions and actions for the coming decades, highlighting the role of binders and replacement constituents, concrete in construction, use of renewable energy and CCUS.

LafargeHolcim’s disclosure of its CO2 efficiency roadmap (LafargeHolcimFigure 20: Integrated Annual Report 2019)

LAFARGEHOLCIM CARBON ROADMAP Largest contribution in next decade expected from construction value chain 5 Carbon capture & storage or use

4 Enhancement of cement efficiency in concrete Differentiated use of concrete in construction including new binders based on alternative clinkers 3 Renewable energy Power purchase agreements 2 Alternative fuels Optimization of clinker intensity in cement

1 Upgrade of cement plants including waste heat recovery, automation technologies and robotics, artificial intelligence, etc.

1990 20002000 20102010 20202020 20302030 20402040 20502050

37 Construction and Building Materials TCFD Preparer Forum ArcelorMittal established a cross- associated enabling conditions. What happens if/when…? How functional internal task force to The analysis was conducted through prepared are we…? How would our explore thematic scenarios relating cross-functional discussions 19 ARCELORMITTAL CLIMATE ACTION REPORT 1 decision-making change…? What to particular policy challenges, about possible transition risk and would we need to do…? How can we such as clean energy infrastructure opportunity developments, asking improve our position? and allocation by sector and questions such as:

ArcelorMittal’s disclosure of climate-related policy scenarios (ArcelorMittalFigure 21: Climate Action Report 2019)

ACCELERATE HIGH Globally

ACCELERATE Regionally

WAIT

STAGNATE Pace of deployment of low-emissions technologies of low-emissions of deployment Pace

LOW Level of policy RESPONSE HIGH

Policy challenge Structurally Ineffective mechanism Ineffective mechanism Mechanisms to maintain Common global higher in place to offset in place to offset competitive market by framework is operating structurally higher structurally higher offsetting structurally implemented to costs of operating costs of operating costs of higher operating costs maintain competitive low-emissions low-emissions low-emissions of low-emissions market to offset steelmaking steelmakers versus steelmakers versus steelmakers versus structurally higher higher-emissions higher-emissions higher-emissions operating costs of steelmakers steelmakers steelmakers and imports low-emissions set in some countries steelmakers versus STAGNATE and regions, e.g. green higher-emissions • Lackborder of access adjustment to sufficient andsteelmakers affordable clean energy Clean energy No concerted policy No concerted policy • No Supportmechanism for cleanto address high Supportrisk that for steel clean production is infrastructure in any market to in any market to madeenergy structurally to steelmaking uncompetitive energy across to countries/regions steelmaking and allocation incentivise and allocate incentivise and allocate• Slowindustry development from clean of low-emissions industry steelmaking from clean technologies by sector clean energy to steel clean energy to steel No power,meaningful circular reduction carbon in globalpower, steel circular CO2 emissions carbon as sector sector • productionand carbon shifts capture to less and carbon-regulated and carbon capturejurisdictions and Insignificantstorage infrastructure global progress to storagegoals of infrastructure Paris Agreement • provided in only some provided globally countriesWAIT and regions Investment in Limited public support Accelerated public Accelerated public Accelerated public Technology makes encouraging progress and is potentially low-emissions for R&D to bring support for R&D to support for R&D to support for R&D to • ready for significant deployment within 10-20 years steelmaking technologies to bring technologies to bring technologies to bring technologies to technologies commercialisation commercialisation • Butcommercialisation only fragmented access tocommercialisation affordable clean energy (development maturity maturity; some • No maturity;mechanism high to levels address of highmaturity; risk of steel high production levels of being and roll out) investment support for structurallyinvestment uncompetitive support for in affectedinvestment countries/regions support for roll out of technologies Marginalroll out steel of technologies CO2 reductions rollglobally out of as technologies production shifts • to less carbon-regulated jurisdictions • Limited progress towards goals of Paris Agreement STAGNATE ACCELERATE regionally • Lack of access to sufficient and affordable clean energy • Technology makes encouraging progress and is potentially • No mechanism to address high risk that steel production is ready for significant deployment within 10-20 years made structurally uncompetitive across countries/regions • Access to sufficient and affordable clean energy in supportive Slow development of low-emissions steelmaking technologies countries/regions • No meaningful reduction in global steel CO emissions as Regions with more active climate legislation ensure 2 • • production shifts to less carbon-regulated jurisdictions mechanisms are in place to enable steel production to remain Insignificant global progress to goals of Paris Agreement competitive, e.g. green border adjustment • Significant reductions in steel CO in supportive countries/regions • 2 WAIT • Partial global progress to goals of Paris Agreement Technology makes encouraging progress and is potentially ACCELERATE globally • ready for significant deployment within 10-20 years Technology makes encouraging progress and is potentially But only fragmented access to affordable clean energy • ready for significant deployment within 10-20 years • No mechanism to address high risk of steel production being Access to sufficient and affordable clean energy globally • structurally uncompetitive in affected countries/regions • Low-carbon legislation in place in the majority of countries, Marginal steel CO reductions globally as production shifts • 2 ideally with a common global framework or mechanism to • to less carbon-regulated jurisdictions ensure steel production remains competitive globally Limited progress towards goals of Paris Agreement • Significant global reductions in steel CO • 2 ACCELERATE regionally • Global industry alignment with goals of Paris Agreement Technology makes encouraging progress and is potentially • ready for significant deployment within 10-20 years Access to sufficient and affordable clean energy in supportive • countries/regions 38 Regions with more active climate legislation ensure Construction and Building Materials TCFD Preparer Forum • mechanisms are in place to enable steel production to remain competitive, e.g. green border adjustment Significant reductions in steel CO in supportive countries/regions • 2 • Partial global progress to goals of Paris Agreement ACCELERATE globally Technology makes encouraging progress and is potentially • ready for significant deployment within 10-20 years Access to sufficient and affordable clean energy globally • Low-carbon legislation in place in the majority of countries, • ideally with a common global framework or mechanism to ensure steel production remains competitive globally Significant global reductions in steel CO • 2 • Global industry alignment with goals of Paris Agreement Forum members identified • There is more of a focus on • Processes, sources, various challenges associated specific attributes of individual parameters, assumptions with scenario analysis and companies, their sector and used for scenario analysis associated disclosures. These industry context, markets, are clear (as appropriate, include commercial and products etc.; given commercial and market market sensitivities, erroneous sensitivities); and interpretation of scenario analyses • Quantitative information as forecasts, lack of sector/ complements qualitative • Strategic responses are industry-specific data to support information (as appropriate, identified including changes analysis, and limited use and utility given commercial and market to the business (e.g., R&D of scenario-related disclosures. sensitivities); priorities, product portfolio Forum members expect disclosures development, strengthening relating to scenario analysis and supply chain resilience) and long-term planning to develop over to financial planning (e.g., time so that: investments in new technology, new markets).

USER PERSPECTIVES - DEMONSTRATING STRATEGIC RESILIENCE THROUGH SCENARIO ANALYSIS When considering strategic resilience, investors rely primarily on evidence of companies’ future plans for addressing climate change. Many users expect companies to demonstrate their resilience by answering the questions: How are you going to cope in different climate scenarios? At what point do you need to start changing your behavior? Disclosures about strategic resilience assessments based on scenario analysis are useful where they include information about:

including how it might need to adapt • The company’s awareness of and preparedness for change, under different scenarios;

in terms of governance and management • The level of commitment that supports future plans commitment, capital allocation and marshaling expertise within the company;

, taking account of the company’s capabilities and ambition; • Planning for the transition that explain and justify the thought processes behind the assessment, • Assumptions and references the scenarios used and the assumptions that inform the outcome;

explaining whether scenario analysis is being used to inform • Assessment purpose and impact, strategic decisions at board and management levels and, if so, what effect those decisions might have in terms of driving change within the company;

to explain the use of KPIs and other quantified information; • Narrative including impact on revenues, capital expenditure • Financial implications under different scenarios, and operational expenditure.

Users clarified their views on whether companies should use standardized scenarios to aid comparability of results. While there was support for an element of comparability in future, users acknowledged a ‘one-size- fits-all’ approach to scenario analysis is unlikely to be suitable for companies at this stage in the development of climate-related financial disclosure. Users see a benefit in using reference scenarios and allowing preparers to adapt them to suit their needs.

In the absence of company-disclosed scenario analysis, investors often prepare their own estimates of the company’s future resilience. However, users prefer and actively encourage companies to provide their own scenario analysis.

39 Construction and Building Materials TCFD Preparer Forum 6 Metrics and targets

40 Construction and Building Materials TCFD Preparer Forum 6 Metrics and targets

The TCFD recommends that METRICS EXAMPLES companies disclose the metrics Forum members commonly SUMMARY: and targets they use to assess and • Metrics and targets disclose , manage relevant climate-related operational metrics enable companies to such as Scope 1, 2 and 3 GHG risks and opportunities, where demonstrate how they emissions (where appropriate), as such information is material. The measure and monitor well as historical metrics to enable first part of this chapter provides climate-related risks and comparative analysis over time. examples of the ways Forum opportunities, implement Carbon intensity (by volume of members have responded to strategic responses, and product or revenue) is commonly the TCFD’s recommendations progress in mitigating, disclosed, along with energy on metrics and targets, together managing and adapting usage from renewable/low-carbon with the associated learnings. The to key issues. sources. Forum members use second part of the chapter explores operational metrics to illustrate • Forum members the challenges members face with efficiencies and progress towards commonly disclose regards to climate-related metrics a low-carbon future, including operational metrics and proposes illustrative metrics green building projects and sites including GHG that the sector could develop in built to meet a carbon efficiency emissions, carbon the future. benchmark. intensities and energy Forum members present usage from renewable/ financial primarily to demonstrate low-carbon sources, metrics along with historical investments that support the low- trends. carbon transition. Examples include capital investments to increase • Forum members are energy efficiency and green beginning to report financing activities, including green climate-related financial infrastructure/buildings and green metrics, such as bond issuance. investments in low- carbon projects.

• This chapter includes a table of illustrative metrics designed to enhance disclosure and provide options to companies when choosing what to report.

41 Construction and Building Materials TCFD Preparer Forum ArcelorMittal’s disclosure of key metrics including emissions (ArcelorMittalFigure 22: Climate Action Report 2019) Summary of key metrics

Metric 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Steel production 113.9 102.3 73.1 92.5 92.2 88.6 90.9 93.4 92.7 90.4 92.9 91.5 (Mt crude steel)

BF-BOF / DRI-EAF / 77:8:15 77:8:15 79:7:15 78:7:15 79:8:14 79:8:13 79:8:13 80:8:12 81:7:11 85:6:9 84:7:9 83:7:10 scrap-EAF ratio

Total CO2 emissions 244 227 164 201 194 189 195 196 198 193 196 194 22,23 (MtCO2) – steel only

Scope 1 203 189 135 167 163 159 162 167 168 167 170 167

Scope 2 24 23 18 19 18 17 18 14 14 12 13 12

Scope 3 17 15 11 15 13 13 16 14 15 14 13 15

Avoided CO2 emissions 11 10 7 8 9 9 10 10 10 10 11 11 from slag used in cement

(MtCO2)

Avoided CO2 emissions 53 44 33 41 40 38 40 40 38 35 38 37 from use of scrap steel

(MtCO2)

Average CO2 intensity 2.14 2.22 2.25 2.18 2.10 2.14 2.14 2.10 2.14 2.14 2.12 2.12 24 (tCO2 / t crude steel)

Average BF-BOF CO2 2.44 2.54 2.57 2.48 2.38 2.40 2.41 2.35 2.37 2.33 2.31 2.33 intensity (tCO2 / t crude steel)

Average scrap-EAF CO2 0.74 0.67 0.65 0.66 0.67 0.66 0.70 0.63 0.61 0.53 0.60 0.66 intensity (tCO2 / t crude steel)

Change in crude steel 0.0% 3.3% 2.6% 0.3% -4.3% -4.1% -3.3% -5.8% -4.1% -5.2% -6.2% -5.6% carbon intensity since 2007 (target – 8% by 2020)

% sites below 13% 19% 22% 28% 31% 33% 30% 38% 38% 42% 50% 44% ArcelorMittal carbon efficiency benchmark

Approvals for energy – – – – – – – 180 11 108 373 247 efficiency capital investment projects (million USD)25

Lendlease’s disclosure of environmental data aggregated by region (LendleaseFigure 23: Global Sustainability Framework FY19 Environmental Data and Summary Basis of Preparation)

Sum of FY19 Fuels (Diesel, Gasoline, Su m o f FY19 22 Using worldsteel methodology,Su m o f FY19 whichSu m o f FY19 ensuresLPG, Ethanol, that SuCO m o f FY192 emissionsRenewables for Sueach m o f tonneSu m o fof FY19 steelTo t a l Su m are o f FY19 measured To t a l Sum of FY19 Total forSum the of FY19 same Total Sum set of FY19 of Tot al steelmakingSum of FY19 Tot al Sum processes,of FY19 Total whether or Regionnot and Respective they areSu owned m o f FY19 En e r gybyElectricity the UsereportingNat ural Gas company.Bi odi esel ) Renewables Co n su m e d Renewables Emi ssi o n s Scope 1 Emissions Scope 2 Emissions Pot abl e W at er Wast e Waste to Landfill Waste Diverted Sum of Area (m2) Su m o f I LU Business Breakdown (kWh) (kWh) ( M J) (li t res) Produced (kWh) (kWh) Ex p o r t e d ( kW h ) ( TCO2- e ) (T CO2-e) (T CO2-e) ( k L) (Tonne) (Tonne) (Tonne) Sum of Hours FY19 FY19 FY19 23Amer iOur cas mining footprint163,087,934 was under 83,045,318 9 million 33,110,484 tonnes 2,932,916 CO equivalent 19,984,892 17,276,706in 2018. 2,708,186 60,249 13,728 46,520 2,781,605 65,629 17,880 47,748 14,025,111 926,466 - Construction 57,815,210 17,367,369 13,969,272 2,626,551 2 - - - 14,549 9,348 5,201 131,792 45,807 8,771 37,035 14,025,111 - - 24Def ence The boundary for98,891,232 this metric 62,585,658 covers 15,852,012all of our sites;306,365 it is 19,984,892different 17,276,706to the boundary 2,708,186 for 43,583our carbon3,716 reduction39,867 target, 2,642,156 which only6,974 includes3,148 sites we3,826 have owned- 857,200 - Investment Management 4,777,587 1,488,386 3,289,201 - - - 1,509 664 845 6,549 11,145 4,510 6,636 - 40,690 - Lendleasesince Tenancy 2007. 1,603,905 1,603,905 - - - - - 607 - 607 1,109 1,703 1,451 251 - 28,576 - Asi a 70,773,068 54,055,224 35,285 1,550,629 58,198 58,198 - 34,707 4,157 30,551 429,182 40,426 13,510 26,916 16,474,060 349,909 - 25Construction Before 2014, reporting26,298,279 on 10,918,593capex approvals35,285 was 1,431,254 not broken- down by -type. - 12,295 3,837 8,458 165,227 30,953 12,861 18,093 16,474,060 - - Investment Management 42,581,397 42,514,712 - 792 58,198 58,198 - 21,723 2 21,721 262,441 9,413 613 8,800 - 339,172 - Lendlease Tenancy 1,893,392 621,919 - 118,583 - - - 689 317 372 1,514 60 36 23 - 10,737 - Aust ral ia Const ruct ion 441,857,165 68,052,806 4,606 35,457,629 63,294 63,294 - 150,266 92,687 57,580 850,638 1,202,308 637,645 564,663 41,246,026 70,198 - Building 73,443,812 11,556,243 4,606 5,799,560 23,208 23,208 - 25,512 15,588 9,924 251,265 723,407 550,075 173,332 18,184,487 - - Engineering 353,562,300 50,978,310 - 28,785,855 40,086 40,086 - 117,739 74,731 43,008 569,390 477,343 86,319 391,024 21,458,269 - - Lendlease Tenancy 242,610 241,211 - 130 - - - 175 0 175 144 29 3 26 - 7,607 - Se r v i ce s 14,608,443 5,277,042 - 872,084 - - - 6,840 2,367 4,473 29,840 1,529 1,248 281 1,603,270 62,591 - Australia Head Offices 2,039,804 2,039,804 - - - - - 1,666 - 1,666 580 48 5 43 - 39,766 - Lendlease Tenancy 2,039,804 2,039,804 - - - - - 1,666 - 1,666 580 48 5 43 - 39,766 - Australia Property 158,015,248 121,260,008 32,881,334 213,021 2,077,230 1,700,043 377,187 102,817 6,669 96,148 2,042,440 21,610 11,676 9,934 1,793,792 2,099,869 12,656 Devel opment 3,454,493 3,237,788 - 20,213 167,126 2,009 165,117 2,708 54 2,654 9,196 - - - 1,793,792 - - Retirement Living Assets 30,929,195 13,462,092 15,014,608 190,329 519,900 519,900 - 15,524 3,267 12,256 495,508 194 67 127 - - 12,656 Investment Management 122,124,227 103,114,442 17,846,044 2,478 1,349,240 1,137,170 212,070 83,357 3,344 80,013 1,505,209 21,391 11,602 9,790 - 2,082,527 - Lendlease Tenancy 1,507,333 1,445,686 20,682 - 40,965 40,965 - 1,228 4 1,224 32,526 24 8 17 - 17,342 - Europe 18,343,793 13,007,261 970,599 407,812 1,015 1,015 - 2,674 1,269 1,405 92,389 57,234 1,192 56,042 9,492,489 109,030 - Construction 10,570,400 6,246,684 4,077 403,589 - - - 1,537 1,079 457 52,806 54,411 1,162 53,250 9,492,489 - - Investment Management 5,593,445 4,610,646 937,521 4,223 - - - 750 185 566 23,607 2,695 - 2,695 - 104,953 - Lendlease Tenancy 2,179,948 2,149,932 29,001 - 1,015 1,015 - 387 5 382 15,976 127 30 97 - 4,076 - Gr and Tot al 854,117,012 341,460,421 67,002,309 40,562,006 22,184,630 19,099,257 3,085,373 352,379 118,509 233,869 6,196,833 1,387,254 681,909 705,345 83,031,478 3,595,236 12,656

42 Construction and Building Materials TCFD Preparer Forum Lendlease’s disclosure of shadow carbon price and carbon emissions (LendleaseFigure 24: Annual Report 2019)

• Shadow price on carbon integrated into Investment Committee investment decisions – $20USD/Tonne in 2020, rising to $100USD/Tonne in 2030 and $140USD/Tonne by 2040

• In 2014, we set 20% by 2020 targets for energy, water and waste on an intensity basis. We disclose our annual scope 1 and 2 carbon emissions on our website In FY20, we will embark on a process to co-design the new beyond 2020 metrics and targets with each of our businesses. The targets will be related to our new Sustainability Framework and informed by our TCFD scenario planning activities.

1 Our investment management 2 Our construction business has 15% business has reduced gross 27% seen an increase in gross carbon carbon emissions over the last emissions in FY18. The increase Reduction five years whilst increasing floor Increase in in emissions can be attributed to in emissions area. The result is a 15 per cent gross emissions increased construction activity in intensity in reduction in emissions intensity in FY18 general as well as an increase in FY18 from FY14 on emissions per floor area. from FY14 tunnelling activities.

CRH’s disclosure of alternative raw materials & fuels (CRHFigure Sustainability 25: Report 2019)

Alternative raw materials Alternative fuels Alternative materials used in CRH Waste materials and by-products from other By substituting traditional fossil fuels with cement plants 2019 sectors serve as valuable raw materials to alternative fuels we conserve natural (Total: 8.7m tonnes) replace a portion of the finite raw materials resources, reduce CO2 emissions, deliver GGBS or clinker used in our cement manufacturing. financial efficiencies and support the circular 50% These co-processing materials currently include economy. CRH is a leading user of alternative Industrial by-products fly ash, ground granulated blast-furnace slag fuels. Using alternatives to fossil fuels is key 26% (GGBS) and quarry overburden. For example, to reducing the carbon intensity of cement EQIOM, part of our Europe Materials Division in production. Alternative fuels typically used Fly ash 13% France, receives inert wastes from construction by our cement plants include solid recovered sites to be used as alternative raw material or fuels (SRF), waste tyres, solvents, used oil Soils fuel within cement production. It is estimated and carbon-neutral biomass (meat and bone 7% that, through these actions, EQIOM could divert meal, wastewater treatment plant residue, Internal by-products up to 75,000 tonnes of inert material annually rice husk, etc.). 4% from landfill by 2026. Our efforts generated successful results in 2019, In 2019, we used a total of 8.7m tonnes of with 2.2m tonnes of alternative fuels used by Alternative fuels used in CRH alternative raw materials in our subsidiary our subsidiary cement plants, providing 33% cement plants 2019 cement plants. Our ambition is to further reduce of fuel requirements for our cement plants, an (Total: 2.2m tonnes) our clinker factor (the proportion of clinker in increase from 30% in 2018. In the European each tonne of cement) through increasing our Union, alternative fuels provided 48% of total SRF, tyres and other non-biomass use of alternative materials. In some cases, energy consumption in our cement plants. 66% we are limited by market and functional However, there remain limitations in the Biomass requirements and the availability of alternative 30% availability of alternative fuels for cement materials. However, we are continuously production in some markets and we continue Used oil working to overcome supply-side barriers and to work with our wider stakeholders to address 4% to optimise clinker mineralogy to improve these barriers. product quality and further the development of blended cements.

43 Construction and Building Materials TCFD Preparer Forum Saint-Gobain’s disclosure of climate change and circularity related CSR dashboard metrics (Saint-GobainFigure 26: Registration Document 2019) OBJECTIVES INDICATORS 2018 INDICATORS 2019

Climate change Reduce our carbon emissions To contribute to the emergence by 20% by 2025 (base 2010) 11.7% 14.5% of low-carbon economy capable of preserving the common good

This is Skanska

Circular Reduce the use of virgin 9,024,612 8,461,903 economy (sand, gypsum) Skanska’s operationsnatural raw materials AVOIDED TONS AVOIDED TONS To change the way we design, produceSkanska isand one distribute of the world’s leading constructionReduce non-recovered and project development waste companies, focused15.9% on selected ourhome products markets and in thesolutions Nordic region, Europeby 50%and theby 2025USA. (baseSkanska’s 2010) diversification across various business streams 11.5% to develop the circular economy strengthens the Group’s competitive standing and ensures a balanced and diversified risk profile.

LafargeHolcim’s disclosure of progress towards CO2 targets (LafargeHolcimFigure 27: Integrated Annual Report 2019)

OUR CARBON EMISSIONS Share data and funding

800 Construction Residential Development Commercial Property Development Skanska constructs and renovates buildings, Skanska develops new residential buildings, Skanska develops customer-focused office infrastructure and homes, and also provides including single and multi-family housing, buildings and logistics properties built by facilities management and other related built by the Construction business stream. the Construction business stream. services.

700Read more on page 24. Read more on page 28. Read more on page 32. Funding 2022 2030 Skanska’s purpose and616 values target target Skanska has several funding programs – work. The framework is third-party veri- Green bonds 600Skanska’s purpose – We build for botha better committed society bank – reflects credit facilities the Group’s and rolefied inand society, deemed stronga position and trustworthy Skanska issued its first green bond in market funding programs – which provide by the CICERO (Center for International 2014. A second round, amounting to SEK thatSk enablesanska Skanska to create value. Fundamental585 to fulfilling its Purpose are Skanska’s four values: good flexibility for temporaryfluctuations Climate Research), internationally recog- 1 billion, was issued in 2018 to provide CareValues for Life, Act Ethically and Transparently,in the Group’s Be short-term Better561 – liquidity Together, and and Commitnized as ato leading Customers. provider of independent financing for eligible green commercial help ensure long-term funding. 550At the reviews of green bond frameworks. and residential development projects. All Skanska’s Values end of the year, the central debt portfolio Through green financing, such as green projects funded within Skanska Green 500 520 ₂ amounted to SEK 3.5 billion. Unutilized bonds and loans, Skanska leverages the Bond Framework must be aiming for Target of 520kg of CO (net)/ton of cementitious materialcredit facilities of SEK 8.8 billion com- Group’s extensive green expertise and port- upper levels of certification under any of bined with available liquidity amounting folio while diversifying its investor base. the third party systems; LEED, BREEAM, to SEK 8.7 billion ensure that the Group At the end of the year, all outstanding DGNB or the Nordic Swan Ecolabel has enough financial capacity. corporate bonds (MTN) – amounting to (Svanen). The three commercial develop- Skanska has increasingly focused on SEK 1.0 billion – were in the form of green ment projects currently funded by green 400 green financing for many years. Since bonds. Bilateral loans of USD 200 M are bonds and aiming to exceed those green Care1990 2006 Act Ethically the issueBe Better of its2016 first – green2019 Commitbond in 2014, 2022to also used to finance2030 Skanska’s green proj- requirements by targeting the highest for Life & Transparently Together Customers LafargeHolcim performanceSkanska has strived to keep a majority of ects. A revolving credit facility amounting LEED levels, Platinum or Gold, are: 2+U, Sector average the Group’s central funding eligible for to EUR 200 M is primarily designed to Seattle, USA; Epic, Malmö, Sweden; and green instruments. By the end of 2019, safe-guard financing of the Group’s green Centrum Południe 2, Warsaw, Poland. Sustainable future82 percent of Skanska’s central debt con- projects. A EUR 600 M revolving credit sisted of bilateral loans or green bonds ear- facility maturing in 2024 constitutes a Striving to be Skanska’s in the forefront disclosure of sustainability,marked of for green green Skanska projects financing, helpsin accordance create building a sustainableback-up certification, facility future for Skanska’s carbon funding emission and energy reduction (SkanskaFigurefor customers 28: Annual and communities.and Sustainabilitywith the Skanska Report Green 2019) Bond Frame- needs.

Carbon emissions Certified commercial buildings Energy reduction in Green financing share of total divestments new office buildings 82% -28% 90% -37% Percentage of total central debt Reduction of carbon emissions Share of total value, corresponding to Annual energy reduction in divested that is Green according to the since 2015. SEK 15.4 billion, of divested offices in office buildings developed by Commercial Skanska Green Bond Framework, the Commercial Property Development Development Nordics, Europe and USA or other green requirements business stream, certified with WELL, compared to average. demands. LEED (Platinum or Gold) or BREEAM (Excellent).

4 Skanska Annual and Sustainability Report 2019

44 106 SAINT-GOBAIN UNIVERSAL REGISTRATION DOCUMENT 2019 Construction and Buildingwww.saint-gobain.com Materials TCFD Preparer Forum 1 kap eng.indd 4 2020-03-11 15:38

Fully funded by green bonds, office development Epic in Malmö, Sweden is targeting WELL certification – an internationally recognized building standard that puts the health and wellbeing of its tenants first.

Skanska Annual and Sustainability Report 2019 11

2 kap eng.indd 11 2020-03-11 17:42 Skanska’s disclosure of energy usage and intensity (SkanskaFigure 29: Annual and Sustainability Report 2019)

Total energy usage MWh 2019 2018 2017 2016 20152 Fuel usage (non-renewable) 715,541 1,021,815 1,023,242 1,121,646 1,278,787 Fuel usage (renewable) 182,218 69,621 68,094 54,482 271 Electricity usage 331,167 241,495 272,979 263,246 259,479 Non-renewable 211,551 114,531 154 ,363 143,037 104,502 Renewable 119,617 126,964 118,616 120,209 154,977 District heating usage 12,275 10,499 11,740 3,721 573 District cooling usage 36,739 623 1,499 2,597 196 Total energy usage 1,277,940 1,344,054 1,377,555 1,445,692 1,539,306 Energy intensity1 7.23 7.88 8.57 9.55 9.94

1 Total energy MWh/MSEK revenue, according to segment reporting 2 Carbon emission data for 2015 i reviewed. The data for energy usage 2015 has not been updated accordingly

CRH’s disclosure of sustainability ambition, targets and context (CRHFigure Annual 30: Report and Form 20-F 2019)

Our ambition is to Our ambition is to play Our ambition is to Our ambition is to have a culture of our part in addressing be a business where offer more solutions safety and wellness climate change as everyone has the that contribute to working towards we strive for carbon same opportunity to a sustainable built zero harm neutrality along the develop and progress environment cement and concrete value chain by 2050 Our target: Our target: Our target: Our target: Zero 33% 33% 50%

fatalities CO2 reduction to 520kg female senior revenue from

in any year net CO2 / tonne cementitious leadership by 2030 products with product by 2030, compared enhanced sustainability with 1990 levels attributes by 2025

Why is This Why is This Why is This Why is This Important? Important? Important? Important? There are multiple hazards As society comes to terms with We recognise inclusion and Our customers are shaping associated with our industry. the urgency and challenges diversity as critical to sustaining the sustainable built Because of this we integrate of climate change, we believe competitive advantage and environment of the future. an emphasis on safety into we have a responsibility to long-term success. We are There is a demand on us everything we do. create high-performance, committed to building an to provide the innovative low-carbon materials and organisation where inclusion We are focused on eliminating materials and solutions that products to deliver a more and diversity is a core fatalities and accidents in will enhance the customer’s climate-resilient world. Our CO leadership value, bringing our activities and on working 2 vision for sustainability while emissions reduction roadmap new ideas, perspectives with others to drive safety ensuring a practical approach is a science-based target (SBT) and ways of engaging with improvements across our to construction. at a 2o scenario that has been people. Therefore, it is vital industry. independently verified to be we understand the barriers in line with the Paris Climate to inclusion and diversity and Agreement objectives. create purposeful change that benefits us all.

Published in 2015, the United Nations’ (UN) Sustainable Development Goals (SDGs) are a call to action for a better and more sustainable future. We have assessed the detailed targets behind each of the 17 SDGs and identified the four that most closely align to where we, as a building materials company, can have the most impact and influence.

45 Construction and Building Materials TCFD Preparer Forum over time. However, members • Scope 3 GHG emissions CHALLENGES ASSOCIATED perceive a disconnect between (as defined in Figure 31) – WITH CLIMATE METRICS the investor focus on short- Forum members highlighted

• Time horizons and forward- term financial performance challenges associated with – Many looking information metrics and the development of value chain activities and players in the construction long-term strategies and plans forces outside of their control value chain are involved in long- out to 2050. Further dialogue is that affect embodied and term projects that take years needed between investors and operational carbon. As part of to complete and they create companies to help incentivize the SBT4buildings initiative, buildings and infrastructure and reward proactive measures WBCSD members – including that last for decades. Forum to plan for the long-term while Preparer Forum members members recognize that recognizing and responding – have sought to develop a addressing climate risks to commercial and market comprehensive understanding and opportunities is often a sensitivity challenges. of carbon emission long-term exercise and that interdependencies across the metrics should illustrate plans, value chain and the actors who performance and progress can influence decisions.

Emission scopes as defined by the GHG protocol (UKFigure Green 31: Building Council)17

46 Construction and Building Materials TCFD Preparer Forum The Forum has developed Table 2 • Should be read in conjunction CHOICE OF METRICS In common with other TCFD to illustrate a range of useful metrics with Chapters 3 and 4 of this Preparer Forums, the Construction companies in the construction report on the basis that, as well and Building Materials Forum has sector can consider using in their as demonstrating operational devoted time to considering the disclosures. Forum members do not progress, metrics should type, purpose and usefulness of expect companies to report against convey information about a metrics for climate-related all the metrics listed. The purpose of company’s climate-related risks, financial disclosure. this table is to enhance disclosure opportunities and strategy. and provide options when Forum members recognize that choosing metrics to communicate Effective methodologies for metrics are used for a variety of climate-related objectives measurement and reporting purposes including: and performance depending will need to be developed and on their activities, impacts, agreed over time. In the meantime, • Functional, i.e. as measures of dependencies and priorities. companies that choose to disclose output and inputs to analytical against these metrics should models; The table: explain their approach to the metrics, including any relevant • Strategic, i.e. to manage • Incorporates and builds on definitions and the organizational business efforts to address metrics recommended by the and operations boundaries to which climate change; and TCFD for the Materials and the metrics apply, (for example Building sector; whether they are limited to directly • Analytical, i.e. to assess the owned and controlled operations, effects of climate change on • Includes relevant metrics facilities and sites, or whether they financial performance and developed by organizations extend into the supply chain). prospects. such as the European Bank for Reconstruction and Given different activities, impacts, As climate disclosure in response Development; dependencies and priorities, to the TCFD’s recommendations across the construction and evolves, Forum members also • Includes metrics designed building materials value chain, observe the need for existing to measure climate change certain metrics in Table 2 maybe metrics to be refined to enhance opportunities and risks and to more relevant than others (e.g. raw accuracy and comparability, for new show the benefits of actual/ material extraction v. materials types of metrics to be created and prospective mitigation and manufacture v. construction), for gaps in the universe of available adaptation measures; and some not applicable to a metrics to be filled. • Includes metrics designed given company. Companies are to measure physical climate encouraged to consider options change risks; available and report on those that are most relevant and material.

47 Construction and Building Materials TCFD Preparer Forum Illustrative climate-related metrics for construction sector companies Table 2: Category Metric Unit(s) Total energy consumed - percentage from coal, natural gas, oil and GJ and % Energy different renewable sourcesa consumption Total energy intensityb GJ/(business factor - tons of product, amount of sales, number of products)

Scope 2 electricity purchased/consumedc GJ or %

Scope 1 and 2 GHG emissionsd Tons CO e GHG emissions 2 e Scope 3 emissions Tons CO2e

f Emissions intensity Tons CO2e/revenue

g CO2 emissions avoided Tons CO2e Freshwater withdrawn in regions with high or extremely high baseline Tons & % Water use water stress Manufacture/production/operating water intensity Tons water/ (unit production/output) Recycled water used in manufacture/production/operations % of total water used or tons recycled water / (unit production/output)

Insurance coverage of gross high-risk sitesh % Physical impacts Projected changes in production, operational expenditure or capital Currency and climate expenditure due to climate changei resilience Current projects/solutions supporting physical climate resilience Number &/or % (e.g. heat stress, flooding etc.) Internal carbon price Currency Carbon pricing Scope of emissions covered by an ETS/carbon taxation regime % Total costs of carbon tax paid Currency Investment (Capex) in low-carbon alternatives Currency Investments and R&D Revenues/savings from investments in low-carbon alternatives (e.g. Currency R&D, equipment, products or services) Innovative climate-related collaboration agreements (e.g. with Number academics, technology partners) New low-carbon or climate resilient products Number &/or % (e.g. market size, growth potential) Products and solutions (e.g. materials, properties) certified as sustainable Number &/or % Development pipeline targeting climate mitigation/adaptation criteria Number &/or % Expenditures (OpEx) for low-carbon alternatives (e.g. R&D, Currency Expenditures technology, products or services) Materials used/purchased certified as sustainable % Value of capital raised through green financing/green bond issuance Currency Green finance Financial performance of green projects or products Currency & % (e.g. ROI, sales, growth) Portfolio of green projects Number &/or % Pipeline for green projects Number &/or % a Could disclose on-site generated energy vs. purchased renewable energy sources where applicable. b Reporting energy intensities by revenue is an option to align to the GHG Protocol. c Companies could report on this metric using a breakdown between thermal fuel consumption and electricity consumption, and/or internal/ external electricity consumption, for example. d Companies should provide a comprehensive description of the methodologies, scope and approach used to calculate or estimate the metrics. Companies could provide emissions break down aligning with business segments, units, products, geographies etc. e Companies should provide a comprehensive description of the methodologies, scope and approach used to calculate or estimate their Scope 3 emissions, including which categories are included (i.e. upstream, downstream etc.). f For raw material extractors, an alternative unit could be kg CO2/ton of cementitious material or kg CO2 / cubic meter of concrete. For

constructors, an alternative unit could be kg CO2 / functional unit of construction or kg CO2 /sqm of building. g Avoided emissions disclosures can show the benefits of low emission choices a company has made. A counterfactual is required for this metric which may be easier to determine for industrial production than for developers and constructors. An industry standard would aid comparability, consistency and understanding. h Adapted from EBRD's recommended metric of 'number of sites and business lines exposed to relevant climate impacts' due to the challenges of choosing to disclose net or gross impact. i Where appropriate & feasible, further discussion and dialogue is required with users on the interpretation and use of such information.

48 Construction and Building Materials TCFD Preparer Forum USER PERSPECTIVES - METRICS AND TARGETS Many companies in the construction sector have disclosed operational data such as water, waste and emissions for over a decade. In order to support their analyses, users increasingly require more granular operational data broken down by jurisdiction, activity, site etc.

As well as operational metrics, users value metrics used by businesses to plan for and manage climate strategies, including estimates of the way in which climate change could impact financial performance.

Users acknowledge that climate-related financial disclosure is still evolving. They noted the following challenges and developments relating to metrics and targets:

Investors support standardization of metrics and targets to facilitate benchmarking • Comparability: across industries and comparative analysis over time. At this stage in the development of climate-related financial disclosure, investors acknowledge that comparisons between companies and within industries remains challenging; Assurance, verification, controls and process integration support user’s confidence in • Confidence: climate-related financial information, but challenges remain in relation to balance, completeness and quality of climate-related disclosures; Users highlighted the importance of alignment with typologies that structure • Use of taxonomies: and classify projects and activities in relation to climate-related risks, opportunities, mitigation and adaptation. Users acknowledged that the development of such approaches are challenging but noted the EU Sustainable Finance Taxonomy efforts.

The following is a summary of metrics users find useful in disclosures:

Operational metrics to assess the effectiveness of a company’s climate strategy and to • Carbon intensity and footprints: formulate ESG ratings and scoring; reflecting a company’s potential for future emissions reductions, • Forward-looking information including reduction targets and pipeline projects and investments that will enable their achievement; to assess supply chain risk, although Scope 3 reporting techniques require further • Scope 3 emissions: development in order for information to be useful; for example carbon per ton of product; • Product-level emissions, including GHG emissions from particular plants or sites to assess the location and • Asset-level data degree or risk and potential for technology such as CCUS to minimize emissions and risk; for example methane. • GHGs beyond carbon,

Financial metrics to assess what proportion of total Capex is allocated to ‘green • Capital expenditure (Capex) investments’ and to corroborate disclosures about the company’s climate strategy; including the percentage of a company’s revenue that comes from low-carbon activities and/ • Revenues or managing climate change; including resources allocated to ESG matters as a proxy for how a company will • R&D investments change in the future. Gaps between company investment and resources could potentially be identified as opportunities for capital deployment from investors; to assess the payback on ‘green’ projects, noting whether internal carbon pricing • Return on investment has been used or not. to assess, amongst other things, the performance of ‘green’ • Financial outcomes of scenario analysis investments under different climate scenarios.

49 Construction and Building Materials TCFD Preparer Forum 7 Developing climate disclosure through collaboration

50 Construction and Building Materials TCFD Preparer Forum 7 Developing climate disclosure through collaboration

As the examples in this all companies are exposed to report show, Forum member A VALUE CHAIN APPROACH increased costs associated companies are already TO PREPARING AND with GHG emissions, but the responding proactively to the INTERPRETING CLIMATE- extent and impact of these TCFD’s recommendations. RELATED FINANCIAL costs will vary depending However, the TCFD’s 2019 INFORMATION on the company’s activities. Status Report shows While individual efforts and Similarly, some companies have that, while progress has practices are advancing, Forum more capacity or opportunity been made, the pace of members are keen that their to substitute carbon-intensive implementation needs to disclosures and associated actions materials while others’ risk accelerate, and the quality should also be understood against exposure is linked to asset of information must improve. the context in which they, their portfolio profiles. Forum The final chapter of this partners, supply chain and the wider members are keen that users report considers four ideas sector operates. of information are able to that could be progressed Members recognize that climate interpret companies’ exposure to enhance climate-related change cannot be addressed by to risk and assess the efficacy financial disclosure within the any one company, sector or agency of responses based on an construction sector over time: alone. This being the case, the understanding of their position in the value chain and the • Complementing company- TCFD Construction and Building Materials and Food, Agriculture and incentives and decarbonization specific climate disclosure routes available to them. with a value chain approach Forest Products Preparer Forums18 to preparing and interpreting are the first to have taken a value 3. To encourage and facilitate climate-related financial chain approach to the TCFD’s collaboration across value information; recommendations. As the Energy chains. The value chain approach to Transition Commission notes • Actively supporting in its report “ collaboration between preparing and interpreting Mission Possible: companies in the construction climate-related financial disclosure Reaching net-zero carbon is designed to serve three main emissions from harder to sector, their partners, supply ”, purposes: abate sectors by mid-century chains and investors; despite heavy industries being hard to decarbonize, • Developing practical tools to 1. To help users of information the ambition is possible, enhance climate disclosure; and understand the relative particularly if companies, feasibility and impacts of partners, investors and others • Securing enabling support from individual corporate action investors and policy-makers for work together. The report versus collective action on notes various examples of corporate climate action and climate change. disclosure. collaborative activity that 2. To illustrate that, despite support the low-carbon facing many of the same transition. They include projects risks, companies in the between producers and users construction sector are of steel to increase and improve affected by and respond the quality of steel recycling differently to risks depending and collaboration across value on their position in the chains to improve material For example, as value chain. efficiency and recycling. Table 1 in this report shows,

51 Construction and Building Materials TCFD Preparer Forum Union supports the Low from enabling b. Guidance ACTIVE SUPPORT FOR Emissions Intensity Lime organizations, such as the COLLABORATION and Cement (LEILAC) World Resources Institute A dominant theme of Forum project, designed to pilot (WRI), on how to prepare members’ discussions was breakthrough carbon climate-related information; the need for companies in the capture technology that construction sector and their enables Europe’s cement partners, supply chains and c. Corporate preparers and lime industries to that investors to collaborate in tackling of information reduce emissions while conform with requests for climate change. Collaboration retaining international information (based on a mechanisms are in their infancy and and cross-sectoral and b above) and develop are often established on an ad hoc competitiveness. The disclosure techniques basis. Forum members identified project is supported internally and based on the need for more structured and by a consortium of peer practice; outcome-focused collaboration partners from the cement, channels as a key way of enhancing chemicals, clinker, lime and d. Feedback from and disclosure and climate action. The minerals industries as well action by investors Forum has identified the need for in response to climate as academics, software collaboration between: disclosures. Insights from modelers and life cycle investors summarized in analysis experts. 1. Companies within the this report were particularly construction sector, their – valuable in informing b. Standardization supply chains, clients, Companies and investors Forum members about partners and key sectors find value in platforms the needs of climate to support, such as energy such as BRE Global a information users. As other climate innovation and multi-disciplinary group TCFD Preparer Forums standardization. focused on making have noted, dialogue between preparers – As this report the built environment a. Innovation and users of climate shows, the capacity of safer, more efficient information is crucial to individual companies to and sustainable, and TM align understanding of act on, and therefore make ResponsibleSteel a multi- information needs and disclosures about, their stakeholder standard and identify the information of climate strategies depends certification initiative that most use to investors. For on a combination of enables users to assess example, Forum members demand for their products, aspects of companies’ have questioned whether customer preferences, climate performance or quantified Scope 3 GHG public procurement commitment with reference emissions information requirements, available to known criteria. is as useful to investors technologies, investment, as information about the R&D, signals from investors 2. Organizations that request way in which companies and so on. climate information, enablers, are able to influence providers and users. Innovation in response Climate-related information that climate outcomes in to climate change is reaches the public domain is the supply chain. encouraged and expedited based on a combination of: Climate-related financial when designed and disclosures are likely to be supported through two a. Recommendations most effective where all the or more of these features and provisions set by actors involved agree on the coming together across requestors of information such as the TCFD; information to be provided and the value chain. For how it should be prepared and example, the European presented.

52 Construction and Building Materials TCFD Preparer Forum their resilience to climate opportunities.” 3. Companies, investors physical risks should and national, regional and disclose the results and d. Requirements for banks international policy makers. – The Bank of Since the TCFD’s actions taken in response. and insurers recommendations were issued Certain construction England has released plans in 2017, significant policy activities (including to introduce a mandatory developments have been manufacture of cement, climate “stress test” for introduced or signaled that iron and steel, construction major banks and insurers affect the way companies of new buildings, building in 2021. The test will be prepare and investors use renovation, renovation used to assess resilience climate-related information. measures, and acquisition to climate-related risks and These include: and ownership of buildings) to identify the adjustments fall within scope of the required for the financial system to remain resilient. a. The EU Green Deal Taxonomy on the basis – proposes a legal that they have the potential Banks and insurers commitment for the EU to to make a substantial within scope of the test achieve climate neutrality contribution to climate requirements are likely to by 2050, including interim change mitigation or perform financial analysis milestones and targets. adaptation. Companies of individual companies The objectives of the Green undertaking such activities in their portfolios with a Deal will be addressed that are subject to the EU view to assessing how through financial and Non-Financial Reporting they are positioned in real-economy policy Directive must make relation to climate risks across the private and reference to the Taxonomy and opportunities. In public sectors. Energy and in their disclosures, order to achieve this, resource efficient building including descriptions banks and insurers are and renovation are likely to of how and to what expected to encourage make a crucial contribution extent their activities are companies to use the towards achieving the associated with Taxonomy- TCFD’s recommendations. Deal and are reflected in aligned activities. The Although the Bank of corporate disclosure. disclosures must explain England’s plans are the proportion of turnover, targeted at UK banks and b. The EU Regulation on capital and, if appropriate, insurers, there is evidence the Establishment of a operational expenditure of other jurisdictions taking Framework to Facilitate aligned with the Taxonomy. similar action. , Sustainable Investment widely referred to as the – In c. Public procurement e. Prospect of regulation Taxonomy Regulation – – designed to a speech at the Tokyo TCFD policies is a key is a key enabler support the low-carbon Summit in October 2019, of the Green Deal. A transition can support Governor Mark Carney full description of the the construction sector’s referenced the UK and EU implications for the climate ambitions. As intentions to make TCFD construction sector is Skanska notes in their 2019 disclosure mandatory within beyond the scope of Annual Report, “providing two years. this report. However, the value to society is part of Taxonomy has many points the public procurement of alignment with the process in several markets TCFD’s work, including that and understanding what all companies assessing criteria are most important to public customers is vital to identifying business

53 Construction and Building Materials TCFD Preparer Forum Enterprise Risk Management addition to the climate risks to PRACTICAL TOOLS (ERM) to Environmental, Social which companies are exposed TO PREPARE FOR AND and Governance (ESG) Risks. when assessing climate ENHANCE CLIMATE disclosures; DISCLOSURE 3. Integrated Performance Climate information that reaches (“IPM”) to support ii. Be clear and transparent Management the public domain reflects the management decision-making about their motivation for actions taken and decisions made that depends on evaluating using climate-related financial within companies. Given the a range of factors including disclosure. In particular, whether characteristics of climate change, risk, governance, ethics, their primary interest is to the fast-moving policy landscape environmental issues and social protect investments against and evolving societal expectations, impacts, how they interact and climate risks, to support decision-making about how to how they drive performance. As decarbonization efforts or both. respond to climate change and a management approach, IPM what to disclose in response to may be used to evaluate how iii. Actively support climate the TCFD’s recommendations is climate change considerations leadership including innovation increasingly complex. Effective interact with other factors designed to accelerate the low- decision-making will be assisted by driving business success, carbon transition; the collaborative efforts described supporting the preparation iv. Engage with companies and above. However, Forum members phase of climate disclosure.19 encourage collaboration; and have identified the following techniques that also promise, with 4. Techniques for achieving v. Encourage and recognize the – The more development and testing, to decarbonization use of financial instruments to TCFD’s recommendations are aid complex decision-making in finance climate action, including designed to elicit information preparation for climate disclosure. transition bonds, infrastructure for investors on how green bonds, revolving credit organizations are preparing 1. Convening cross-disciplinary facilities and other financing to shape an approach to to transition to a lower carbon teams mechanisms that reward the disclosure and evaluate content economy. Disclosures might achievement of climate- or suitable for responding to the refer to established techniques sustainability-related goals. TCFD’s recommendations. that help companies with their decarbonization activities such In common with other industries, 2. Dynamic risk assessment as an evolution of more as Science Based Targets. Forum members welcome the certainty, incentives and support traditional risk assessment As members of WBCSD and that government policy and methodologies. This expands construction industry fora, regulation on climate change the criteria for assessing risks Forum members also rely on and can provide. Forum members beyond likelihood and impact to encourage use of complementary recognize the value of carbon take account of future trends, tools developed by WBCSD and pricing, prospective green border how risks might connect with industry bodies, including circular adjustments and sector-specific each other and the velocity economy metrics. with which impacts might affect roadmaps that allow governments the business. It can be used to assess corporate actions against to adapt risk management Nationally Determined Contributions SECURING ENABLING and other policy targets. processes to take account SUPPORT FROM of the unique characteristics of climate change-related INVESTORS AND POLICY- Forum members call on policy risk, including its breadth, MAKERS FOR CORPORATE makers to: scope, scale and uncertainty. CLIMATE ACTION AND i. Introduce policies consistently WBCSD’s report “An Enhanced DISCLOSURE Forum members are keen that their across sector and jurisdictions; Assessment of Risks Impacting efforts to implement the TCFD’s and the Food and Agriculture recommendations are supported Sector” provides insight into ii. Provide certainty and long- by investors and policy-makers and the way in which Dynamic Risk term public guarantees in order associated enabling conditions. Assessment might be applied to support long-term decision to climate change and other making and investment where risks. The report builds on Forum members call on investors to: costs would otherwise be WBCSD’s work with COSO to i. Take account of opportunities prohibitive. develop guidance on Applying (both current and potential) in

54 Construction and Building Materials TCFD Preparer Forum 8 References

55 Construction and Building Materials TCFD Preparer Forum 8 References

International Finance UN Environment, IEA (2018) Cambridge Institute for 1. 6. 10. Corporation (IFC) and Carbon Global Alliance for Building and Sustainability Leadership Pricing Leadership Coalition Construction Global Status (CISL) (2019) Physical Risk (CPLC) (2018) Construction Report 2018: Towards a zero- Framework. Retrieved from: Industry Value Chain. emission, efficient, and resilient https://www.cisl.cam.ac.uk/ Retrieved from: https://www. buildings and construction resources/sustainable- carbonpricingleadership.org/ sector. Retrieved from: finance-publications/ news/2018/10/24/report- https://www.unenvironment.org/ physical-risk-framework- launch-carbon-pricing-in-the- resources/report/global-status- understanding-the-impact- construction-value-chain report-2018 of-climate-change-on- real-estate-lending-and- Global Market Insights IEA, WBCSD (2018) Technology 2. 7. investment-portfolios (2019) Home Improvement Roadmap Low-Carbon Market Size By Project, By Transition in the Cement TCFD (2017) Final Report 11. End-Use. Industry Analysis Industry. Retrieved from: Recommendations of the Report, Regional Outlook, https://www.wbcsd.org/Sector- Task Force on Climate- Growth Potential, Price Trend, Projects/Cement-Sustainability- related Financial Disclosures. Competitive Market Share Initiative/Resources/ Retrieved from: https://www. & Forecast 2019 – 2025. Technology-Roadmap-Low- fsb-tcfd.org/publications/final- Retrieved from: Carbon-Transition-in-the- recommendations-report/ https://www.gminsights.com/ Cement-Industry European Commission (2019) industry-analysis/home- 12. Institutional Investors Group The European Green Deal: improvement-market 8. on Climate Change (IIGCC) Communication from the Deloitte (2018) Global Powers (2018) Investor Expectations of Commission to the European 3. of Construction. Retrieved from: Companies in the Construction Parliament, the European https://www2.deloitte.com/global/ Materials Sector. Retrieved from: Council, the Council, the en/pages/energy-and-resources/ https://www.iigcc.org/download/ European Economic and Social articles/deloitte-global-powers- investor-expectations-of- Committee and the Committee of-construction.html construction-materials-sector/? of the Regions. Retrieved from: wpdmdl=2213&refresh=5e9ec https://ec.europa.eu/info/sites/ UN Environment, International 4. bd76aa171587465175 info/files/european-green-deal- Energy Agency (IEA) (2017) communication_en.pdf Global Status Report 2017: Australian National University, 9. Towards a zero-emission, IIGCC (2016) Assessing Fossil Free Sweden (2019) 13. efficient, and resilient buildings Climate Change Risks and Roadmap for fossil-free and construction sector. Opportunities for Investors. competitiveness Construction Retrieved from: Retrieved from: and Civil Engineering Sector. https://www.worldgbc.org/sites/ https://igcc.org.au/wp-content/ Retrieved from: default/files/UNEP%20188_ uploads/2017/06/Assessing- http://fossilfritt-sverige.se/ GABC_en%20%28web%29.pdf Climate-Change-Risks-and- in-english/roadmaps-for- Opportunities-for-Investors.pdf fossil-free-competitiveness/ World Green Building Council 5. roadmap-the-construction- (2019) Bringing embodied and-civil-engineering-sector/ carbon upfront. Retrieved from: https://worldgbc.org/news- media/bringing-embodied- carbon-upfront

56 Construction and Building Materials TCFD Preparer Forum EU Technical Expert Group on Amsterdam University Press WBCSD (2020) Disclosure in a 14. 16. 18. Sustainable Finance (2019) (2014) Turbulence: A Corporate time of system transformation: Taxonomy Technical Report. Perspective on Collaborating TCFD disclosure for food, Retrieved from: for Resilience. Edited by agriculture and forest products https://ec.europa.eu/info/sites/ Roland Kupers. companies. Retrieved from: info/files/business_economy_ https://www.wbcsd.org/ UK Green Building Council euro/banking_and_finance/ 17. Programs/Redefining-Value/ documents/190618- (2019) Consultation paper: External-Disclosure/TCFD/ sustainable-finance-teg-report- Guidance for Scope 3 News/Key-players-across- taxonomy_en.pdf emissions reporting in food-agriculture-and-forest- commercial real estate. products-sectors-share-TCFD- European Commission (2017) Retrieved from: 15. implementation-experience Communication from the https://www.ukgbc.org/wp- Commission: Guidelines on content/uploads/2019/05/ WBCSD (2019) Lead 19. non-financial reporting (2017/C 190509-Scope-3-Guidance- accounting and sustainable 215/01). Retrieved from: Consultation-Paper.pdf development bodies join https://eur-lex.europa.eu/legal- forces to improve corporate content/EN/TXT/PDF/?uri= performance. Retrieved from: CELEX:52017XC0705% https://www.wbcsd.org/ 2801%29 Programs/Redefining-Value/ Business-Decision-Making/ Assess-and-Manage- Performance/News/ Leading-accounting-and- sustainable-development- bodies-join-forces-to-improve- corporate-performance

57 Construction and Building Materials TCFD Preparer Forum ABOUT WBCSD DISCLAIMER WBCSD is a global, CEO-led This report is released in the name organization of over 200 leading of WBCSD. Like other WBCSD businesses working together publications, it is the result of to accelerate the transition to a collaborative efforts by members of sustainable world. We help make the secretariat and executives from our member companies more member companies. It does not successful and sustainable by mean, however, that every member focusing on the maximum positive company agrees with every word. impact for shareholders, the environment and societies.

Our member companies come from all business sectors and all COPYRIGHT major economies, representing a Copyright © WBCSD, July 2020. combined revenue of more than USD $8.5 trillion and 19 million employees. Our global network of almost 70 national business councils gives our members unparalleled reach across the globe. WBCSD is uniquely positioned to work with member companies along and across value chains to deliver impactful business solutions to the most challenging sustainability issues.

Together, we are the leading voice of business for sustainability: united by our vision of a world where more than 9 billion people are all living well and within the boundaries of our planet, by 2050.

58 Construction and Building Materials TCFD Preparer Forum World Business Council for Sustainable Development Maison de la Paix Chemin Eugène-Rigot 2B CP 2075, 1211 Geneva 1 Switzerland www.wbcsd.org